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BUS ORG. BATCH 2 FULLTEXT CASES:

PARTNERSHIP DISTINGUISHED FROM OTHER BUSINESS MEDIA
G.R. No. 113375 May 5, 1!
"ILOSBA#AN, INCORPORATED, $O%ITO R. SALONGA, CIRILO A.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, $R., $OSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, $OSE ABCEDE,
CHRISTINE TAN, FELIPE L. GO&ON, RAFAEL G. FERNANDO, RAOUL %.
%ICTORINO, $OSE CUNANAN, 'UINTIN S. DOROMAL, SEN. FREDDIE
(EBB, SEN. (IGBERTO TA)ADA, a*+ REP. $O"ER P.
ARRO#O, petitioners,
vs.
TEOFISTO GUINGONA, $R., ,* -,. /a0a/,1y a. E23/41,53 S3/631a6y,
O77,/3 o7 1-3 P63.,+3*18 RENATO CORONA, ,* -,. /a0a/,1y a.
A..,.1a*1 E23/41,53 S3/631a6y a*+ C-a,69a* o7 1-3 P63.,+3*1,a:
635,3; Co99,1133 o* 1-3 Lo11o, O77,/3 o7 1-3 P63.,+3*18 PHILIPPINE
CHARIT# S(EEPSTA"ES OFFICE8 a*+ PHILIPPINE GAMING
MANAGEMENT CORPORATION, respondents.
Jovito R. Salonga, Fernando Santiago, Emilio C. Capulong, Jr. and Felipe L.
Gozon for petitioners.
Renato L. Cayetano and Eleazar B. Reyes for PGC.
Gamaliel G. Bong!o, "s!ar #araan and Jedideo$ Sin!ero for intervenors.

DA%IDE, $R., J.:
This is a special civil action for prohibition and injunction, with a prayer for a
temporary restraining order and preliminary injunction, which seeks to
prohibit and restrain the implementation of the "Contract of Lease" executed
by the hilippine Charity !weepstakes "ffice #C!"$ and the hilippine
%aming &anagement Corporation #%&C$ in connection with the on' line
lottery system, also known as "lotto."
etitioner (ilosbayan, )ncorporated #()L"!*+,+-$ avers that it is a non'
stock domestic corporation composed of civic'spirited citi.ens, pastors,
priests, nuns, and lay leaders who are committed to the cause of truth,
justice, and national renewal. The rest of the petitioners, except !enators
/reddie 0ebb and 0igberto Ta1ada and 2epresentative 3oker . +rroyo, are
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suing in their capacities as members of the *oard of Trustees of
()L"!*+,+- and as taxpayers and concerned citi.ens. !enators 0ebb and
Ta1ada and 2epresentative +rroyo are suing in their capacities as members
of Congress and as taxpayers and concerned citi.ens of the hilippines.
The pleadings of the parties disclose the factual antecedents which triggered
off the filing of this petition.
ursuant to !ection 4 of the charter of the C!" #2.+. -o. 4456, as
amended by *.. *lg. 78$ which grants it the authority to hold and conduct
"charity sweepstakes races, lotteries and other similar activities," the C!"
decided to establish an on' line lottery system for the purpose of increasing
its revenue base and diversifying its sources of funds. !ometime before
&arch 4669, after learning that the C!" was interested in operating an on'
line lottery system, the *erjaya %roup *erhad, "a multinational company
and one of the ten largest public companies in &alaysia," long "engaged in,
among others, successful lottery operations in +sia, running both Lotto and
:igit games, thru its subsidiary, !ports Toto &alaysia," with its "affiliate, the
)nternational Totali.ator !ystems, )nc., . . . an +merican public company
engaged in the international sale or provision of computer systems,
softwares, terminals, training and other technical services to the gaming
industry," "became interested to offer its services and resources to C!"."
+s an initial step, *erjaya %roup *erhad #through its individual nominees$
organi.ed with some /ilipino investors in &arch 4669 a hilippine corporation
known as the hilippine %aming &anagement Corporation #%&C$, which
"was intended to be the medium through which the technical and
management services re;uired for the project would be offered and
delivered to C!"."
1
*efore +ugust 4669, the C!" formally issued a 2e;uest for roposal #2/$
for the Lease Contract of an on'line lottery system for the C!".
2
2elevant
provisions of the 2/ are the following<
4. E%EC&'()E S&*R+
xxx xxx xxx
4.8. C!" is seeking a suitable contractor which shall build, at
its own expense, all the facilities #=/acilities=$ needed to operate
and maintain a nationwide on'line lottery system. C!" shall
lease the /acilities for a fixed percentage of;uarterly gross
receipts. +ll receipts from ticket sales shall be turned over
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directly to C!". +ll capital, operating expenses and expansion
expenses and risks shall be for the exclusive account of the
Lessor.
xxx xxx xxx
4.7. The lease shall be for a period not exceeding fifteen #4>$
years.
