Republic of the Philippines SUPREME COURT Manila EN BANC G.R. Nos.

L-24020-21 July 29, 1968

FLORENCIO REYES and ANGEL REYES, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents. Jose W. Diokno and Domingo Sandoval for petitioners. Office of the Solicitor General for respondents. FERNANDO, J.: Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to P37,528.00. This assessment sought to be reconsidered unsuccessfully was the subject of an appeal to respondent Court of Tax Appeals. Thereafter, another assessment was made against petitioners, this time for back income taxes plus surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and 1956. There being a failure on their part to have such assessments reconsidered, the matter was likewise taken to the respondent Court of Tax Appeals. The two cases1 involving as they did identical issues and ultimately traceable to facts similar in character were heard jointly with only one decision being rendered. In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced to P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership formed" by petitioners.2 The reduction was due to the elimination of surcharge, the failure to file the income tax return being accepted as due to petitioners honest belief that no such liability was incurred as well as the compromise penalties for such failure to file.3 A reconsideration of the aforesaid decision was sought and denied by respondent Court of Tax Appeals. Hence this petition for review. The facts as found by respondent Court of Tax Appeals, which being supported by substantial evidence, must be respected4 follow: "On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs Building, situated at 671 Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations were assumed by the vendees. The initial payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased to various tenants, whose rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed to respect. The administration of the building was entrusted to an administrator who collected the rents; kept its books and records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs and disbursed payments, whenever necessary, after approval by the owners; and performed such other functions necessary for the conservation and preservation of the building. Petitioners divided equally the income of operation and maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually."5 From the above facts, the respondent Court of Tax Appeals applying the appropriate

provisions of the National Internal Revenue Code, the first of which imposes an income tax on corporations "organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships (companias colectivas), ...,"6 a term, which according to the second provision cited, includes partnerships "no matter how created or organized, ...,"7 and applying the leading case of Evangelista v. Collector of Internal Revenue,8 sustained the action of respondent Commissioner of Internal Revenue, but reduced the tax liability of petitioners, as previously noted. Petitioners maintain the view that the Evangelista ruling does not apply; for them, the situation is dissimilar. Consequently they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the decision should be set aside. If their interpretation of the authoritative doctrine therein set forth commands assent, then clearly what respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of the matter. A perusal of the Evangelista decision is therefore unavoidable.
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As noted in the opinion of the Court, penned by the present Chief Justice, the issue was whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, ..."9 After referring to another section of the National Internal Revenue Code, which explicitly provides that the term corporation "includes partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, ..."10 In support of the above conclusion, reference was made to the following circumstances, namely, the common fund being created purposely not something already found in existence, the investment of the same not merely in one transaction but in a series of transactions; the lots thus acquired not being devoted to residential purposes or to other personal uses of petitioners in that case; such properties having been under the management of one person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and to endorse notes and checks; the above conditions having existed for more than 10 years since the acquisition of the above properties; and no testimony having been introduced as to the purpose "in creating the set up already adverted to, or on the causes for its continued existence."11 The conclusion that emerged had all the imprint of inevitability. Thus: "Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein."12 It may be said that there could be a differentiation made between the circumstances above detailed and those existing in the present case. It does not suffice though to preclude the applicability of the Evangelista decision. Petitioners could harp on these being only one transaction. They could stress that an affidavit of one of them found in the Bureau of Internal Revenue records would indicate that their intention was to house in the building acquired by them the respective enterprises, coupled with a plan of effecting a division in 10 years. It is a little surprising then that while the purchase was made on October 31, 1950 and their brief as petitioners filed on October 20, 1965, almost 15 years later, there was no allegation that such division as between them was in fact made. Moreover, the facts as found and as submitted in the brief made clear that the building in question continued to be leased by other parties with petitioners dividing "equally the

income ... after deducting the expenses of operation and maintenance ..."13 Differences of such slight significance do not call for a different ruling. It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling cannot be deemed successful. Respondent Court of Tax Appeals acted correctly. It yielded to the command of an authoritative decision; it recognized its binding character. There is clearly no merit to the second error assigned by petitioners, who would deny its applicability to their situation. The first alleged error committed by respondent Court of Tax Appeals in holding that petitioners, in acquiring the Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal Revenue Code is likewise untenable. In their discussion in their brief of this alleged error, stress is laid on their being co-owners and not partners. Such an allegation was likewise made in the Evangelista case. This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was correctly rejected by the Court of Tax Appeals."14 Then came the explanation why: "To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships", which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among others, "joint accounts, (cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the aforementioned personality - have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation"." 15 The opinion went on to summarize the matter aptly: "For purposes of the tax on corporations,our National Internal Revenue Code, include these partnerships with the exception only of duly registered general co-partnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations."16 In the light of the above, it cannot be said that the respondent Court of Tax Appeals decided the matter incorrectly. There is no warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its decision cannot be successfully assailed. Moreover, an observation made in Alhambra Cigar & Cigarette Manufacturing Co. v. Commissioner of Internal Revenue,17 is well-worth recalling. Thus: "Nor as a matter of principle is it advisable for this Court to set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless, as did not happen here, there has been an abuse or improvident exercise of its authority." WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of P37,128.00 as income tax due from the partnership formed by herein

petitioners for the years 1951 to 1954 and P20,619.00 for the years 1955 and 1956 within thirty days from the date this decision becomes final, plus the corresponding surcharge and interest in case of delinquency," is affirmed. With costs against petitioners. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant, vs. FRANCISCO DE LA ROSA, defendant-appellee. Vicente Miranda, for appellant. Simplicio del Rosario, for appellee. LADD, J.: The object of this action is to obtain from the court a declaration that a partnership exists between the parties, that the plaintiff has a consequent interested in certain cascoes which are alleged to be partnership property, and that the defendant is bound to render an account of his administration of the cascoes and the business carried on with them. Judgment was rendered for the defendant in the court below and the plaintiff appealed. The respective claims of the parties as to the facts, so far as it is necessary to state them in order to indicate the point in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the defendant to form a partnership for the purchase of cascoes and the carrying on of the business of letting the same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the profits to be divided proportionately; that in the same January the plaintiff furnished the defendant 300 pesos to purchase a casco designated as No. 1515, which the defendant did purchase for 500 pesos of Doa Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he furnished the defendant 825 pesos to purchase another casco designated as No. 2089, which the defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the parties undertook to draw up articles of partnership for the purpose of embodying the same in an authentic document, but that the defendant having proposed a draft of such articles which differed materially from the terms of the earlier verbal agreement, and being unwillingly to include casco No. 2089 in the partnership, they were unable to come to any understanding and no written agreement was executed; that the defendant having in the meantime had the control and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant refused to render, denying the existence of the partnership altogether.

The defendant admits that the project of forming a partnership in the casco business in which he was already engaged to some extent individually was discussed between himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery business, being also a party to the negotiations, but he denies that any agreement was ever consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase of casco No. 1515, or for repairs on the same, but claims that he borrowed 300 pesos on his individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for the purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that he never received anything from the defendant toward the purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one. The case comes to this court under the old procedure, and it is therefore necessary for us the review the evidence and pass upon the facts. Our general conclusions may be stated as follows: (1) Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was made and the casco delivered in January, although the public document of sale was not executed till some time afterwards. This witness is apparently disinterested, and we think it is safe to rely upon the truth of her testimony, especially as the defendant, while asserting that the sale was in March, admits that he had the casco taken to the ways for repairs in January. It is true that the public document of sale was executed March 10, and that the vendor declares therein that she is the owner of the casco, but such declaration does not exclude proof as to the actual date of the sale, at least as against the plaintiff, who was not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in such cases, that the actual sale precedes by a considerable time the execution of the formal instrument of transfer, and this is what we think occurred here. (2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was bought, as we think it was, in January, the casco referred to in the receipt which the parties "are to purchase in company" must be casco No. 2089, which was bought March 22. We find this to be the fact, and that the plaintiff furnished and the defendant received 825 pesos toward the purchase of this casco, with the understanding that it was to be purchased on joint account. (3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of which he is unable to state, for the purchase of a casco to be used in the plaintiff's and defendant's business. Antonio Angulo also testifies, but the defendant claims that the fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness under the provisions of article 643 of the then Code of Civil Procedure, and without deciding whether this point is well taken, we have discarded his testimony altogether in considering the case. The defendant admits the receipt of 300 pesos from Antonio Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim that the 825 pesos which he received from the plaintiff in March were furnished toward the purchase of casco No. 1515, thereby virtually admitting that casco was purchased in company with the plaintiff. We discover nothing in the evidence to support the claim that the 300 pesos received in January was a loan, unless it may be the fact that the defendant had on previous occasions borrowed money from the bakery

firm. We think all the probabilities of the case point to the truth of the evidence of Antonio Fernandez as to this transaction, and we find the fact to be that the sum in question was furnished by the plaintiff toward the purchase for joint ownership of casco No. 1515, and that the defendant received it with the understanding that it was to be used for this purposed. We also find that the plaintiff furnished some further sums of money for the repair of casco. (4) The balance of the purchase price of each of the two cascoes over and above the amount contributed by the plaintiff was furnished by the defendant. (5) We are unable to find upon the evidence before us that there was any specific verbal agreement of partnership, except such as may be implied from the fact as to the purchase of the casco. (6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than otherwise that no attempt was made to agree upon articles of partnership till about the middle of the April following the purchase of the cascoes. (7) At some time subsequently to the failure of the attempt to agree upon partnership articles and after the defendant had been operating the cascoes for some time, the defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and one of 825 pesos. The only evidence in the record as to the circumstances under which the plaintiff received these sums is contained in his answer to the interrogatories proposed to him by the defendant, and the whole of his statement on this point may properly be considered in determining the fact as being in the nature of an indivisible admission. He states that both sums were received with an express reservation on his part of all his rights as a partner. We find this to be the fact. Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the parties? (2) If such partnership existed, was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos? (1) "Partnership is a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves." (Civil Code, art. 1665.) The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract contains these two elements the partnership relation results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.) We have found as a fact that money was furnished by the plaintiff and received by the defendant with the understanding that it was to be used for the purchase of the cascoes in question. This establishes the first element of the contract, namely, mutual contribution to a common stock. The second element, namely, the intention to share profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in common, in the absence of any other explanation of the object of the parties in making the purchase in that form, and, it may be added, in view of the admitted fact that prior to the purchase of the first casco the formation of a partnership had been a subject of negotiation between them. Under other circumstances the relation of joint ownership, a relation distinct though perhaps not essentially different in its practical consequence from that of partnership, might have been the result of the joint purchase. If, for instance, it were shown that the object of the parties in purchasing in company had been to make a more favorable

bargain for the two cascoes that they could have done by purchasing them separately, and that they had no ulterior object except to effect a division of the common property when once they had acquired it, theaffectio societatis would be lacking and the parties would have become joint tenants only; but, as nothing of this sort appears in the case, we must assume that the object of the purchase was active use and profit and not mere passive ownership in common. It is thus apparent that a complete and perfect contract of partnership was entered into by the parties. This contract, it is true, might have been subject to a suspensive condition, postponing its operation until an agreement was reached as to the respective participation of the partners in the profits, the character of the partnership as collective or en comandita, and other details, but although it is asserted by counsel for the defendant that such was the case, there is little or nothing in the record to support this claim, and that fact that the defendant did actually go on and purchase the boat, as it would seem, before any attempt had been made to formulate partnership articles, strongly discountenances the theory. The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the execution of a public writing in the single case mentioned and dispensing with all formal requirements in other cases, renders inapplicable to this species of contract the general provisions of article 1280 of the Civil Code. (2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned to him by the defendant after the definitive failure of the attempt to agree upon partnership articles. The amount returned fell short, in our view of the facts, of that which the plaintiff had contributed to the capital of the partnership, since it did not include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realized from the business during the period in which the defendant have been administering it prior to the return of the money, and if so he still retained that sum in his hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the legal existence of the partnership by converting it into a societas leonina, as claimed by counsel for the defendant. Did the defendant waive his right to such interest as remained to him in the partnership property by receiving the money? Did he by so doing waive his right to an accounting of the profits already realized, if any, and a participation in them in proportion to the amount he had originally contributed to the common fund? Was the partnership dissolved by the "will or withdrawal of one of the partners" under article 1705 of the Civil Code? We think these questions must be answered in the negative. There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a partner, nor is there any evidence that by anything that he said or by anything that he omitted to say he gave the defendant any ground whatever to believe that he intended to relinquish them. On the contrary he notified the defendant that he waived none of his rights in the partnership. Nor was the acceptance of the money an act which was in itself inconsistent with the continuance of the partnership relation, as would have been the case had the plaintiff withdrawn his entire interest in the partnership. There is, therefore, nothing upon which a waiver, either express or implied, can be predicated. The defendant might have himself terminated the partnership relation at any time, if he had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits. Having failed to do this he can not be permitted to force a dissolution upon his copartner upon terms which the latter is unwilling to accept. We see nothing in the case

which can give the transaction in question any other aspect than that of the withdrawal by one partner with the consent of the other of a portion of the common capital. The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is entitled to an accounting of the defendant's administration of such property, and of the profits derived therefrom. This declaration does not involve an adjudication as to any disputed items of the partnership account. The judgment of the court below will be reversed without costs, and the record returned for the execution of the judgment now rendered. So ordered. Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur. Willard, J., dissenting.

ON MOTION FOR A REHEARING. MAPA, J.: This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a rehearing upon the following grounds: 1. Because that part of the decision which refers to the existence of the partnership which is the object of the complaint is not based upon clear and decisive legal grounds; and 2. Because, upon the supposition of the existence of the partnership, the decision does not clearly determine whether the juridical relation between the partners suffered any modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos from the funds of the partnership, or if it continued as before, the parties being thereby deprived, he alleges, of one of the principal bases for determining with exactness the amount due to each. With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as follows: "We are unable to find from the evidence before us that there was any specific verbal agreement of partnership, except such as may be implied from the facts as to the purchase of the cascoes." Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the one hand there is no direct evidence of a contract, on the other its existence can only be inferred from certain facts, and the defendant adds that the possibility of an inference is not sufficient ground upon which to consider as existing what may be inferred to exist, and still less as sufficient ground for declaring its efficacy to produce legal effects. This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an inference, as the appellant gratuitously stated, for the purpose of arriving at a conclusion that a contract of partnership was entered into between him and the plaintiff, but have considered the proof which is derived from the facts connected with the purchase of the cascoes. It is stated in the decision that with the exception of this evidence we find no other which shows the making of the contract. But this does not

mean (for it says exactly the contrary) that this fact is not absolutely proven, as the defendant erroneously appears to think. From this data we infer a fact which to our mind is certain and positive, and not a mere possibility; we infer not that it is possible that the contract may have existed, but that it actually did exist. The proofs constituted by the facts referred to, although it is the only evidence, and in spite of the fact that it is not direct, we consider, however, sufficient to produce such a conviction, which may certainly be founded upon any of the various classes of evidence which the law admits. There is all the more reason for its being so in this case, because a civil partnership may be constituted in any form, according to article 1667 of the Civil Code, unless real property or real rights are contributed to it the only case of exception in which it is necessary that the agreement be recorded in a public instrument. It is of no importance that the parties have failed to reach an agreement with respect to the minor details of contract. These details pertain to the accidental and not to the essential part of the contract. We have already stated in the opinion what are the essential requisites of a contract of partnership, according to the definition of article 1665. Considering as a whole the probatory facts which appears from the record, we have reached the conclusion that the plaintiff and the defendant agreed to the essential parts of that contract, and did in fact constitute a partnership, with the funds of which were purchased the cascoes with which this litigation deals, although it is true that they did not take the precaution to precisely establish and determine from the beginning the conditions with respect to the participation of each partner in the profits or losses of the partnership. The disagreements subsequently arising between them, when endeavoring to fix these conditions, should not and can not produce the effect of destroying that which has been done, to the prejudice of one of the partners, nor could it divest his rights under the partnership which had accrued by the actual contribution of capital which followed the agreement to enter into a partnership, together with the transactions effected with partnership funds. The law has foreseen the possibility of the constitution of a partnership without an express stipulation by the partners upon those conditions, and has established rules which may serve as a basis for the distribution of profits and losses among the partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered into by the plaintiff and the defendant falls within the provisions of this article. With respect to the second point, it is obvious that upon declaring the existence of a partnership and the right of the plaintiff to demand from the defendant an itemized accounting of his management thereof, it was impossible at the same time to determine the effects which might have been produced with respect to the interest of the partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could only be determined after a liquidation of the partnership. Then, and only then, can it be known if this sum is to be charged to the capital contributed by the plaintiff, or to his share of the profits, or to both. It might well be that the partnership has earned profits, and that the plaintiff's participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident that, notwithstanding that payment, his interest in the partnership would still continue. This is one case. It would be easy to imagine many others, as the possible results of a liquidation are innumerable. The liquidation will finally determine the condition of the legal relations of the partners inter se at the time of the withdrawal of the sum mentioned. It was not, nor is it possible to determine this status a priori without prejudging the result, as yet unknown, of the litigation. Therefore it is that in the decision no direct statement has been made upon this point. It is for the same reason that it was expressly stated in the decision that it "does not involve an adjudication as to any disputed item of the partnership account." The contentions advanced by the moving party are so evidently unfounded that we can not see the necessity or convenience of granting the rehearing prayed for, and the motion is therefore denied. Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.

Willard and McDonough, JJ., did not sit in this case. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 5837 September 15, 1911

CATALINO GALLEMIT, plaintiff-appellant, vs. CEFERINO TABILIRAN, defendant-appellee. Troadio Galicano, for appellant. Emilio Pineda, for appellee. TORRES, J.: This is an appeal raised by the plaintiff from the judgment rendered by the Honorable Judge Ramon Avancea. On March, 10, 1908, the plaintiff filed a written complaint, twice amended with the permission of the court, wherein, after its second amendment, he alleged that the plaintiff and the defendant, while residents of the municipality of Dapitan, had acquired, in joint tenancy, in or about the month of January, 1904, a parcel of land from its original owner, Lui Ganong, under a verbal, civil contract of partnership, for the price of P44; that it was stipulated that each of the said purchasers should pay one-half of the price, or P22, and that an equal division should be made between them of the land thus purchased, situate in the place called Tangian, of the barrio of Dohinob, municipality of Dapitan, sub-district of the same name, Moro Province, and bounded on the north and east by the Tangian river, on the south and west by government forests, and containing 19.968 square meters, approximately, planted with 200 abaca plants; that, notwithstanding the demands he had repeatedly made upon the defendant to divide the said land, the latter, after having promised him on several occasions that he would make such partition, finally refused, without good reason, and still continued to refuse to divide the land and, moreover, without the knowledge and consent of the plaintiff, gathered the abaca crops of the years 1904, 1905 and 1906, produced on the land in question, and extracted the hemp therefrom in the amount of about 12arrobas to each crop, he being the sole beneficiary of the fiber obtained; that the plaintiff, relying upon the several promises made him by the defendant to divide the said land, took to the latter 1,500 seeds to be planted in the part thereof which would have fallen to the plaintiff in the division, all of which seeds died, as an indirect result of the defendant's never having made the partition he offered to make; and, that since the year 1904, up to the time of the complaint, he alone had been paying the taxes on the land, without the defendant's having contributed to their payment. There fore the plaintiff petitioned the court render judgment in his favor by ordering a partition to be made of the said land through the mediation of commissioners appointed for the purpose, and by sentencing the defendant to pay to the plaintiff, as damages, the total value of the seed lost, amounting to P50, to restore to him one-half of the abaca harvested or the value thereof, and to the payment of the costs of the case. Defendant's counsel received a copy of this amended complaint. The defendant, Ceferino Tabiliran, having been notified and summoned, in his answer to the preceding amended complaint denied each and all of the facts alleged in each and all of the paragraphs thereof and asked that he be absolved from the complaint, with the costs against the plaintiff.

After the hearing of the case and the production of oral evidence by the parties thereto, the court, on the 10th of the same month, rendered judgment by absolving the defendant from the complaint, with the costs against the plaintiff. Counsel for the latter excepted to this judgment and by a written motion asked for its annulment, and the holding of a new trial on the ground that the findings of the court were contrary to law. This motion was denied by an order of March 11, 1909, excepted to by the plaintiff's counsel, and the proper bill of exceptions having been duly filed, the same was certified and forwarded to the clerk of this court. This suit concerns the partition of a piece of land held pro indiviso which the plaintiff and the defendant had acquired in common from its original owner. By the refusal of the defendant to divide the property, the plaintiff was compelled to bring the proper action for the enforcement of partition, referred to in section 181 and following of the Code of Civil Procedure. The record shows it to have been duly proved that Catalino Gallemit and Ceferino Tabiliran by mutual agreement acquired by purchase the land concerned, situate in Tangian, municipality of Dapitan, from its original owner, Luis Ganong, for the sum of P44. It was stipulated between the purchasers that they each should pay one-half of the price and that the property should be divided equally between them. The vendor testified under oath that the plaintiff Gallemit paid him the sum of P22, one-half of the price that it was incumbent upon him to pay, and that four months afterwards the defendant paid his part of the price, although, owing to the refusal of the defendant, who was then the justice of the peace of the pueblo, to comply with the stipulation made, the deed of sale was not executed, nor was a partition effected of the land which they had acquired. The defendant, instead of delivering to the plaintiff the share that belonged to the latter, the proportionate price for which the plaintiff had already paid, kept all the land which belonged to them in common, in violation of the stipulations agreed upon, notwithstanding that he paid the vendor only one-half of the price thereof. There is community of property when the ownership of a thing belongs to different persons undividedly. (Art. 392, Civil Code.) No coownership shall be obliged to remain a party to the community. Each of them may ask at any time the division of the thing owned in common. (Art. 400 of the same code.) Considering the terms of the claim made by the plaintiff and those of the defendant's answer, and the relation of facts contained in the judgment appealed from, it does not appear that any contract of partnership whatever was made between them for the purposes expressed in article 1665 of the Civil Code, for the sole transaction performed by them was the acquisition jointly by mutual agreement of the land in question, since it was undivided, under the condition that they each should pay one-half of the price thereof and that the property so acquired should be divided between the two purchasers; and as, under this title, the plaintiff and the defendant are the coowners of the said land, the partition or division of such property held in joint tenancy must of course be allowed, and the present possessor of the land has no right to deny the plaintiff's claim on grounds or reasons unsupported by proof. The circumstance of the plaintiff's to present any document whatever to prove that he and the defendant did actually purchase jointly the land in litigation can not be a successful defense in the action for partition, notwithstanding the provision contained in paragraph 5 of section 335 of the Code of Civil Procedure, inasmuch as the trial record discloses that testimony was adduced, unobjected to on the part of the defendant, to prove that the purchase was actually made by both litigants of the land in question from its original owner, Luis Ganong; furthermore, it was proved that after the contract was made the deed of sale was not drawn up on account of the opposition of the defendant, Tabiliran, to this being done, with the indubitable purpose, as has been seen, of his

keeping the whole of the land purchased, though he paid but one-half of its price. In the decision rendered in the case of Conlu et al. vs. Araneta and Guanko (15 Phil. Rep., 387), the following appears in the syllabus: The decision in the case of Thunga Chui vs. Que Bentec (1 Phil. Rep., 561) and Couto vs. Cortes (8 Phil. Rep., 459) followed to the extent of holding that "an oral contract for the sale of real estate, made prior to the enactment of the Code of Civil Procedure in Civil Actions, is binding between the parties thereto." The contract exists and is valid though it may not be clothed with the necessary form, and the effect of a noncompliance with the provisions of the statute (sec. 335 of the Code of Civil Procedure in Civil Actions) is simply complied with; but a failure to except to the evidence because it does not conform with the statute, is a waiver of the provisions of the law. If the parties to the action, during the trial, made no objection to the admissibility of oral evidence to support the contract of sale of real property, thus permitting the contract to be proved, it will be just as binding upon the parties as if it had been reduced to writing. So that, once it has been proven by the testimony of witnesses that the purchase of a piece of real estate was made by a verbal contract between the interested parties, if the oral evidence was taken at the petition of one of them without opposition on the part of the other, such proven verbal contract, as the one herein concerned, must be held to be valid. On these premises it is, therefore, not indispensable that a written instrument be presented in order to prove a contract of purchase and sale of real estate; neither it is necessary that the record show proof of a contract of partnership, in order that a demand may be made for the division of a real property acquired jointly and undividedly by two or more interested parties, inasmuch as the land was acquired by the two purchasers, not for the purpose of undertaking any business, nor for its cultivation in partnership, but solely to divide it equally between themselves. Therefore, it is sufficient to show proof of the fact that a real property was actually purchased by them jointly, in order to insure a successful issue of an action brought to enforce partition, in accordance with the provisions of sections 181 to 196 of the Code of Civil Procedure in Civil Actions, since the plaintiff is really a coowner of the undivided land. It is neither just nor permissible for the defendant to violate a contract made, even though verbally, with the plaintiff, and to keep without good reason, for his exclusive benefit and to the prejudice only of his coowner, the plaintiff, the whole of the land belonging to both of them in common, because each paid a half of the value thereof. "Contracts shall be binding," prescribes article 1278 of the Civil Code, "whatever may be the form in which they may have been executed, provided the essential conditions required for their validity exist." These conditions are enumerated in article 1261 of the same code, and they are also requisite in a verbal contract that has been proved. As the plaintiff suffered damage through the loss of the seed which could not be planted in the part of the land belonging to him, on account of the refusal of the defendant to accede to division of the property, in accordance with the agreement made, it is right and just that the latter be compelled to make indemnity for the amount of the damage occasioned through his fault. With respect to the abaca obtained by the defendant, to his exclusive benefit, from the land of joint ownership: inasmuch as the amount and value of the fiber gathered is not shown in the trial record, there are no means available in law whereby a proper determination may be reached in the matter. Therefore, we are of opinion that the judgment appealed from should be, as it is hereby,

reversed. It is held to be proper to effect the partition of the land in question, and the judge of the Court of First Instance is directed to decree, through the proceedings prescribed by law, the division of the said land in conformity with the petition made by the plaintiff, and an indemnity, in behalf of the latter, in the sum of P50, the value of the seed lost. The delivery to the plaintiff of one-half of the abaca harvested on the land, or the value thereof, can not be ordered, on account of the lack of proof in the premises. No special finding is made as to costs. So ordered. Mapa, Johnson, Carson and Moreland, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. Guillermo B. Reyes for appellants. Office of the Solicitor-General Tuason for appellee. IMPERIAL, J.: The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest by way of income tax. They appealed from the decision rendered in the case on October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the action with the costs against them. The case was submitted for decision upon the following stipulation of facts: Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and hereby agree to respectfully submit to this Honorable Court the case upon the following statement of facts: 1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector of Internal Revenue of the Philippines; 2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the amounts as follows: 1. Jose Gatchalian ................................................................................................... . 2. Gregoria Cristobal ...............................................................................................

P0.18

.18

3. Saturnina Silva .................................................................................................... 4. Guillermo Tapia ................................................................................................... 5. Jesus Legaspi ...................................................................................................... 6. Jose Silva ............................................................................................................ . 7. Tomasa Mercado ................................................................................................ 8. Julio Gatchalian ................................................................................................... 9. Emiliana Santiago ................................................................................................ 10. Maria C. Legaspi ............................................................................................... 11. Francisco Cabral ............................................................................................... 12. Gonzalo Javier .................................................................................................... 13. Maria Santiago ................................................................................................... 14. Buenaventura Guzman ...................................................................................... 15. Mariano Santos ................................................................................................. Total ........................................................................................................

.08 .13 .15

.07

.08 .13 .13 .16 .13 .14 .17 .13 .14 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of Jose Gatchalian and Company; 4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check covering the abovementioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian & Company; 5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return covering the

prize won by Jose Gatchalian & Company and that on December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a part hereof; 6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof; 7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax to which reply there were enclosed fifteen (15) separate individual income tax returns filed separately by each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of this case and made parts hereof; a statement of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof; 8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to pay the said tax; 9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant, notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part hereof; 10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and penalties by monthly installments; 11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment of each installments as it becomes due; 12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935; 13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a copy of which protest is attached and marked

Exhibit L, but that defendant in his letter dated August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs; 14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935; 15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made part hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund thereof; copy of which is attached and marked Exhibit P and made a part hereof; and 16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant refused and still refuses to refund the said amount notwithstanding the plaintiffs' demands. 17. The parties hereto reserve the right to present other and additional evidence if necessary. Exhibit E referred to in the stipulation is of the following tenor: To whom it may concern: I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated below and the part of may share remaining is also shown to wit: Purchaser 1. Mariano Santos ........................................... 2. Buenaventura Guzman ............................... 3. Maria Santiago ............................................ 4. Gonzalo Javier .............................................. 5. Francisco Cabral .......................................... 6. Maria C. Legaspi .......................................... 7. Emiliana Santiago ......................................... 8. Julio Gatchalian ............................................ Amount P0.14 .13 .17 .14 .13 .16 .13 .13 Address Pulilan, Bulacan. - Do - Do - Do - Do - Do - Do - Do -

9. Jose Silva ...................................................... 10. Tomasa Mercado ....................................... 11. Jesus Legaspi ............................................. 12. Guillermo Tapia ........................................... 13. Saturnina Silva ............................................ 14. Gregoria Cristobal ....................................... 15. Jose Gatchalian ............................................