4.>. The Lessor is expected to submit a comprehensive
nationwide lottery development plan #":evelopment lan"$ which
will include the game, the marketing of the games, and the
logistics to introduce the games to all the cities and
municipalities of the country within five #>$ years.
xxx xxx xxx
4.?. The Lessor shall be selected based on its technical
expertise, hardware and software capability, maintenance
support, and financial resources. The :evelopment lan shall
have a substantial bearing on the choice of the Lessor. The
Lessor shall be a domestic corporation, with at least sixty
percent #5@A$ of its shares owned by /ilipino shareholders.
xxx xxx xxx
The "ffice of the resident, the -ational :isaster Control
Coordinating Council, the hilippine -ational olice, and the
-ational *ureau of )nvestigation shall be authori.ed to use the
nationwide telecommunications system of the /acilities /ree of
Charge.
4.B. Cpon expiration of the lease, the /acilities shall be owned by
C!" without any additional consideration.
3
xxx xxx xxx
8.8. "*3DCT)ED!
The objectives of C!" in leasing the /acilities from a private
entity are as follows<
xxx xxx xxx
8.8.8. Dnable C!" to operate a nationwide on'line Lottery
system at no expense or risk to the government.
xxx xxx xxx
8.7. :CT)D! +-: 2D!"-!)*)L)T)D! "/ TFD LD!!"2
xxx xxx xxx
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8.7.8. TFD LD!!"2
The roponent is expected to furnish and maintain the /acilities,
including the personnel needed to operate the computers, the
communications network and sales offices under a build'lease
basis. The printing of tickets shall be undertaken under the
supervision and control of C!". The /acilities shall enable C!"
to computeri.e the entire gaming system.
The roponent is expected to formulate and design consumer'
oriented &aster %ames lan suited to the marketplace,
especially geared to /ilipino gaming habits and preferences. )n
addition, the &aster %ames lan is expected to include a roduct
lan for each game and explain how each will be introduced into
the market. This will be an integral part of the :evelopment lan
which C!" will re;uire from the roponent.
xxx xxx xxx
The roponent is expected to provide upgrades to moderni.e the
entire gaming system over the life ofthe lease contract.
The roponent is expected to provide technology transfer to
C!" technical personnel.
!
?. GE,ER*L G&(-EL(,ES F"R PR"P",E,'S
xxx xxx xxx
/inally, the roponent must be able to stand the acid test of
proving that it is an entity able to take on the role of responsible
maintainer of the on'line lottery system, and able to achieve
!C"=s goal of formali.ing an on'line lottery system to achieve
its mandated objective.
5
xxx xxx xxx
45. -EF(,('(", "F 'ERS
/acilities< +ll capital e;uipment, computers, terminals, software,
nationwide telecommunication network, ticket sales offices,
furnishings, and fixturesG printing costsG cost of salaries and
wagesG advertising and promotion expensesG maintenance costsG
expansion and replacement costsG security and insurance, and
all other related expenses needed to operate nationwide on'line
lottery system.
<
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Considering the above citi.enship re;uirement, the %&C claims that the
*erjaya %roup "undertook to reduce its e;uity stakes in %&C to 7@A," by
selling 9>A out of the original ?>A foreign stockholdings to local investors.
"n 4> +ugust 4669, %&C submitted its bid to the C!".
7
The bids were evaluated by the !pecial re'Hualification *ids and +wards
Committee #!*+C$ for the on'line lottery and its *id 2eport was thereafter
submitted to the "ffice of the resident.
=
The submission was preceded by
complaints by the Committee=s Chairperson, :r. &ita ardo de Tavera.

"n 84 "ctober 4669, the "ffice of the resident announced that it had given
the respondent %&C the go'signal to operate the country=s on'line lottery
system and that the corresponding implementing contract would be
submitted not later than B -ovember 4669 "for final clearance and approval
by the Chief Dxecutive."
1>
This announcement was published in the &anila
!tandard, hilippine :aily )n;uirer, and the &anila Times on 86 "ctober
4669.
11
"n 7 -ovember 4669, ()L"!*+,+- sent an open letter to residential /idel
E. 2amos strongly opposing the setting up to the on'line lottery system on
the basis of serious moral and ethical considerations.
12
+t the meeting of the Committee on %ames and +musements of the !enate
on 48 -ovember 4669, ()L"!*+,+- reiterated its vigorous opposition to the
on'line lottery on account of its immorality and illegality.