.07 .08 .15 .13 .08 .18 .18

- Do - Do - Do - Do - Do - Do - Do -

2.00 Total cost of said ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might be won by said ticket. Pulilan, Bulacan, P.I. (Sgd.) JOSE GATCHALIAN And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows: RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE. Exhibit Name No. 1. Jose Gatchalian ............................... ........... 2. Gregoria Cristobal .................................. .... 3. Saturnina Silva ........................................ ..... 4. Guillermo Tapia ....................................... ... 5. Jesus Legaspi by Maria Cristobal ......... 6. Jose Silva ........................................ ............ 7. Tomasa D-1 Price P0.18 Purchase Price Won P4,42 5 Expense s Net prize

P 480

3,945

D-2

.18

4,575

2,000

2,575

D-3

.08

1,875

360

1,515

D-4

.13

3,325

360

2,965

D-5

.15

3,825

720

3,105

D-6 D-7

.08 .07

1,875 1,875

360 360

1,515 1,515

Mercado .................................. ..... 8. Julio Gatchalian by Beatriz Guzman ....... 9. Emiliana Santiago .................................. .... 10. Maria C. Legaspi .................................... .. 11. Francisco Cabral ...................................... 12. Gonzalo Javier ....................................... ... 13. Maria Santiago .................................. ........ 14. Buenaventura Guzman ........................... 15. Mariano Santos ..................................... ... D-8 .13 3,150 240 2,910

D-9

.13

3,325

360

2,965

D-10

.16

4,100

960

3,140

D-11

.13

3,325

360

2,965

D-12

.14

3,325

360

2,965

D-13

.17

4,350

360

3,990

D-14

.13

3,325

360

2,965

D-15

.14

3,325

360
<="" td="" style="font -size: 14px; textdecoration: none; color: rgb(0, 0, 128); fontfamily: arial, verdana; ">

2,965

2.00

50,000

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there was merely a community of property, they are exempt from such payment; and (2) whether they should pay the tax collectively or whether the latter should be prorated among them and paid individually. The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2 of Act No. 3761, reading as follows: SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon

the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint account (cuenta en participacion), association or insurance company, organized in the Philippine Islands, no matter how created or organized, but not including duly registered general copartnership (compaias colectivas), a tax of three per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership, joint account (cuenta en participacion), association, or insurance company organized, authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise: Provided, however, That nothing in this section shall be construed as permitting the taxation of the income derived from dividends or net profits on which the normal tax has been paid. The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock company, partnership, joint account (cuenta en participacion), association, or insurance company, or property, real, personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of section two of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act Numbered Twenty-nine hundred and twenty-six. The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock company, partnership, joint account (cuenta en participacion), association, or insurance company in the calendar year nineteen hundred and twenty and in each year thereafter. There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid individually, resulting in their exemption from the tax. In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs appellants. So ordered. Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

EN BANC G.R. No. L-12541 March 30, 1960

ROSARIO U. YULO, assisted by her husband Jose C. Yulo, plaintiffs-appellants, vs. YANG CHIAO SENG, defendant-appellee. Punzalan, Yabut and Eusebio for appellants. A. Francisco and J. T. Ocampo for appellee. LABRADOR, J.: This concerns a "Petition to Reopen Case," dated December 14, 1959, presented by attorneys for plaintiffs-appellants, alleging that the relationship between Rosario U. Yulo, plaintiff-appellant and Yang Chiao Seng, defendant-appellee, as lessor and lessee, has already been definitely decided by the Court of Appeals in the case of Sta. Marina, et al., and Rosario U. Yulo and Yang Chiao Seng, C. A. G. R. No. 8143-R. We have gone out of our way to review our conclusion that no relation of partnership existed between said parties because we had denied the motion for reconsideration of plaintiff-appellant questioning the conclusion of this Court without explanation. The claim of plaintiff-appellant Rosario U. Yulo is that the relationship between her and defendant-appellee Yang Chiao Seng as partners had already been passed upon by the Court of Appeals in the above-indicated decision. The portion of the decision of the Court of Appeals is contained on page 8 of the motion for reconsideration in which it held that articles of partnership of Young & Co., Ltd. show that the parties to this case are partners in the construction of the Astor Theatre. It is to be noted, however, that the decision of the Court of Appeals was one in which Emilia and Maria Carrion Sta. Marina are plaintiffs and the defendants are Rosario Yulo and Yang Chiao Seng; the action was one to eject the defendants from the land occupied by them; the issue was the reasonable value for the use and occupation of the land. The Court of Appeals said that the plaintiffs in that case had claimed that the reasonable value was P3,000, while the defendants claimed that it was only P1,000, and the Court of Appeals held that in view of the partnership papers P3,000 represent the share of Rosario U. Yulo in the profits of the partnership and not the reasonable rent of the property. It is evident that no res judicata can be claimed for the previous judgment of the Court of Appeals. In the first place, the parties in that case were Emilia and Maria Carrion Sta. Marina and the defendants, Rosaria U. Yulo and Yang Chiao Seng; in the second place, the issue decided by the Court of Appeals was the rental value of the property in question; that the cause of action was for ejectment of Rosario U. Yulo and Yang Chiao Seng. In the case at bar, the action is between Rosario U. Yulo as plaintiff and Yang Chiao Seng as defendant; the issue is whether or not the plaintiff is partner in the cinematograph business, as claimed by plaintiff, or said plaintiff is merely a sublessee, as claimed by the defendant. There is, therefore, no identity of parties nor identity of issue, nor identity of cause of action. We call attention to the very citation contained in appellant's motion for reconsideration, which reads as follows: Parties to a judgment are not bound by it, in a subsequent controversy between each other unless they were adversary parties in the original action. There must have been an issue or controversy between them. The reason for this rule obviously is the same as that which underlies the whole doctrine of res judicata, namely, that a person should not be bound by a judgment except to the extent that he, or someone representing him, had an adequate opportunity not only to litigate the matters adjudicated, but to litigate them against the party (or his

prodecessor in interest) who seeks to use the judgment against him. (Sec. 422, 1 Freeman on Judgments, 5th ed., p. 918). Without going further, we are fully satisfied of the correctness of our conclusion that the relationship between plaintiff-appellant Rosario U. Yulo and Yang Chiao Seng is merely that of sublessor and sublessee, and not that of partners. The motion to reopen the case is hereby denied and considering that judgment had become final since October 29, 1959, order is hereby given to remand the record to the court below. Paras, C. J., Bautista Angelo, Reyes, J. B. L., Barrera and Gutierrez David, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 70926 January 31, 1989 DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents. John L. Uy for petitioner. Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.: The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant. This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung. The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00 to its initial establishment. The private respondents evidence is summarized as follows: About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of

the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and testified that the translation to the best of her knowledge and belief was correct. The private respondent identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private respondents motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were indeed the signatures of the petitioner. Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private respondents savings account with the bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that the check in question was in fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly shown and indicated in the petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said check was returned to the petitioner as the maker thereof. The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as follows: The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B). As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo) The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and, as supplement to the said motion, he requested that the

decision rendered should include the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to adduce evidence so that the said decision will be comprehensively adequate and thus put an end to further litigation. The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, the dispositive portion of which reads: FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as follows: WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo) The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned decision was further modified by the appellate court. The dispositive portion of the appellate court's decision reads: WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows: 1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00 a day from judicial demand to May 15, 1971; 2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30, 1975; 3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day. Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo) Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. The dispositive portion of the resolution reads: WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the latter to pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo). In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While the dispositive portions merely ordered the payment of the respondents share, there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits of the restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo) The pertinent portions of the complaint state: xxx xxx xxx 2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria, located in the given address of defendant; as a return for such financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria; 3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant is attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo) In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said panciteria. These allegations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves". Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria. The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel. The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the petitioner. The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence nor was any hint of objection registered for that purpose. Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records sufficiently establish that there was a partnership. The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent. The petitioner's argument is based on Article 1144 of the Civil Code which provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. in relation to Article 1155 thereof which provides: Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand by the creditor, and when there is any written acknowledgment of the debt by

the debtor.' The argument is not well-taken. The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are 1) two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the part of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of the firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in the partnership. It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states: The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence or any agreement to the contrary. Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done. Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for being excessive and unconscionable and above the claim of private respondent as embodied in his complaint and testimonial evidence presented by said private respondent to support his claim in the complaint. Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant. Mrs. Licup stated: ATTY. HIPOLITO (direct examination to Mrs. Licup). Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the cashier's box, of the money, being the cashier, is that correct? A Yes, sir. Q So that every time there is a customer who pays, you were the one who accepted the money and you gave the change, if any, is that correct?

A Yes. Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money? A We balance it with the manager, Mr. Dan Fue Leung. ATTY. HIPOLITO: I see. Q So, in other words, after your job, you huddle or confer together? A Yes, count it all. I total it. We sum it up. Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of the restaurant? A For regular days, I received around P7,000.00 a day during my shift alone and during pay days I receive more than P10,000.00. That is excluding the catering outside the place. Q What about the catering service, will you please tell the Honorable Court how many times a week were there catering services? A Sometimes three times a month; sometimes two times a month or more. xxx xxx xxx Q Now more or less, do you know the cost of the catering service? A Yes, because I am the one who receives the payment also of the catering. Q How much is that? A That ranges from two thousand to six thousand pesos, sir. Q Per service? A Per service, Per catering. Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day?

A Yes. Q And ten thousand pesos during pay day.? A Yes. (TSN, pp. 53 to 59, inclusive, November 15,1978) xxx xxx xxx COURT: Any cross? ATTY. UY (counsel for defendant): No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128) The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-examination on the matter of income but he failed to comply with his promise to produce pertinent records. When a subpoena duces tecum was issued to the petitioner for the production of their records of sale, his counsel voluntarily offered to bring them to court. He asked for sufficient time prompting the court to cancel all hearings for January, 1981 and reset them to the later part of the following month. The petitioner's counsel never produced any books, prompting the trial court to state: Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales book. ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to ask counsel for the defendant to bring said records and counsel for the defendant promised to bring those that were available. Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle the issue, defendant instead of presenting the books where the same, etc. were recorded, presented witnesses who claimed to have supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show the gross sales nor does it prove that the same is the best evidence. This Court gave warning to the defendant's counsel that if he failed to produce the books, the same will be considered a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145) The records show that the trial court went out of its way to accord due process to the petitioner. The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his case on February 25, 1981, however, after presenting several witnesses, counsel for defendant promised that he will present the defendant as his last witness. Notably there were several postponement asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this case be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will be back after said period. The Court acting with

great concern and understanding reset the hearing to November 17, 1981. On said date, the counsel for the defendant who again failed to present the defendant asked for another postponement, this time to November 24, 1981 in order to give said defendant another judicial magnanimity and substantial due process. It was however a condition in the order granting the postponement to said date that if the defendant cannot be presented, counsel is deemed to have waived the presentation of said witness and will submit his case for decision. On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset to December 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the defendant's counsel asked for postponement on the ground that the defendant was sick. the Court, after much tolerance and judicial magnanimity, denied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp. 148150) The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people from all walks of life converge and patronize Sun Wah. There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back into the expansion of the business. There is no basis in the records to sustain the petitioners contention that the damages awarded are excessive. Even if the Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such modification. There is no basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the respondent's submissions but, after promising to do so, it deliberately failed to present its books and other evidence. The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same continues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into the future with no fixed ending date. Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides: Art. 1831. On application by or for a partner the court shall decree a dissolution whenever: xxx xxx xxx (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; xxx xxx xxx (6) Other circumstances render a dissolution equitable. There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership has become inequitable. WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved. SO ORDERED. Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 101847 May 27, 1993 LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs. COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON, respondents. George L. Howard Law Office for petitioners Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.

MELO, J.: Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses Lourdes and Menardo Navarro, thusly: The instant petition for annulment of decision is DISMISSED. 1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition.

2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void (Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be commenced by the petitioners. 3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should have been appeal. SO ORDERED. (pp. 24-25, Rollo.) The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant. On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin. The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces of personal property sought to be recovered from petitioners. On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows : Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which had remain in the possession of the defendant is likewise declared to belong to her, however, said defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to plaintiff such other equipment[s] as were brought by the latter to and during the operation of their business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration". This was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of the decision). On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).

On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record. The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy. In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were extensively discussed by the trial judge in her 16-page, single-spaced decision. We agree with respondents that the decision in this case has become final. In fact a writ of execution had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents. Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We respect the appellate court's finding in this regard. Petitioners have come to us in a petition for review. However, the petition is focused solely on factual issues which can no longer be entertained. Petitioners' arguments are all directed against the decision of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on account of the socalled admissionsin judicio. But the factual premises of the trial court were more than enough to suppress and negate petitioners submissions along this line: To be resolved by this Court factually involved in the issue of whether there was a partnership that existed between the parties based on their verbal contention; whether the properties that were commonly used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on the dissolution and winding up in case a partnership so existed as well as the issue of ownership over the properties subject matter of recovery. As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote: Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves. xxx xxx xxx Corollary to this definition is the provision in determining whether a partnership exist as so provided under Article 1769, to wit: xxx xxx xxx

Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if the partnership involves a capitalization of P3,000.00 or more in money or property, the same must appear in a public instrument which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with these requirements shall only affect liability of the partners to third persons. In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made admission to have entered into an agreement of operating this Allied Air Freight Agency of which the plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her obligation. The same has been done by the herein brother and the herein defendant who started to work in the business. A cursory examination of the evidences presented no proof that a partnership, whether oral or written had been constituted at the inception of this transaction. True it is that even up to the filing of this complaint those movables brought by the plaintiff for the use in the operation of the business remain registered in her name. While there may have been co-ownership or co-possession of some items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were profits realized in 1975 after the two-year deficits were compensated, this could only be subject to an equal sharing consonant to the agreement to equally divide any profit realized. However, this Court cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged profits was a difference found after valuating the assets and not arising from the real operation of the business. In accounting procedures, strictly, this could not be profit but a net worth. In view of the above factual findings of the Court it follows inevitably therefore that there being no partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00 assumption specifically, as would have been testified to by the defendant's husband remain a mere allegation. As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which appeared

registered in the name of the defendant, and to which even she admitted that part of the purchase price came from the business claimed mutually operated, although the Court have not as much considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.) Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised therein having been directly litigated in, and passed upon by, the trial court. WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is AFFIRMED in all respects. No special pronouncement is made as to costs. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-35469 March 17, 1932

E. S. LYONS, plaintiff-appellant, vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee. Harvey & O'Brien for appellant. DeWitt, Perkins & Brandy for appellee. STREET, J.: This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by the executor from the allowance of the claim sued upon by the committee on claims in said estate. The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which accrued

on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial court absolved the defendant executor from the complaint, and the plaintiff appealed. Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was engaged during the years with which we are here concerned in buying, selling, and administering real estate. In several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone for nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a written statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in his hands a single piece of property located at 616-618 Carried Street, in the City of Manila, containing about 282 square meters of land, with the improvements thereon. In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion and development of a suburban improvement. This property, which will be herein referred to as the San Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser purchased an option on this property for P5,000, and when this option was about to expire without his having been able to raise the necessary funds, he paid P15,000 more for an extension of the option, with the understanding in both cases that, in case the option should be exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid for this option and its extension were supplied by Elser entirely from his own funds. In the end he was able from his own means, and with the assistance which he obtained from others, to acquire said estate. The amount required for the first payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by himself and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the property a limited partnership had, about this time, been organized by Elser and three associates, under the name of J. K. Pickering & Company; and when the transfer of the property was effected the deed was made directly to this company. As Elser was the principal capitalist in the enterprise he received by far the greater number of the shares issued, his portion amount in the beginning to 3,290 shares. While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced to come in with him and supply part of the means necessary to carry the enterprise through. In this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13), meaning that he should resign his position with the mission board in New York. On the same date he wrote Lyons a letter explaining some details of the purchase, and added "have advised in my cable that you resign and I hope you can do

so immediately and will come and join me on the lines we have so often spoken about. . . . There is plenty of business for us all now and I believe we have started something that will keep us going for some time." In one or more communications prior to this, Elser had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the necessary assistance in future deals in real estate. The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good thing. One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this venture, was that the board of mission was averse to his engaging in business activities other than those in which the church was concerned; and some of Lyons' missionary associates had apparently been criticizing his independent commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were therefore made by Elser. When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and earnings derived from other properties; and when the J. K. Pickering & Company was organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be one of his associates in the deal. It will be noted that the par value of these 200 shares was more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these shares and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the present action, or at least strengthens the considerations involved in a feature of the case to be presently explained. This view is manifestly untenable, since the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K. Pickering & Company, his qualification for this office being derived precisely from the ownership of these shares. We now turn to the incident which supplies the main basis of this action. It will be remembered that, when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at

644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the release of the old were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it. The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons used the words above quoted, and as that conversation supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The trial court found in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo property. Whether the agreement was reached exactly upon this precise line of thought is of little moment, but the relations of the parties had been such that it was to be expected that Elser would be generous; and he could scarcely have failed to take account of the use he had made of the joint property of the two. As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent; and although the court refused to allow the defendant to prove the Elser was solvent at this time in an amount much greater than the entire encumbrance placed upon the property, it is evident that the risk imposed upon Lyons was negligible. It is also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no actual liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon his own account. The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint. Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner already explained had been used to held finance the purchase of the San Juan Estate. He seems to have supposed that the Carried property had been mortgaged to aid in putting through another deal, namely, the purchase of a property

referred to in the correspondence as the "Ronquillo property"; and in this connection a letter of Elser of the latter part of May, 1920, can be quoted in which he uses this language: As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money for Ronquillo buy (P60,000) if the owner comes through. Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo property had been used in the purchase of this property. It doubtedless appeared so to him in the retrospect, but certain consideration show that he was inattentive to the contents of the quotation from the letter above given. He had already been informed that, although Elser was angling for the Ronquillo property, its price had gone up, thus introducing a doubt as to whether he could get it; and the quotation above given shows that the intended use of the money obtained by mortgaging the Carriedo property was that only part of the P50,000 thus obtained would be used in this way, if the deal went through. Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if he did not know before, what was the status of the proposed trade for the Ronquillo property. Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was received by him, and we consider this point of fact of little moment, since the proof shows that Lyons knew that the Carriedo mortgage had been executed, and after his arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the situation, but he knew enough, we think, to apprise him of the material factors in the situation, and we concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud. In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in the money used, the case might be difference; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination. It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where money belonging to one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of

redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act. The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed between him and Elser while the latter was still alive. While the admission of this testimony was of questionable propriety, any error made by the trial court on this point was error without injury, and the determination of the question is not necessary to this decision. We therefore pass the point without further discussion. The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant. Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee, vs. QUIRINO BOLAOS, defendant-appellant. Araneta and Araneta for appellee. Jose A. Buendia for appellant. REYES, J.: This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City. Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original complaint described the land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares more or less. But the complaint was amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication to defendant and/or predecessors in interest." The answer therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value. After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs. Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors: I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest. II. The trial court erred in admitting the third amended complaint. III. The trial court erred in denying defendant's motion to strike. IV. The trial court erred in including in its decision land not involved in the litigation. V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and 37677. Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land. VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January, 1940, until he vacates the premises. VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant. As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the

business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of them. Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads: Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall be so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court: Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant has himself raised the point on which recovery is based, and that the appellate court treat the pleadings as amended to conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.) Our conclusion therefore is that specification of error II, III, and IV are without merit.. Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later changed his lawyer and also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the land prior to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI. As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that that reasonable compensation for the use and occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant. And it cannot be supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have always been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus clearly without merit. Error No. VIII is but a consequence of the other errors alleged and needs for further consideration. During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pending before the Court of First Instance of Rizal another action between the same parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed in said action. But an examination of that complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in the two suits does not appear. That other case is one for recovery of ownership, while the present one is for recovery of possession. And while appellant claims that he is also involved in that order action because it is a class suit, the complaint does not show that such is really the case. On the contrary, it appears that the action seeks relief for each individual plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit. Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff. Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-9692

January 6, 1958

COLLECTOR OF INTERNAL REVENUE, petitioner, vs. BATANGAS TRANSPORTATION COMPANY and LAGUNA-TAYABAS BUS COMPANY, respondents. Office of the Solicitor General Ambrosio Padilla, Solicitor Conrado T. Limcaoco and Zoilo R. Zandoval for petitioner. Ozaeta, Lichauco and Picazo for respondents. MONTEMAYOR, J.: This is an appeal from the decision of the Court of Tax Appeals (C.T.A.), which reversed the assessment and decision of petitioner Collector of Internal Revenue, later referred to as Collector, assessing and demanding from the respondents Batangas Transportation Company, later referred to as Batangas Transportation, and Laguna-Tayabas Bus Company, later referred to as Laguna Bus, the amount of P54,143.54, supposed to represent the deficiency income tax and compromise for the years 1946 to 1949, inclusive, which amount, pending appeal in the C.T.A., but before the Collector filed his answer in said court, was increased to P148,890.14. The following facts are undisputed: Respondent companies are two distinct and separate corporations engaged in the business of land transportation by means of motor buses, and operating distinct and separate lines. Batangas Transportation was organized in 1918, while Laguna Bus was organized in 1928. Each company now has a fully paid up capital of Pl,000,000. Before the last war, each company maintained separate head offices, that of Batangas Transportation in Batangas, Batangas, while the Laguna Bus had its head office in San Pablo Laguna. Each company also kept and maintained separate books, fleets of buses, management, personnel, maintenance and repair shops, and other facilities. Joseph Benedict managed the Batangas Transportation, while Martin Olson was the manager of the Laguna Bus. To show the connection and close relation between the two companies, it should be stated that Max Blouse was the President of both corporations and owned about 30 per cent of the stock in each company. During the war, the American officials of these two corporations were interned in Santo Tomas, and said companies ceased operations. They also lost their respective properties and equipment. After Liberation, sometime in April, 1945, the two companies were able to acquire 56 auto buses from the United States Army, and the two companies diveded said equipment equally between themselves,registering the same separately in their respective names. In March, 1947, after the resignation of Martin Olson as Manager of the Laguna Bus, Joseph Benedict, who was then managing the Batangas Transportation, was appointed Manager of both companies by their respective Board of Directors. The head office of the Laguna Bus in San Pablo City was made the main office of both corporations. The placing of the two companies under one sole mangement was made by Max Blouse, President of both companies, by virtue of the authority granted him by resolution of the Board of Directors of the Laguna Bus on August 10, 1945, and ratified by the Boards of the two companies in their respective resolutions of October 27, 1947. According to the testimony of joint Manager Joseph Benedict, the purpose of the joint management, which was called, "Joint Emergency Operation", was to economize in overhead expenses; that by means of said joint operation, both companies had been able to save the salaries of one manager, one assistant manager, fifteen inspectors, special agents, and one set of office of clerical force, the savings in one year amounting to about P200,000 or about P100,000 for each company. At the end of each calendar year, all gross receipts and expenses of both companies were determined and the net profits were divided fifty-fifty, and transferred to the book of accounts of each company,

and each company "then prepared its own income tax return from this fifty per centum of the gross receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency Operation' and paid the corresponding income taxes thereon separately". Under the theory that the two companies had pooled their resources in the establishment of the Joint Emergency Operation, thereby forming a joint venture, the Collector wrote the bus companies that there was due from them the amount of P422,210.89 as deficiency income tax and compromise for the years 1946 to 1949, inclusive. Since the Collector caused to be restrained, seized, and advertized for sale all the rolling stock of the two corporations, respondent companies had to file a surety bond in the same amount of P422,210.89 to guarantee the payment of the income tax assessed by him. After some exchange of communications between the parties, the Collector, on January 8, 1955, informed the respondents "that after crediting the overpayment made by them of their alleged income tax liabilities for the aforesaid years, pursuant to the doctrine of equitable recoupment, the income tax due from the `Joint Emergency Operation' for the years 1946 to 1949, inclusive, is in the total amount of P54,143.54." The respondent companies appealed from said assessment of P54,143.54 to the Court of Tax Appeals, but before filing his answer, the Collector set aside his original assessment of P54,143.54 and reassessed the alleged income tax liability of respondents of P148,890.14, claiming that he had later discovered that said companies had been "erroneously credited in the last assessment with 100 per cent of their income taxes paid when they should in fact have been credited with only 75 per cent thereof, since under Section 24 of the Tax Code dividends received by them from the Joint Operation as a domestic corporation are returnable to the extent of 25 per cent". That corrected and increased reassessment was embodied in the answer filed by the Collector with the Court of Tax Appeals. The theory of the Collector is the Joint Emergency Operation was a corporation distinct from the two respondent companies, as defined in section 84 (b), and so liable to income tax under section 24, both of the National Internal Revenue Code. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency Operation or joint management of the two companies "is not a corporation within the contemplation of section 84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and therefore was not subject to the income tax under the provisions of section 24 of the same Code, separately and independently of respondent companies; so, it reversed the decision of the Collector assessing and demanding from the two companies the payment of the amount of P54,143.54 and/or the amount of P148,890.14. The Tax Court did not pass upon the question of whether or not in the appeal taken to it by respondent companies, the Collector could change his original assessment by increasing the same from P54,143.14 to P148,890.14, to correct an error committed by him in having credited the Joint Emergency Operation, totally or 100 per cent of the income taxes paid by the respondent companies for the years 1946 to 1949, inclusive, by reason of the principle of equitable recoupment, instead of only 75 per cent. The two main and most important questions involved in the present appeal are: (1) whether the two transportation companies herein involved are liable to the payment of income tax as a corporation on the theory that the Joint Emergency Operation organized and operated by them is a corporation within the meaning of Section 84 of the Revised Internal Revenue Code, and (2) whether the Collector of Internal Revenue, after the appeal from his decision has been perfected, and after the Court of Tax Appeals has acquired jurisdiction over the same, but before said Collector has filed his answer with that court, may still modify his assessment subject of the appeal by increasing the same, on the ground that he had committed error in good faith in making said appealed assessment.

The first question has already been passed upon and determined by this Tribunal in the case of Eufemia Evangelista et al., vs. Collector of Internal Revenue et al.,* G.R. No. L9996, promulgated on October 15, 1957. Considering the views and rulings embodied in our decision in that case penned by Mr. Justice Roberto Concepcion, we deem it unnecessary to extensively discuss the point. Briefly, the facts in that case are as follows: The three Evangelista sisters borrowed from their father about P59,000 and adding thereto their own personal funds, bought real properties, such as a lot with improvements for the sum of P100,000 in 1943, parcels of land with a total area of almost P4,000 square meters with improvements thereon for P18,000 in 1944, another lot for P108,000 in the same year, and still another lot for P237,000 in the same year. The relatively large amounts invested may be explained by the fact that purchases were made during the Japanese occupation, apparently in Japanese military notes. In 1945, the sisters appointed their brother to manage their properties, with full power to lease, to collect and receive rents, on default of such payment, to bring suits against the defaulting tenants, to sign all letters and contracts, etc. The properties therein involved were rented to various tenants, and the sisters, through their brother as manager, realized a net rental income of P5,948 in 1945, P7,498 in 1946, and P12,615 in 1948. In 1954, the Collector of Internal Revenue demanded of them among other things, payment of income tax on corporations from the year 1945 to 1949, in the total amount of P6,157, including surcharge and compromise. Dissatisfied with the said assessment, the three sisters appealed to the Court of Tax Appeals, which court decided in favor of the Collector of Internal Revenue. On appeal to us, we affirmed the decision of the Tax Court. We found and held that considering all the facts and circumstances sorrounding the case, the three sisters had the purpose to engage in real estate transactions for monetary gain and then divide the same among themselves; that they contributed to a common fund which they invested in a series of transactions; that the properties bought with this common fund had been under the management of one person with full power to lease, to collect rents, issue receipts, bring suits, sign letters and contracts, etc., in such a manner that the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit; and that the said sisters had the intention to constitute a partnership within the meaning of the tax law. Said sisters in their appeal insisted that they were mere co-owners, not co-partners, for the reason that their acts did not create a personality independent of them, and that some of the characteristics of partnerships were absent, but we held that when the Tax Code includes "partnerships" among the entities subject to the tax on corporations, it must refer to organizations which are not necessarily partnerships in the technical sense of the term, and that furthermore, said law defined the term "corporation" as including partnerships no matter how created or organized, thereby indicating that "a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations"; that besides, said section 84 (b) provides that the term "corporation" includes "joint accounts" (cuentas en participacion) and "associations", none of which has a legal personality independent of that of its members. The decision cites 7A Merten's Law of Federal Income Taxation. In the present case, the two companies contributed money to a common fund to pay the sole general manager, the accounts and office personnel attached to the office of said manager, as well as for the maintenance and operation of a common maintenance and repair shop. Said common fund was also used to buy spare parts, and equipment for both companies, including tires. Said common fund was also used to pay all the salaries of the personnel of both companies, such as drivers, conductors, helpers and mechanics, and at the end of each year, the gross income or receipts of both companies were merged, and after deducting therefrom the gross expenses of the two companies, also merged, the net income was determined and divided equally between them, wholly and utterly disregarding the expenses incurred in the maintenance and operation of each company and of the individual income of said companies.

From the standpoint of the income tax law, this procedure and practice of determining the net income of each company was arbitrary and unwarranted, disregarding as it did the real facts in the case. There can be no question that the receipts and gross expenses of two, distinct and separate companies operating different lines and in some cases, different territories, and different equipment and personnel at least in value and in the amount of salaries, can at the end of each year be equal or even approach equality. Those familiar with the operation of the business of land transportation can readily see that there are many factors that enter into said operation. Much depends upon the number of lines operated and the length of each line, including the number of trips made each day. Some lines are profitable, others break above even, while still others are operated at a loss, at least for a time, depending, of course, upon the volume of traffic, both passenger and freight. In some lines, the operator may enjoy a more or less exclusive exclusive operation, while in others, the competition is intense, sometimes even what they call "cutthroat competition". Sometimes, the operator is involved in litigation, not only as the result of money claims based on physical injuries ar deaths occassioned by accidents or collisions, but litigations before the Public Service Commission, initiated by the operator itself to acquire new lines or additional service and equipment on the lines already existing, or litigations forced upon said operator by its competitors. Said litigation causes expense to the operator. At other times, operator is denounced by competitors before the Public Service Commission for violation of its franchise or franchises, for making unauthorized trips, for temporary abandonement of said lines or of scheduled trips, etc. In view of this, and considering that the Batangas Transportation and the Laguna Bus operated different lines, sometimes in different provinces or territories, under different franchises, with different equipment and personnel, it cannot possibly be true and correct to say that the end of each year, the gross receipts and income in the gross expenses of two companies are exactly the same for purposes of the payment of income tax. What was actually done in this case was that, although no legal personality may have been created by the Joint Emergency Operation, nevertheless, said Joint Emergency Operation joint venture, or joint management operated the business affairs of the two companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. For the foregoing reasons, and in the light of our ruling in the Evangelista vs. Collector of Internal Revenue case,supra, we believe and hold that the Joint Emergency Operation or sole management or joint venture in this case falls under the provisions of section 84 (b) of the Internal Revenue Code, and consequently, it is liable to income tax provided for in section 24 of the same code. The second important question to determine is whether or not the Collector of Internal Revenue, after appeal from his decision to the Court of Tax Appeals has been perfected, and after the Tax Court Appeals has acquired jurisdiction over the appeal, but before the Collector has filed his answer with the court, may still modify his assessment, subject of the appeal, by increasing the same. This legal point, interesting and vital to the interests of both the Government and the taxpayer, provoked considerable discussion among the members of this Tribunal, a minority of which the writer of this opinion forms part, maintaining that for the information and guidance of the taxpayer, there should be a definite and final assessment on which he can base his decision whether or not to appeal; that when the assessment is appealed by the taxpayer to the Court of Tax Appeals, the collector loses control and jurisdiction over the same, the jurisdiction being transferred automatically to the Tax Court, which has exclusive appellate jurisdiction over the same; that the jurisdiction of the Tax Court is not revisory but only appellate, and therefore, it can act only upon the amount of assessment subject of the appeal to determine whether it is valid and correct from the standpoint of the taxpayer-appellant; that the Tax Court may only correct errors committed by the Collector against the taxpayer, but not those committed in his favor, unless the Government itself is also an appellant; and that unless this be the rule, the Collector of Internal Revenue and his

agents may not exercise due care, prudence and pay too much attention in making tax assessments, knowing that they can at any time correct any error committed by them even when due to negligence, carelessness or gross mistake in the interpretation or application of the tax law, by increasing the assessment, naturally to the prejudice of the taxpayer who would not know when his tax liability has been completely and definitely met and complied with, this knowledge being necessary for the wise and proper conduct and operation of his business; and that lastly, while in the United States of America, on appeal from the decision of the Commissioner of Internal Revenue to the Board or Court of Tax Appeals, the Commissioner may still amend or modify his assessment, even increasing the same the law in that jurisdiction expressly authorizes the Board or Court of Tax Appeals toredetermine and revise the assessment appealed to it. The majority, however, holds, not without valid arguments and reasons, that the Government is not bound by the errors committed by its agents and tax collectors in making tax assessments, specially when due to a misinterpretation or application of the tax laws, more so when done in good faith; that the tax laws provide for a prescriptive period within which the tax collectors may make assessments and reassessments in order to collect all the taxes due to the Government, and that if the Collector of Internal Revenue is not allowed to amend his assessment before the Court of Tax Appeals, and since he may make a subsequent reassessment to collect additional sums within the same subject of his original assessment, provided it is done within the prescriptive period, that would lead to multiplicity of suits which the law does not encourage; that since the Collector of Internal Revenue, in modifying his assessment, may not only increase the same, but may also reduce it, if he finds that he has committed an error against the taxpayer, and may even make refunds of amounts erroneously and illegally collected, the taxpayer is not prejudiced; that the hearing before the Court of Tax Appeals partakes of a trial de novo and the Tax Court is authorized to receive evidence, summon witnesses, and give both parties, the Government and the taxpayer, opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected, may be determined and decided, whether resulting in the increase or reduction of the assessment appealed to it. The result is that the ruling and doctrine now being laid by this Court is, that pending appeal before the Court of Tax Appeals, the Collector of Internal Revenue may still amend his appealed assessment, as he has done in the present case. There is a third question raised in the appeal before the Tax Court and before this Tribunal, namely, the liability of the two respondent transportation companies for 25 per cent surcharge due to their failure to file an income tax return for the Joint Emergency Operation, which we hold to be a corporation within the meaning of the Tax Code. We understand that said 25 per cent surcharge is included in the assessment of P148,890.14. The surcharge is being imposed by the Collector under the provisions of Section 72 of the Tax Code, which read as follows: The Collector of Internal Revenue shall assess all income taxes. In case of willful neglect to file the return or list within the time prescribed by law, or in case a false or fraudulent return or list is willfully made the collector of internal revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make and file a return list within the time prescribed by law or by the Collector or other internal revenue officer, not due to willful neglect, the Collector, shall add to the tax twenty-five per centum of its amount, except that, when the return is voluntarily and without notice from the Collector or other officer filed after such time, it is shown that the failure was due to a reasonable cause, no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the

amount so added shall be collected in the same manner as the tax. We are satisfied that the failure to file an income tax return for the Joint Emergency Operation was due to a reasonable cause, the honest belief of respondent companies that there was no such corporation within the meaning of the Tax Code, and that their separate income tax return was sufficient compliance with the law. That this belief was not entirely without foundation and that it was entertained in good faith, is shown by the fact that the Court of Tax Appeals itself subscribed to the idea that the Joint Emergency Operation was not a corporation, and so sustained the contention of respondents. Furthermore, there are authorities to the effect that belief in good faith, on advice of reputable tax accountants and attorneys, that a corporation was not a personal holding company taxable as such constitutes "reasonable cause" for failure to file holding company surtax returns, and that in such a case, the imposition of penalties for failure to file holding company surtax returns, and that in such a case, the imposition of penalties for failure to file return is not warranted1 In view of the foregoing, and with the reversal of the appealed decision of the Court of Tax Appeals, judgment is hereby rendered, holding that the Joint Emergency Operation involved in the present is a corporation within the meaning of section 84 (b) of the Internal Revenue Code, and so is liable to incom tax under section 24 of the code; that pending appeal in the Court of Tax Appeals of an assessment made by the Collector of Internal Revenue, the Collector, pending hearing before said court, may amend his appealed assessment and include the amendment in his answer before the court, and the latter may on the basis of the evidence presented before it, redetermine the assessment; that where the failure to file an income tax return for and in behalf of an entity which is later found to be a corporation within the meaning of section 84 (b) of the Tax Code was due to a reasonable cause, such as an honest belief based on the advice of its attorneys and accountants, a penalty in the form of a surcharge should not be imposed and collected. The respondents are therefore ordered to pay the amount of the reassessment made by the Collector of Internal Revenue before the Tax Court, minus the amount of 25 per cent surcharge. No costs. Bengzon, Paras, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Reyes, A. J., concurs in the result.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. Nos. L-32347-53 December 26, 1973 AGUSTIN ABONG, petitioner, vs. THE WORKMEN'S COMPENSATION COMMISSION, NELLY BALLARES, ANACORITA DAHIL-DAHIL, MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO, SHIRLEY LOZADA and ROSARIO ALOVA,respondents. Pelaez, Jalandoni and Jamir for petitioner.

Pagano C. Villavieja for respondent Workmen Compensation Commission. Labaton and Labaton for private respondents.

ESGUERRA, J.: I. STATEMENT OF THE CASE Appeal by certiorari from the decision of the Workmen's Compensation Commission, awarding compensation to private respondents. II. FACTS OF THE CASE The undisputed facts as borne out by the record are follows: Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanita Monteroyo and Wilfredo Monteroyo and Demetrio Escoreal, all decent were members of a fishing outfit, the "IWAG" or more popularly called the "ALEX", owned by petitioner herein, Dr. Agustino R. Abong. On May 15, 1966, this fishing outfit set out to sea somewhat off the coast of Northern Negros. The decedents were among the 70 crew members who were loaded on two big bancas, 8 small fishing boats locally known as "lawagan" and one towing motorboat. While they were, thus, fishing, typhoon "IRMA" passed along their way, scattering the boats and blowing them far out into the open sea. The tragedy netted eight (8) dead while some sixty (60) men survived the disaster. 1 As a consequence of the incident seven (7) notices and claims for death compensation were filed with the Bacolod Sub-Regional Office (or Regional Office No. VII) of the Department of Labor by herein private respondents on June 1, 1966. A copy of the notices and claims were sent to petitioner Dr. Agustino R. Abong by registered mail at his place of business, but the envelopes containing said notices and claims were returned unclaimed, although petitioner was personally notified thrice. Thereafter, counsel for private respondents on July 6, 1966, and July 14, 1966, respectively, filed an exparte motion with the Bacolod Sub-Regional Office of the Workmen's Compensation Commission to declare petitioner in default, which motion was granted. Thereupon, claimants were allowed to present their evidence. Finding the claims of the private respondents to be allied in nature, the cases were consolidated. 2 After due hearing before Acting Referee, Bertito D. Dadivas, he rendered on August 1, 1966, a decision granting the claims, the pertinent portions of which are quoted as follows: In the light of the testimonies of herein claimants and their principal witness, Filomeno Pason, who is a survivor of that unfortunate tragedy and who personally witnessed the deaths of all eight (8) deceased workers of respondent, there is no doubt at all that their deaths arose out of and in the course of their employment as "washing" or helpers and light tenders of respondent Dr. Agustino R. Abong. Under Sections 2 and 8 of the Workmen's Compensation Act, as amended, the deaths of above deceased persons are, therefore, compensable. In granting this award it should be considered that two of the eight

deceased workers Noel Lahao-lahao and Wilfredo Monteroyo were minors at the time of employment. Respondent herein has also failed to submit a report of this accident "as soon as possible after the occurence of an injury resulting in absence from work for a day or more"; nor registered himself or his business enterprise in accordance with Sections 37 and 56 of the Workmen's Compensation Act, otherwise known as Republic Act No. 3428. Section 4-A of the Workmen's Compensation Act provides for payment of an additional compensation equal to fifty per centum of the compensation to be awarded, in case of failure of the employer to comply with any order, rule or regulation of the Workmen's Compensation Act in the event of the death of the employee or employees concerned. Wherefore, under the law, the claimants are entitled to compensation and respondent is hereby ordered: 1. To pay to claimant, ANACORITA DAHIL-DAHIL the sum of SIX THOUSAND PESOS (P6,000.00), plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00), plus the further sum of TWO HUNDRED PESOS as burial expenses, through this Office; 2. To pay to claimant, NELLY BALLARES, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00) plus the further sum of TWO HUNDRED PESOS (P200.00), as burial expenses through this Office; 3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00), or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00), plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00), through this Office; 4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND ONE HUNDRED TWENTY PESOS (P5,120.00) plus 50% penalty in the sum of TWO THOUSAND FIVE HUNDRED SIXTY PESOS (P2,560.00) or the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS (P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00) through this Office; 5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00), plus the further sum of TWO HUNDRED PESOS (P200.00) for burial expenses, through this Office; 6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) representing compensation for the death of her husband, Juanito; and TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00) or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00) representing compensation for the death of her son, Wilfredo; plus the further sum of

FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito and Wilfredo Monteroyo; or a grand total for these two cases of THIRTEEN THOUSAND THREE HUNDRED PESOS (P13,300.00), through this Office; 7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum of TWO THOUSAND SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as attorney's fees; and
8. To pay to the Workmen's Compensation Fund, through this Office, the sum of FIVE HUNDRED TWENTY PESOS (P520.00), pursuant to Section 55 of the Workmen's Compensation Act, as amended." 3

On September 14, 1966, herein petitioner filed a (1) motion to set aside the order declaring him in default and a (2) separate motion to set aside the Decision of the Acting Referee, to which seasonable oppositions were interposed by private respondents on September 26, 1966. 4 On October 25, 1966, Acting Referee Bertito D. Dadivas issued an Order denying both motions of petitioner. 5 A motion for reconsideration was then filed by petitioner on November 4, 1966, raising, inter alia, the fundamental question of jurisdiction and denial of due process. 6 An opposition thereto was interposed by private respondents on November 10, 1966. 7 On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmen Compensation Commission rendered a decision affirming the earlier decision of the referee. 8 On April 17, 1970, petitioner sought the review of the decision of Associate (Medical) Commission Castelo-Sotto by the respondent Workmen's Compensation Commission sitting en banc, but the latter however affirmed the decision with the modification that the 50% additional compensation earlier imposed as penalty was eliminated, in its resolution of July 7, 1970. 9 Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse decision against him. III. ISSUES OF THE CASE In his brief before this Court the petitioner imputes five errors committed by respondent Workmen's Compensation Commission, viz: 1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN HOLDING THAT THERE WAS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE DECEASED CREW MEMBERS OF THE "IWAG" FISHING OUTFIT. 2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT DECLARING ITSELF WITHOUT JURISDICTION OVER THE CLAIMS FOR DEATH BENEFITS. 3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE DEATH OF

THE DECEASED CREW MEMBER IS COMPENSABLE UNDER THE WORKMEN'S COMPENSATION ACT, AS AMENDED, IN FINDING PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION. 4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING PETITIONER HIS RIGHT TO BE HEARD. 5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN GRANTING EXCESSIVE AWARDS TO THE CLAIMANTS. The pivotal issue requiring determination is who is the statutory employer of the decedents and who should be liable for their death compensation. Nevertheless, We take up the merits of the points raised ad seriatim. IV. DISCUSSION As regards the first three interrelated assigned errors, there is a faint attempt by petitioner Agustino R. Abong to evade liability by advancing the theory that he had absolutely no voice or intervention in the choice, hiring, dismissing, control, supervision and compensation of the fishermen-crew members, and that these matters, which are the essence of employer-employee relationship, are the sole responsibility of the team leader, Simplicio Panganiban, and the team-members or crew pursuant to their Agreement (Exhibit "G"). 10 The contention of petitioner is devoid of merit. It should be pointed out that this case is an appeal from the decision of the Workmen's Compensation Commission. And in this class of proceedings, only questions of law should be raised, the findings of facts made by the Commission being conclusive and binding upon this Court. 11Although this Court is authorized to inquire into the facts, it only does so when the conclusions therefrom are not supported by the evidence. In the case at bar, however, this Court finds the findings of fact made by Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., and concurred in by the Commission en banc to be fully supported by the evidence on record which clearly points out that petitioner Agustino R. Abong is the statutory employer of the decedents. In ruling for the deceased workers, the Commission said: ... After a careful review of the evidence and the records, We are inclined to agree with the proposition, advanced by the claimant's counsel that there existed an employer-employee relationship between the respondent and the decedents. Not only that the said deceased workers worked for and in the interest of the business of the herein respondent. But that they were subject to the control, supervision, and dismissal of the respondent, thru its agent, Simplicio Panganiban, the alleged "partner" of herein respondent. And while these workers were paid in kind, or by "pakiao basis" still that fact did not alter the character of their relationship with the respondent as employees of the latter. The intervention of Simplicio Panganiban, in this case, is merely that of an agent or intermediary between the owner of the fishing boat and the members of its crew. In short, Panganiban is merely the person charged by Dr. Abong to recruit the said fishermen to work for and for the enforcement of the business venture of herein respondent. The proposition, on the other hand, of the respondent's counsel, that Dr.

Abong was not the employer of the decedents, simply because of an alleged partnership agreement, executed on March 23, 1962, between the respondent, Dr. Agustino R. Abong, as "Financier" and Simplicio Panganiban, as his "Team leader", is intended certainly as a very clever device designed primarily to exempt the employer from answering any liability under the provisions of the Workmen's Compensation Act, as amended. The said contract of partnership while it may be considered as valid and lawful, between the signatories thereto, the respondent Dr. Abong and his "partner" or agent, Simplicio Panganiban, nowhere in that said agreement did the decedents or their heirs in interests take any participation or manifested their conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between them, it cannot bind the non-signatories thereto, like the deceased fishermen. The case invoked by the respondent (Pajarillo, et al., vs. Social Security System, G.R. No. L-21930, August 31, 1966) can not be legally applied in the instant case, for the simple reason that the facts in that aforesaid case are not the same as those in the case at bar. Moreover, we are of the view, that the said Pajarillo case may be good only as far as the Social Security System, for purposes of membership thereat, is concerned and is not readily applicable to cases involving Workmen's Compensation claims as the one at bar. For here, the contract of partnership, if valid, only binds the parties thereto, and the decedents in this case, as the records will show, were never a party signatory thereto. How then can we tie them to that partnership agreement when it only holds the two-party, Abong and Panganiban, as the sole partners in that agreement? Furthermore, even if Panganiban will be considered as an independent contractor, which he is not, his position as such will not relieve the employer, respondent Abong, from his liability under the Act. It is welldefined in the Act, that an employer includes every person or association of persons, incorporated or not, public or private, and the legal representatives of the deceased employer. It includes the owner or manager of the business carried on in the establishment or place of work but who, for the reason that there is an independent contractor in the same, or for any other reason, is not the direct employer of laborers employed there. (Section 39, paragraph[s], Workmen's Compensation Act, as amended).
xxx xxx xxx 12

As pointed out by the Commission's findings, the fundamental bases showing that petitioner, Dr. Agustino R. Abong, is the employer, are present, namely, the selection and engagement of the employee; the payment of wages; the power of dismissal and the employer's power to control the employees' conduct. 13 These powers were lodged in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his "partner". On this score alone, the petitioner for review must fail. It is well-settled that employer-employee relationship involves findings of fact which are conclusive and binding and not subject to review by this Court. 14 Petitioner also argues that he was denied his right to heard. 15 It is contended that petitioner was not properly notified of the proceedings against him.

The assigned error merits scant consideration. Proper notices and claims for compensation together with a formal letter to accomplish WCC Form No. 3 Employer's Report Accident or Sickness were duly served upon petitioner at his place of business in Sagay, Negros Occidental. 16 His failure to claim his mail and to answer the claims or controvert the same and to accomplish WCC Form No. 3, are fatal errors which cannot be repaired at this time. It needs no argument to show that service by registered mail is deemed completed upon petitioner's failure to claim his mail from the post office within five (5) days from the first notice sent by the postmaster. 17 The further contention that the "notices" should have been sent his place of residence in Bacolod City is of no moment either. Section 26 of Republic Act No. 3428, as amended, provides: SEC. 26. Delivery of notice and claim ... . The notices shall be served by personal delivery or by sending it by registered letter addressed to the employer at his last known residence or at his place of business. (Emphasis supplied) Clearly, there was no error in sending petitioner's mails to his place of business at Sagay, Negros Occidental. And now We come to the last point. It is contended that respondent Commission erred in granting excessive awards the claimants. We find this contention incorrect. The Commission's findings relative to the wages of the decedents are findings facts which are not open to review by this Court as the same are supported by substantial evidence on record. 18We, therefore, find no cogent reason to disturb the Commission's findings on this point. V. CONCLUSION Under the circumstances, private respondents' claim should be upheld not only because they are supported by the evidence on record, but also because the Workmen's Compensation Act is a social legislation designed to give relief to the workman who has been the victim of an accident in the pursuit of his employment, and the law must be liberally construed to attain the purpose for which it was enacted. 19 Moreover, this Tribunal finds no reason in this case to depart from the rule which limits its appellate jurisdiction to the review of errors of law only, accepting as conclusive the factual findings of the Workmen's Compensation Commission which in this case are supported by substantial evidence. VI. JUDGMENT ACCORDINGLY, the assailed decision is hereby fully affirmed. Costs against the petitioner. Makalintal C.J., Castro, Teehankee, Makasiar and Muoz Palma, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 75875 December 15, 1989 WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents. G.R. No. 75951 December 15, 1989 SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners, vs. THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents. G.R. Nos. 75975-76 December 15, 1989 LUCIANO E. SALAZAR, petitioner, vs. SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents. Belo, Abiera & Associates for petitioners in 75875. Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.: These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI. The antecedent facts can be summarized as follows: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the

Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation." The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation: 3. Articles of Incorporation (a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for (1) Cumulative voting for directors: xxx xxx xxx 5. Management (a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as AmericanStandard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by AmericanStandard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875) At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions. Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals. The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the ninemember board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76) These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino

Cruz claimed to be the legitimate directors of the corporation. The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision. The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission. Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors: I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL. II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW. III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875) Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds: 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by stockholders and the replacement of the conditions of such agreements with terms never contemplated by the stockholders but merely dictated by the CA . 11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 1415, Rollo-75975-76) On the other hand, the petitioners in G.R. No. 75951 contend that: I THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW. II THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951) The issues raised in the petitions are interrelated, hence, they are discussed jointly. The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors. The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture. They specifically mention number 16 under Miscellaneous Provisions which states: xxx xxx xxx c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875) They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties. The parol evidence Rule under Rule 130 provides: Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the validity of the agreement is put in issue by the pleadings. (b) When there is an intrinsic ambiguity in the writing. Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit: xxx xxx xxx 4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417) It has been ruled: In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC: According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority. An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate

acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)]. The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2). xxx xxx xxx It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder. Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5) Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties. Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the

least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens. The Lagdameo Group stated in their appellees' brief in the Court of Appeal In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the exercise of their voting rights. Sec. 100. Agreements by stockholders.xxx xxx xxx 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof). Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation. In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied principles of corporation law designed primarily for public issue corporations. These courts have indicated that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev.

p. 680,1958). These American cases dealt with legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied on the orthodox principles of corporation law. As correctly held by the SEC Hearing Officer: It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16) Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain: Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405) In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94) In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI. Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special relationships with each other to pursue and implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not adversely affect third parties. In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to be done is to give life and effect to the particular contractual rights and obligations which the parties have assumed for themselves. On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected. In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and

the laws if ASI is allowed to nominate more than three directors. (Rollo75875, pp. 38-39) The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides: And provided finally that the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975) The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint venture with clearly defined agreements: The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981) Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556). Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote their additional equity lies in the agreement of the parties. Necessarily, the appellate court was correct in upholding the agreement of the parties as

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

the Filipino stockholders are allowed to select their nominees separately and not as a common slot determined by the majority of their group. Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality. The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should be maintained. WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875. SO ORDERED. Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

EN BANC

DECISION September 7, 1929 G.R. No. 31057 ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-appellants. Marcelino Lontok and Manuel dela Rosa for appellants.

Sumulong & Lavides for appellees. VILLAMOR, J.:

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association. It is well to remember that this case is now brought before the consideration of this court for the second time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil. 345.) The case having been remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present. The commissioner rendered his report, which is attached to the record, with the following resume: Income: Member's shares............................ 97,263.70 Credits paid............................... v8XKyG3Y. 6,196.55 Interest received........................... 4,569.45 Miscellaneous............................... 1,891.00 P109,620.70 Expenses: Premiums to members...................... UWwMpFGa. 68,146.25 Loans on real-estate...................... xNs8j.

9,827.00 Loans on promissory notes............. blMDP7hgnf. 4,258.55 Salaries.................................... 1,095.00 Miscellaneous............................... 1,686.10 85,012.90 Cash on hand........................................ 24,607.80 The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs, with costs against the defendants. The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted by the court below. As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed. With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of opinion that, the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioner's report, the conclusion reached by the court below, accepting and adopting the findings of fact contained in said report, and especially those referring to the disposition of the association's money, should not be disturbed ih5iTRNii. In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil. 516), it was held that the findings of facts made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil. 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside the report or recommit it to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their

objection. The trial examined the evidence and the commissioner's report, and accepted the findings of fact made in the report. We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion admitting the commissioner's findings. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil. 962), but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides: A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province. Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution. We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said article Manresa, among other things says: When the subscriptions of the members have been paid to the management of the partnership, and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return of the reimbursement thereof from the manager or administrator withholding them? Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution? The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action. And he adds in explanation that

the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or in other words, to breathe the breath of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it. But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract as non-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it. Hence the distinction made in the second paragraph of this article of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province. This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them KGlLAJM. The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different. Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264) The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner that it may deem proper. So ordered.

Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur. .

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21906 December 24, 1968

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

the area applied for by Casteel, upon certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own fishpond application for the area covered by Casteel's application. Because of the threat poised upon his position by the above applicants who entered upon and spread themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built. Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative cases ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539C, Alejandro Cacam, Permittees-Respondents." However, despite the finding made in the investigation of the above administrative cases that Casteel had already introduced improvements on portions of the area applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had introduced on the land, and ordered that the land be leased through public auction. Failing to secure a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and Natural Resources. In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the appellant's third assignment of error. On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part, executed a contract denominated a "contract of service" the salient provisions of which are as follows: That the Party of the First Part in consideration of the mutual covenants and agreements made herein to the Party of the Second Part, hereby enter into a contract of service, whereby the Party of the First Part hires and employs the Party of the Second Part on the following terms and conditions, to wit: That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part who renders only his services for the construction and improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of Davao, Philippines; That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will be produced from said fishpond; That the Party of the First Part will be the administrator of the same she having financed the construction and improvement of said fishpond; That this contract was the result of a verbal agreement entered into between the Parties sometime in the month of November, 1947, with all the above-mentioned

conditions enumerated; ... On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being periodically realized from it...." On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation. On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353, the dispositive portion of which reads as follows: In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor Casteel should be, as hereby it is, reinstated and given due course for the area indicated in the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected. On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating as follows: WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay the improvements introduced thereon by said permittees in accordance with the terms and dispositions contained elsewhere in this decision.... Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises. Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and abide by the terms and conditions of said contract and that Inocencia Deluao be allowed to continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in damages. On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among other things, that during the pendency of the case and upon their filling the requisite bond as may be fixed by the court, a preliminary injunction be issued to restrain Casteel from doing the acts complained of, and that after trial the said injunction be made permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory injunction addressed to Casteel, the dispositive portion of which reads as follows:

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos usu abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que continue administrando personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda de autos. On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26, 1961. The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs on January 31, 1952. The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs opposed his motion. The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower court in its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same fate when it was likewise denied by the lower court in its order of November 12, 1951. After the issues were joined, the case was set for trial. Then came a series of postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open court, reading as follows: . Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning. This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any other transfer of hearing of this case and if the parties will not be ready on that day set for hearing, the court will take the necessary steps for the final determination of this case. (emphasis supplied) On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion, the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows: This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed by the counsel for the defendants and has the conformity of the counsel for the plaintiffs. An examination of the records of this case shows that this case was initiated as early as April 1951 and that the same has been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since

September 24, 1953, and that various incidents have already been considered and resolved by Judge Fernandez on various occasions. The last order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely states that the Court will not entertain any further postponement of the hearing of this case. CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of any incident referring to this case should be referred back to Branch I, so that the same may be disposed of therein. (emphasis supplied) A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956. On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez presiding), when informed about the defendants' motion for postponement filed on April 26, 1956, issued an order reiterating its previous order handed down in open court on March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956 the dispositive portion of which reads as follows: EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del demandado Nicanor Casteel: (a) Declara permanente el interdicto prohibitorio expedido contra el demandado; (b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad () del "fishpond" en cuestion con todas las mejoras existentes dentro de la misma; (c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que entregue la posesion y administracion de la porcion del "fishpond" en conflicto; (d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda de autos hasta el completo pago de la obligacion principal; (e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos por aquella durante la pendencia de esta causa; (f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00; (g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere al demandado Juan Depra; (h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas; (i) Con las costas contra del demandado, Casteel. The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter

alia, lack of knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied by the lower court in its order of May 21, 1956, the pertinent portion of which reads as follows: The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been transferred or not, but to inquire from the presiding Judge, particularly because his motion asking the transfer of this case was not set for hearing and was not also acted upon. Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows: Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the morning. This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any other transfer of the hearing of this case, and if the parties will not be ready on the day set for hearing, the Court will take necessary steps for the final disposition of this case. In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the attention of the same to the existence of his motion for transfer. Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby denied. Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final determination on the ground that it involves only questions of law. Casteel raises the following issues: (1) Whether the lower court committed gross abuse of discretion when it ordered reception of the appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the appellant of his day in court and of his property without due process of law; (2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for relief from judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court; and (3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction against defendant-appellant, and in not dismissing appellees' complaint. 1. The first and second issues must be resolved against the appellant. The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that, since the case had been pending since April 3, 1951, it would not entertain any further motion for transfer of the scheduled hearing. An order given in open court is presumed received by the parties on the very date and

time of promulgation,1 and amounts to a legal notification for all legal purposes.2 The order of March 21, 1956, given in open court, was a valid notice to the parties, and the notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk of court" setting the hearing in another branch of the same court, the former's order was the one legally binding. This is because the incidents of postponements and adjournments are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court. Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage from one sala to another without authority or order from the court where the case originated and was being tried. He had neither the duty nor prerogative to reassign the trial of the case to a different branch of the same court. His duty as such clerk of court, in so far as the incident in question was concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court and not upon the "special deputy clerk of court" who purportedly signed the notice of hearing. It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The postponement of hearings does not depend upon agreement of the parties, but upon the court's discretion.3 The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven other counsel of record. This is a well-settled rule in our jurisdiction.4 It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have no right to presume that their motions for postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of Judge Fernandez who presided over Branch I. There was, therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez had exclusive control of said case, unless he was legally inhibited to try the case and he was not. There is truth in the appellant's contention that it is the duty of the clerk of court not of the Court to prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala to another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within the exclusive control of the presiding judge. The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of court of the Court of First Instance of Davao was located directly below Branch I. If the appellant and his counsel had exercised due diligence, there was no impediment to their going upstairs to the second storey of the Court of First Instance building in Davao on May 2, 1956 and checking if the case was scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the office of the clerk of court. The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was properly accorded this right. He was notified in open court on March 21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for

postponement. In the cited case the motion for postponement was the first one filed by the defendant; in the case at bar, there had already been a series of postponements. Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did not spend for a long time, the case at bar was only finally and intransferably set for hearing on March 21, 1956 after almost five years had elapsed from the filing of the complaint on April 3, 1951. The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one month and ten days to do so. In effect, the appellant had waived his right to appear at the trial and therefore he cannot be heard to complain that he has been deprived of his property without due process of law.7 Verily, the constitutional requirements of due process have been fulfilled in this case: the lower court is a competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject matter of the action; the defendant (appellant) was given an opportunity to be heard; and judgment was rendered upon lawful hearing.8 2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint. We find this contention meritorious. Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the appellees' contention that it created a contract of co-ownership and partnership between Inocencia Deluao and the appellant over the fishpond in question. Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the law. It must be assumed, conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of the mandatory and prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the said laws, it must likewise be assumed in fairness to the parties that they did not intend to violate them. This view must perforce negate the appellees' allegation that exhibit A created a contract of co-ownership between the parties over the disputed fishpond. Were we to admit the establishment of a coownership violative of the prohibitory laws which will hereafter be discussed, we shall be compelled to declare altogether the nullity of the contract. This would certainly not serve the cause of equity and justice, considering that rights and obligations have already arisen between the parties. We shall therefore construe the contract as one of partnership, divided into two parts namely, a contract of partnership to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond between them after such award. The first is valid, the second illegal. It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service" on November 25, 1949, there were two pending applications over the fishpond. One was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same area which was likewise rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that as it may, they were not however precluded from exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's application over the same area whichever event happened first. No law, rule or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated it.

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

the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership because each refused to share the fishpond with the other. Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "... any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership." The approval of the appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution. Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting the fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural Resources.15 To the same effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not transfer or sublet all or any area herein granted or any rights acquired therein without the previous consent and approval of this Office." Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for the reason that his permit covered a portion of the area included in the appellant's prior fishpond application, but also because, upon investigation, it was ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop with the latter's capital the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos) would be given a share in the produce thereof.16 Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided, That assignment, encumbrance, or subletting for purposes of speculation shall not be permitted in any case:Provided, further, That nothing contained in this section shall be understood or construed to permit the assignment, encumbrance, or subletting of lands leased under this Act, or under any previous Act, to persons, corporations, or associations which under this Act, are not authorized to lease public lands. Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions as he may prescribe. Thus, it states: When a transfer or sub-lease of area and improvement may be allowed. If the permittee or lessee had, unless otherwise specifically provided, held the permit or lease and actually operated and made improvements on the area for at least one year, he/she may request permission to sub-lease or transfer the area and improvements under certain conditions. (a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first approved by the Director under such terms and conditions as may be prescribed, otherwise it shall be null and void. A transfer not previously approved or reported shall be considered sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order. Since the partnership had for its object the division into two equal parts of the fishpond

between the appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership. The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed their property right to one-half of the fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument would readily surface if one were to consider that the Secretary of Agriculture and Natural Resources did not do so for the simple reason that he does not possess the authority to violate the aforementioned prohibitory laws nor to exempt anyone from their operation. However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the fishpond with the other. On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that he could administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural Resources. By letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because there were allegedly no appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been finally resolved. The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed his determination to administer the fishpond himself because the decision of the Government was in his favor and the only reason why administration had been granted to the Deluaos was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the fishpond to the appellant, stating as a ground his belief "that only the competent agencies of the government are in a better position to render any equitable arrangement relative to the present case; hence, any action we may privately take may not meet the procedure of legal order." Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to share the fishpond with each other in direct violation of the undertaking for which they have established their partnership each must be deemed to have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is caused "by the express will of any partner at any time." In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and administrative powers with regard to the survey, classification, lease, sale or any other form of concession or disposition and management of the lands of the public domain, and, more specifically, with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the public domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al. (L-21167, March 31, 1966), that ... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural

Resources) by law regarding the disposition of public lands such as granting of licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or cancelling applications, or deciding conflicting applications, are all executive and administrative in nature. It is a well-recognized principle that purely administrative and discretionary functions may not be interfered with by the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no supervising power over the proceedings and action of the administrative departments of the government. This is generally true with respect to acts involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact by an administrative board or official, following a hearing, are binding upon the courts and will not be disturbed except where the board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion... (emphasis supplied) In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's fishpond application 1717 and awarded to him the possession of the area in question. In view of the finality of the Secretary's decision in DANR Cases 353 and 353-B, and considering the absence of any proof that the said official exceeded his statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we can do no less than respect and maintain unfettered his official acts in the premises. It is a salutary rule that the judicial department should not dictate to the executive department what to do with regard to the administration and disposition of the public domain which the law has entrusted to its care and administration. Indeed, courts cannot superimpose their discretion on that of the land department and compel the latter to do an act which involves the exercise of judgment and discretion.22 Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because present all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in the face of the knowledge later acquired by the lower court that it was the appellant's application over the fishpond which was given due course. After the Secretary of Agriculture and Natural Resources approved the appellant's application, he became to all intents and purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that an injunction should not be granted to take property out of the possession and control of one party and place it in the hands of another whose title has not been clearly established by law.23 However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to an accounting from November 25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao to Casteel for the development and improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia Deluao continued in possession and enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer in the concept of a capitalist partner but merely as creditor of the appellant, and therefore, she must likewise submit in the lower court an accounting of the proceeds of the sales of all the fishes harvested from the fishpond from September 16, 1950 until Casteel shall have been finally given the possession and enjoyment of the same. In the event that the appellee Deluao has received more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon per annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and (3) remanding this case to the court of origin for the reception of evidence relative to the accounting that the parties must perforce render in the premises, at the termination of which the court shall render judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4811 July 31, 1953

CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant. Taada, Pelaez & Teehankee for defendant and appellant. Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant. LABRADOR, J.: On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most important provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement was arrived at after various conferences and consultations by and between them, with the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A. The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the agreement being not first signed. On that day plaintiff

and defendant went to the United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until the first week of February, 1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948. When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the product had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible settlement. as none could be arrived at, the present action was instituted. In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have appealed. The most important question of fact to be determined is whether defendant had falsely represented that he had an exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract prior to the final one can not be considered for the purpose of determining the issue, as they are presumed to have been already integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void. Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive grantee of a franchise, thus: A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I notice from the first draft of the document

which I prepared which calls for the organization of a corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518) As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states: Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco, California, for the bottling of Mission products and their sale to the public throughout the Philippines; . . . . 3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . . (Exhibit II; emphasis ours) The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to prove how he induced the defendant to enter into it to prove the representations or inducements, or fraud, with which or by which he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said representations or inducements, on the ground that the agreement had already been entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case. That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:. . . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a poor bargaining position. . . I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during which I may consummate my plants. . . . By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal with him, he must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure, through its use, what he wanted. Plaintiff's own version of the preliminary conversation he had with defendant is to the

effect that when plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the defendant (and at that time he had already the option), he must have exultantly told defendant that he had the authority already. It is improbable and incredible for him to have disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only, and still more improbable for him to have disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the deal itself. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had not actually obtained it for himself? Defendant would not have gone into the business unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the above provision does not eliminate the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third paragraph the following: . . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . . and in paragraph 11 it also expressly states: 1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation shall be reassigned to the manager. These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise. The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud improbable. Not necessarily, because the alleged representation took place before the conferences were had, in other words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it.(t.s.n., p. 266.) We conclude from all the foregoing that plaintiff did actually represent to defendant that

he was the holder of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.) We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists: 3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable shares of the said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit II; emphasis ours.) Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers. We conclude from the above that while the representation that plaintiff had the exclusive

franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidentedefined in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an incidental matter in the agreement. El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.) Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his own conduct and suit. As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of violence to do so. Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098. Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho y porque medios. Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romanonemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud. xxx xxx xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.) The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high percentage of share in the profits. We can do no better than follow the appraisal that the parties themselves had adopted. When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant appears to have readily given his assent. It was under this understanding, which amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the franchise from the Mission Dry Corporation. With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs. Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 109248 July 3, 1995 GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

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

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to do with my own plans." On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating: "The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only have they refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The result of such policies is the formation of the union, including the assistant attorneys." On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission: "1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada; "2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership; "3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00; "4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial and which the Commission may deem just and equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00; "5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the amount of P200,000.00. "Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the premises." On 13 July 1988, respondents-appellees filed their opposition to the petition. On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that: "[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1 On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer. The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648). During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer. The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially impaired. In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues: 1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith; and 3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith; to which matters we shall, accordingly, likewise limit ourselves. A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz: The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states: "5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners." The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948): "2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5 In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power, although not

necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. 9 The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it. On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs. SO ORDERED. Feliciano, Romero, Melo and Francisco, JJ., concur.

THIRD DIVISION

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. DECISION
PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.
The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows: WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2] The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules: 1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; 2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case; a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; b. 12% interest per annum counted from date of plaintiffs invoices and

computed on their respective amounts as follows: i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990; iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990; c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court; d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); e. Cost of suit. With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants. From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and

floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.[4] The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.[7] On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim; b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11] The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss.[12] Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC. Ruling of the Court of Appeals In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled: The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code).[13] Hence, petitioner brought this recourse before this Court.[14]
The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL. III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing boatF/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat. We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed

based on the following factual findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner; (2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao; (6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim. (7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. (9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners

brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them. We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of

the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found. His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three. Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim. We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree. Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its

behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent.[17] The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable. Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel. It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing

aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailormade according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. WHEREFORE, the Petition is DENIED and Decision AFFIRMED. Costs against petitioner. SO ORDERED. Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur. Vitug, J., Pls. see concurring opinion.
Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

the

assailed

G.R. No. 134559 December 9, 1999 ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.: Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other

arising from acts executed in accordance with their agreement. The Case The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2(CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs. 3

The Facts Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank. According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company. On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. 5 Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA. Hence, this Petition. 6 Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil Code which provides: Art. 1797 The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. The CA elucidated further: In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. The Issue Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction . . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling The Petition is bereft of merit. Main Issue: Existence of a Partnership Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. 9 The pertinent portions of the Joint Venture Agreement read as follows: KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R.

TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY: WITNESSETH: That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY; Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes; NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows: ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment. SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales. THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly. FOURTH: That all general expense[s] and all cost[s] involved in the subdivision project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project. FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the . . . percentage [agreed upon] by both parties. SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. 11 It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property. Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry. Petitioners Bound by Terms of Contract Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows: Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted. Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially

disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms. Alleged Nullity of the Partnership Agreement Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides: Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void. We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar does not involve third parties who may be prejudiced. Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice. In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced. Partnership Agreement Not the Result of an Earlier Illegal Contract Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. 15 In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land was in effect given to

the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits." Liability of the Parties Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement. We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages. WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners. SO ORDERED Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 127405 September 20, 2001

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondent. RESOLUTION YNARES-SANTIAGO, J.: The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant.1 On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner Tocao.

After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth Bantilan, during her crossexamination. Furthermore, Bantilan testified that it was Peter Lo who was the company's financier. Thus: Q - You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse Enterprise? A - William Belo is the friend of Marjorie Tocao and he was the guarantor of the company. Q What do you mean by guarantor?

A - He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can borrow money from him. Q A Q A Q A You mentioned a certain Peter Lo. Who is this Peter Lo? Peter Lo is based in Singapore. What is the role of Peter Lo in the Geminesse Enterprise? He is the one fixing our orders that open the L/C. You mean Peter Lo is the financier? Yes, he is the financier.

Q - And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct? A Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the business relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not even recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was after all petitioner Tocao's good friend and confidante, would occasionally participate in the affairs of the business, although never in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan, confirmed that petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor of the company and to help petitioner Tocao.4 Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any share in the net income of the partnership.5 On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses.7 Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and her complaint against him should accordingly be dismissed.

As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be barred to that extent. We do not agree. Given the circumstances surrounding private respondent's sudden ouster from the partnership by petitioner Tocao, her act of withholding whatever stocks were in her possession and control was justified, if only to serve as security for her claims against the partnership. However, while we do not agree that the same renders private respondent in bad faith and should bar her claim for damages, we find that the said sum of P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the partnership affairs to be submitted to the Regional Trial Court. WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after the normal accounting of the partnership affairs. SO ORDERED. Davide, Jr., Kapunan, and Pardo; JJ., concur. Puno, J., on official leave. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18010 June 21, 1922

BASILIO BORJA, petitioner-appellee, vs. P. W. ADDISON, ADELINA FERRER, VITALIANA BELISARIO, EUGENIO BELISARIO, and AURENO BELISARIO, objectors-appellants. Kincaid, Perkins and Kincaid, E. G. Turner, and C. W. Rheberg for Peter W. Addison as appellant. Alejo Mabanag for Adelina Ferrer and sons as appellants. OSTRAND, J.: This is an appeal from a decision of the Court of First Instance of Pangasinan ordering the registration, under Act No. 496, of two parcels of land in the name of the petitioner Basilio Borja. The parcels are situated in the barrio of San Francisco, municipality of Umingan, Pangasinan, and contain a total of over 326 hectares. At the trial of the case, a large number of opponents presented themselves but only two of them, P. W. Addison and Adelina Ferrer have appealed. The latter appears for herself and her three children, Vitaliana, Eugenio, and Aureno. The evidence established the following facts: (1) That one Eulalio Belisario acquired the two parcels of land in question

through information posesoria proceedings, instituted in accordance with the provisions of articles 19-21 of the Royal Decree of February 13, 1894, and recorded under the provision of the Mortgage Law. The record of the proceedings show that Belisario occupied and began to cultivate the smaller parcel of land in 1880 and the larger one in 1882. According to the somewhat vague testimony of the witness Francisco Ira, Belisario was married to Paula Ira when he took possession of the parcels which therefore probably were community property of the marriage, but this fact does not appear from the record of the informacion posesoria proceedings or from any other document presented in evidence. (2) That on December 20, 1909, Eulalio Belisario conveyed the two parcels mentioned to one Jose Castillo, reserving the right to repurchase the lands for the sum of P550 within the term of five months and two days from the date of the sale. (3) That Paula Ira, the wife of Eulalio Belisario, died on February 13, 1913, leaving as her sole heir their son Maximo Belisario. (4) That after the death of the said Paula Ira, Eulalio and Maximo Belisario occupied and administered the two parcels of land in common. (5) That on August 25, 1913, and upon certain dates subsequent thereto, the lands in question were forfeited to and confiscated by the Government for the non-payment of taxes. (6) That on July 5, 1916, in civil case No. 435 in the court of the justice of the peace of Dagupan, C. H. McClure vs. Maximo Belisario and Eulalio Belisario, an order for attachment was issued against the lands described in certain land tax declarations of which tax Nos. 5437, 5348, and 5351 refer to parts of the land inscribed in the registry of deeds as finca No. 334, and of which tax No. 5352 refers to that land inscribed in the registry of deeds as finca No. 335. (7) That on July 31, 1916, the aforesaid order and notice of attachment were served upon Maximo Belisario and Eulalio Belisario; and on August 5, 1916, the deputy provincial sheriff presented the said order and notice of attachment to the register of deeds for record, but no entries appear to have been made in the book of the registry. (8) That on October 14, 1916, pursuant to a writ of execution issued upon final judgment in said civil case No. 435, the attached lands, as specified in paragraph (6) hereof , we sold to the judgment creditor C. H. McClure, represented by Peter W. Addison. The sale was not recorded in the registry of deeds. (9) That on October 14, 1916, pursuant to a writ of execution issued upon final judgment of the court of the justice of the peace of Dagupan, in civil case No. 450, C. H. McClure vs. Felix Belisario and Eulalio Belisario, the statutory right of redemption belonging to Eulalio Belisario, of the land sold under execution in said case No. 435, was sold by the sheriff at public auction to the judgment creditor C. H. McClure, represented by Peter W. Addison. No record of this sale appears to have been made in the registry of deeds. (10) That on September 19, 1916, a writ of execution was issued upon final judgment of the court of the justice of the peace of Dagupan, in civil case No. 454, C. H. McClure vs. Eulalio Belisario, pursuant to which, on November 14, 1916, levy was made upon the undivided half of the two parcels of land in question, belonging to Eulalio Belisario and upon all right, title, and interest which he had or might have therein. (11) That on December 13, 1916, in conformity with a decision of the Supreme Court of the Philippine Islands, in the case of the Castillo vs. Belisario (35 Phil., 89). Jose Castillo

executed in favor of Eulalio Belisario a deed of resale of the two parcels of land conveyed in the sale with right to repurchase mentioned in paragraph (2) hereof. (12) That on January 11, 1917, an alias writ of execution was issued in the said civil case No. 454, mentioned in paragraph (10) hereof, pursuant to which on February 10, 1917, the judgment creditor C. H. McClure, represented by P. W. Addison, purchased at execution sale the undivided half of the two parcels of land in question, belonging to the said Eulalio Belisario, and all rights, title, interests, and ownership which the defendant in execution had or might have in and to both of said parcels of land in their entirely. This sale was duly presented for record in the registry of deed on March 1, 1917, and recorded on the 14th of the same month. (13) That on January 19, 1917, Eulalio Belisario executed in favor of Basilio Borja a deed of sale of the two parcels of land in question for P7,500, reserving the right to repurchase the lands for the same price within the term of eighteen months from the date thereof. (14) That on January 26, 1917, the said deed of sale with right to repurchase was presented for record in the registry of deeds, but inscription was refused and the deed was returned on February 5, 1917, with an official communication from the register of deeds to the effect that it favor of Jose Castillo, mentioned in paragraph (2) hereof, had not been cancelled on the record. (15) That on February 13, 1917, the deed of resale from Jose Castillo to Eulalio Belisario, mentioned in paragraph (11) hereof, was presented for record in the registry of deeds and was recorded on February 26, 1917. (16) That on March 5, 1917, an alias writ of execution was issued in civil case No. 499 of the court of the justice of the peace of Dagupan, C. H. McClure vs. Maximo Belisario and Eulalio Belisario, pursuant to which, levy was made upon all the remaining interest belonging to said defendants, in and to the two parcels of lands in question, as specified in paragraph (19) and that notice of said levy was duly presented for record and entered upon the daybook of the register of deeds on March 7, 1917. (17) That on March 27, 1917, the deed of sale with right to repurchase executed by Eulalio Belisario in favor of Basilio Borja, mentioned in paragraph (13) hereof, was entered upon the day-book of the register of deed for the first time, this entry being cancelled on April 4, 1917. (18) That on March 30, 1917, Peter W. Addison purchased at the sheriff's sale under the execution in civil case No. 499, mentioned in paragraph (16) hereof, the undivided half of the two parcels of land in question, belonging to Maximo Belisario, and all the rights, title, interests and ownership which both of the defendants in execution, Maximo Belisario and Eulalio Belisario, had or might have in and to both of the said parcels of land in their entirely (19) That on April 4, 1917, Peter W. Addison presented the certificate for the property and interest acquired at execution sale in civil case No. 499, for record in the registry of deed, the document being recorded on April 18, 1917. (20) That on November 12, 1917, in conformity with instructions received from the Judge of the Fourth Sala of the Court of First Instance of the City of Manila, the deed of sale with right to repurchase executed by Eulalio Belisario in favor of Basilio Borja and mentioned in paragraphs (13) and (18) hereof, was reinstated in the day-book and recorded in the registry of deems. (21) That on January 23, 1918, the attorney for Basilio Borja transmitted to the provincial

sheriff of Pangasinan the sum of P230 for the redemption of the property and interest sold under execution in civil case No. 454, mentioned in paragraph (12) hereof. (22) That on February 11, 1918, the attorney for Basilio Borja was informed by the said sheriff the redemption mentioned in the preceding paragraph would be allowed only upon the condition that the right of redemption be exercised in the execution sales in civil cases Nos. 435, 499, and 450, mentioned in paragraphs (8), (9), and (18) hereof. (23) That on February 16, 1918, the affidavit of C. H. McClure for the consolidacion de dominio in civil case No. 454 was presented for record in the registry of deeds, and inscribed in the registry on February 19, 1919. (24) That on June 24, 1918, the provincial sheriff of Pangasinan signed final deeds of sale for the property and interest, mentioned in paragraph (12) and (18) hereof, in favor of C. H. McClure and Peter W. Addison, the respective purchasers at execution sales in civil cases Nos. 454 and 499. (25) The on June 25, 1918, possession was delivered by the provincial sheriff of Pangasinan to Peter W. Addison, in his own representation and that of C. H. McClure, of the two parcels of land in question, sold under execution in civil cases Nos. 454 and 499. (26) That on July 3, 1918, the affidavit of Peter W. Addison for the consolidacion de dominio in civil case No. 499 was entered upon the day-book in the registry of deeds, and recorded in the registry on March 11, 1919. (27) That on July 12, 1918, C. H. McClure executed a quit-claim deed to Peter W. Addison, for all right, title, and interest that he had in the two parcels of land in question. (28) That on July 31, 1918, the deeds of sale executed by the provincial sheriff of Pangasinan, in favor of C. H. McClure in civil cases No. 454, as mentioned in paragraph (25) hereof, and the quit-claim deed executed by C. H. McClure in favor of Peter W. Addison, as mentioned in the preceding paragraph, were entered on the day-book of the registry of deeds, and inscribed in the registry on March 10, 1919. (29) That on January 21, 1919, the Director of Lands authorized Peter W. Addison to repurchase the lands in question, which had been forfeited to an confiscated by the Government, as mentioned in paragraph (5) hereof This repurchase was made under the last proviso of section 19 of Act No. 1791 and was not purchased with the formalities required for the sale of public lands by Act No. 926. (30) That on June 4, 1919, the provincial treasurer of Pangasinan issued a certificate of repurchase to Peter W. Addison, for the confiscated lands mentioned in the preceding paragraph, pursuant to which the said lands were reassessed for taxation in his name. (31) That on March 12, 1919, Eulalio Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for theconsolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. (32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs. (33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of the various sales and that in none of the

sales was the notice published more than twice in a newspaper. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. 1791. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows: 1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and condition of the property; 2. * * * * * * * 3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three public places of the municipality or city where the property is situated, and also where the property is to be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation in the province, if there be one. If there are newspaper published in the province in both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language, and in one published in the English language:Provided, however, That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos; 4. * * * * * * * Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published every Saturday afternoon. In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices. In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure

induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor, the sales must be held invalid. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in section 19 of the Act and read: . . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . . The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but has acquired no title through the redemption. The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira in 1913, Maximo Belisario, the only son and heir of the spouses, entered into the joint administration of the property with his father; that this joint administration was equivalent to the formation of a new community of property between father and son and that it succeeded and extinguished the preexisting community of property between the spouses; that the special rights of the surviving husband as liquidator of the community property of the marriage thereupon also terminated; that, therefore, the surviving husband had not right to sell or otherwise dispose of more than his own undivided share of such community property and that, consequently, the right Maximo Belisario as the sole heir of his mother to one-half of the community property was unaffected by the sale made by his father to the petitioner Borja.

This court held in the cases of Nable Jose vs. Nable Jose (41 Phil., 713) and Manuel and Laxamana vs. Losano(41 Phil., 855), that "in the absence of fraud and collusion, sales or mortgages of community property, either real or personal, made by a husbandadministrator clothed with the insignia of ownership and in whose name the property is held, after the death of his spouse, are valid and effective. the purchaser being entitled to presume that such sales or mortgages are executed for the purpose of securing money to pay community debts and that the vendor has authority to dispose of the property thus administered by him and held in his name. . . ." Though this rule is, perhaps, not in harmony with the views of various commentators upon the Civil Code, it is the main supported by a line of decisions of the supreme court of Spain and until the pertinent provisions of the Civil Code are amended, will probably not be greatly modified by future decisions of this court. There is no reason in a law why the heirs of the deceased wife may not form a partnership with the surviving husband for the management and control of the community property of the marriage and conceivably such a partnership, or rather community of property, between the heirs and the surviving husband might be formed without a written agreement. But, in the absence of the formalities prescribed by the Code of Commerce or by articles 1667 and 1668 of the Civil Code, knowledge of the existence of the new partnership or community of property must, at least, be brought home to third persons dealing with the surviving husband in regard to community real property in order to bind them by the community agreement. In the present case the land was recorded in the real property register in the name of Eulalio Belisario and there is not a scintilla of evidence to show that the petitioner herein, Basilio Borja, had any notice of the fact that Maximo Belisario participated in the administration of the property or claimed any rights or ownership therein. The case, therefore, falls squarely within the rule laid down in the cases above cited and the deed from Eulalio Belisario to Basilio Borja must be held to have conveyed to the latter the whole fee of the land in question. The decision appealed from is affirmed without costs. The registration of the land will be made subject to the lien of P. W. Addison for the sums of money expended for the redemption of the land from the forfeiture for nonpayment of taxes. So ordered. Araullo, C. J., Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur. RESOLUTION September 9, 1922. OSTRAND, J.: The appellant in a motion for reconsideration ask that the court make an express pronouncement upon the question of law and fact involved in the sale of the lands in dispute made by Eulalio Belisario to Basilio Borja with special reference to the effect thereupon of the provisions of article 1927 of the Civil Code, inasmuch as when the sale was made the appellant was a judgment creditor of the vendor and the sale therefore would be presumed fraudulent. It may be observed that such sales are not void and that until set aside in a rescissory action they are legally effective, convey title, and cannot be attacked collaterally upon the aforementioned ground in a land registration proceeding. In justice to the appellant it may, however, be advisable to expressly reserved such right of a rescissory action as he may have and to have the reservation noted upon the certificate of title.

It is therefore ordered that the decision herein rendered, and promulgated on June 21, 1922, be amended by inserting immediately after the penultimate paragraph of said section, the following paragraph: Let it be noted in the final decreed that the title is subject to the reservation of such right of action as P. W. Addison may have to set aside the sale made by Eulalio Belisario to Basilio Borja on January 19, 1917, of the land herein described, provided such action is commenced with the period prescribed by section 49 of the Code of Civil Procedure. As so amended, the decision mentioned will stand as the final judgment of this court. Araullo, C. J., Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-39607 February 6, 1934

ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs. JUAN PESAYCO, defendant-appellant. Manuel Polido and Pedro V. Jimenez for appellant. Lutero and Lutero and Ramon Maza for appellee. GODDARD, J.: In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de bagus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for this privilege and that the partners should each supply one third of the capital in case the defendant was awarded the desired privilege. The defendant, having had experience in this line, was to be the manager in case his bid was accepted. The defendant offered the sum of P5,550.09 for the year ending December 31, 1931. As a deposit of one-fourth of the amount of the bid was required each of the partners put up one third of this amount. This bid, being the highest, was accepted by the municipality and the privilege was awarded to the defendant. The latter entered upon his duties under the contract and gave an account of two sales of "semillas de bagus", to Tiburcio Lutero as representative of the plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for sufficient money to complete the payment of the first quarter which was to be paid within the first twenty days of the second quarter of the year 1931. This telegram reads as follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the municipal treasurer of San Jose, Antique (Exhibit D). The defendant managed the business from January 1,1931, and with the exception of the two sales above-mentioned, never gave any account of his catches or sales to his

partners, the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was prayed that a receiver be appointed by the court to take charge of the funds of the partnership and the management of its affairs; that the defendant be ordered to render an account of his management and to pay to the plaintiff their participation in the profits thereof; that the defendant be required to turn over to the receiver all of the funds of the partnership and that the defendant be condemned to pay the costs. The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond for the same amount. The receiver took over the management and took possession of all the devices and implements used in the catching of "semillas de bagus". At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of 975,000 "semillas de bagus" the market value of which was P3 per thousand. The defendant made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the sales thereof. This was not denied. In his two counter-complaints the defendant prays that he be awarded damages in the sum of P34,700. He denies that there was a partnership and depends principally upon the fact that the partnership agreement was not in writing. The partnership was conclusively proven by the oral testimony of the plaintiffs and other witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection to the questions asked with regard to the forming of this partnership. This court has held that if a party permits a contract, which the law provides shall be in writing, to be proved, without objection as to the form of the proof, it is just as binding as if the statute had been complied with. However, we cannot agree with the appellant that one of the requisites of a partnership agreement such as the one under consideration, is that it should be in writing. Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever, unless real property or real rights are contributed to the same, in which case a public instrument shall be necessary." Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code, which controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.) A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261, 1278-1280, 1667, Civil Code; arts. 116-119, 51, Code of Commerce.)Thunga Chui vs. Que Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.) The dispositive part of the decision of the trial court reads as follows: Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo durante su administracion de este negocio, semillas de bagus por valor de P2,925 que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado declara al demandado en deber a la sociedad, compuesta por demandantes y demandado, en la suma de P2,925, importe de 975,000 semillas de bagus a P3 el millar, y ordena que entregue esta suma al depositario judicial nombrado, como fondos de dicha sociedad.

Se sobreseen las contrademandas y se condena en costas al demandado. Asi se ordena. This decision is affirmed with costs in both instances against the defendant-appellant. So ordered. Malcolm, Villa-Real, Hull, and Imperial, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees. Angeles, Maskarino and Associates for plaintiff-appellant. Victorio S. Advincula for defendants-appellees. CONCEPCION, C.J.: In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is based. Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August 29, 1952, copy of which is attached to the complaint as Annex "A" partners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed therefor. In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees. Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is null and void,

pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review by record on appeal. Articles 1771 and 1773 of said Code provide: Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties; and attached to the public instrument. The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership under consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides: That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad. xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets. WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against defendantappellee, Severino Mabato. It is so ordered. Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 84197 July 28, 1989 PIONEER INSURANCE & SURETY CORPORATION, petitioner,

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

GUTIERREZ, JR., J.: The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed. The dispositive portion of the trial court's decision reads as follows: WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary damages. It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00 for each of the two Cervanteses. Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's fees. xxx xxx xxx WHEREFORE, in view of all above, the complaint of plaintiff Pioneer

against defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid. Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs. No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The fact that the properties of the Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment, is not an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of its discretion. No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act which is clearly within its power and which is the reason for its being, then nobody would engage in the insurance business. No further claim or counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16) In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts, On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision was affirmed. We first resolve G.R. No. 84197. Petitioner Pioneer Insurance and Surety Corporation avers that: RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10) The petitioner questions the following findings of the appellate court: We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the judgment. Plaintiff Pioneer's contention that it is representing the reinsurer to

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

much of its obligations to JDA as has been paid with reinsurance money? 2. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the amount it has realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157). In resolving these issues, the trial court made the following findings: It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score it no longer has any right to collect to the extent of the said amount. On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact. But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper, and this is so even where the name of the principal is disclosed in the complaint. Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in interest.' This provision is mandatory. The real party in interest is the party who would be benefitted or injured by the judgment or is the party entitled to the avails of the suit. This Court has held in various cases that an attorney-infact is not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L22347,1968, 23 SCRA 706, 710-714. The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore,

Pioneer has no more claim against defendants. (Record on Appeal, pp. 360-363). The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis. In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925). The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134). Hence the applicable law is Article 2207 of the new Civil Code, to wit: Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]): Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied). It is clear from the records that Pioneer sued in its own name and not as an attorney-infact of the reinsurer. Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents. Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly

incredible" (p. 12, Rollo) to back up its contention. On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors are not liable to the petitioner. The trial court stated: Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage. Testimonies of defendants Francisco Cervantes and Modesto Cervantes. Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the same would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity agreement would be cancelled. The following is averred under oath by Pioneer in the original complaint: The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action. This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action, which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court. Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has any further action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines. Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any unpaid balance of the price. SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto Law. Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to recover any unpaid balance and any

agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6. The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. Nor may the application of the provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124. The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any liability as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the indemnitors. The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall be due and payable 25 August 1965, the remainder of which ... shall be due and payable on the 26th day x x x of each succeeding three months and the last of which shall be due and payable 26th May 1967. However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows: The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and payable 4 September 1965, the remainder of which ... shall be due and payable on the 4th day ... of each succeeding months and the last of which shall be due and payable 4th June 1967. Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three months, that of the last installment being July 15, 1967. These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant Maglana knew of and consented to the modification of the obligations. But if that were so, there would have been the corresponding documents in the form of a written notice to as well as written conformity of these defendants, and there are no such document. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538. Art. 2079. An extension granted to the debtor by the

creditor without the consent of the guarantor extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension time referred to herein, (New Civil Code).' Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571. Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more cause of action to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer from liability from the claim. Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity. Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or became illegal. These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant case against them and the attachment and garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157). We find no cogent reason to reverse or modify these findings. Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious. We now discuss the merits of G.R. No. 84157. Petitioner Jacob S. Lim poses the following issues: l. What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6). These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore, questions the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P 184,878.74. We first state the principles. While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied). In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and

Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the crossclaims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-claim: ... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338). while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint: Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342). Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED. SO ORDERED. Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part.