13
"n 46 -ovember 4669, the media reported that despite the opposition,
"&alaca1ang will push through with the operation of an on'line lottery
system nationwide" and that it is actually the respondent C!" which will
operate the lottery while the winning corporate bidders are merely
"lessors."
1!
"n 4 :ecember 4669, ()L"!*+,+- re;uested copies of all documents
pertaining to the lottery award from Dxecutive !ecretary Teofisto %uingona,
3r. )n his answer of 4? :ecember 4669, the Dxecutive !ecretary informed
()L"!*+,+- that the re;uested documents would be duly transmitted
before the end of the month.
15
. Fowever, on that same date, an agreement
denominated as "Contract of Lease" was finally executed by respondent
C!" and respondent %&C.
1<
The resident, per the press statement
issued by the "ffice of the resident, approved it on 8@ :ecember 4669.
17
)n view of their materiality and relevance, we ;uote the following salient
provisions of the Contract of Lease<
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4. :D/)-)T)"-!
The following words and terms shall have the following
respective meanings<
4.4 2ental /ee I +mount to be paid by C!" to the LD!!"2 as
compensation for the fulfillment of the obligations of the LD!!"2
under this Contract, including, but not limited to the lease of the
/acilities.
xxx xxx xxx
4.9 /acilities I +ll capital e;uipment, computers, terminals,
software #including source codes for the "n'Line Lottery
application software for the terminals, telecommunications and
central systems$, technology, intellectual property rights,
telecommunications network, and furnishings and fixtures.
4.7 &aintenance and "ther Costs I +ll costs and expenses
relating to printing, manpower, salaries and wages, advertising
and promotion, maintenance, expansion and replacement,
security and insurance, and all other related expenses needed to
operate an "n'Line Lottery !ystem, which shall be for the
account of the LD!!"2. +ll expenses relating to the setting'up,
operation and maintenance of ticket sales offices of dealers and
retailers shall be borne by C!"=s dealers and retailers.
4.> :evelopment lan I The detailed plan of all games, the
marketing thereof, number of players, value of winnings and the
logistics re;uired to introduce the games, including the &aster
%ames lan as approved by C!", attached hereto as +nnex
"+", modified as necessary by the provisions of this Contract.
xxx xxx xxx
4.B Dscrow :eposit I The proposal deposit in the sum of Three
Fundred &illion esos #9@@,@@@,@@@.@@$ submitted by the
LD!!"2 to C!" pursuant to the re;uirements of the 2e;uest
for roposals.
8. !C*3DCT &+TTD2 "/ TFD LD+!D
The LD!!"2 shall build, furnish and maintain at its own expense
and risk the /acilities for the "n'Line Lottery !ystem of C!" in
the Territory on an exclusive basis. The LD!!"2 shall bear all
&aintenance and "ther Costs as defined herein.
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xxx xxx xxx
9. 2D-T+L /DD
/or and in consideration of the performance by the LD!!"2 of its
obligations herein, C!" shall pay LD!!"2 a fixed 2ental /ee
e;ual to four point nine percent #7.6A$ of gross receipts from
ticket sales, payable net of taxes re;uired by law to be withheld,
on a semi'monthly basis. %oodwill, franchise and similar fees
shall belong to C!".
7. LD+!D D2)":
The period of the lease shall commence ninety #6@$ days from
the date of effectivity of this Contract and shall run for a period
of eight #B$ years thereafter, unless sooner terminated in
accordance with this Contract.
>. 2)%FT! +-: "*L)%+T)"-! "/ C!" +! "D2+T"2 "/ TFD
"-'L)-D L"TTD2, !,!TD&
C!" shall be the sole and individual operator of the "n'Line
Lottery !ystem. Conse;uently<
>.4 C!" shall have sole responsibility to decide whether to
implement, fully or partially, the &aster %ames lan of the
LD!!"2. C!" shall have the sole responsibility to determine
the time for introducing new games to the market. The &aster
%ames lan included in +nnex "+" hereof is hereby approved by
C!".
>.8 C!" shall have control over revenues and receipts of
whatever nature from the "n'Line Lottery !ystem. +fter paying
the 2ental /ee to the LD!!"2, C!" shall have exclusive
responsibility to determine the 2evenue +llocation lanG
rovided, that the same shall be consistent with the re;uirement
of 2.+. -o. 4456, as amended, which fixes a pri.e fund of fifty
five percent #>>A$ on the average.
>.9 C!" shall have exclusive control over the printing of
tickets, including but not limited to the design, text, and
contents thereof.
>.7 C!" shall have sole responsibility over the appointment of
dealers or retailers throughout the country. C!" shall appoint
the dealers and retailers in a timely manner with due regard to
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the implementation timetable of the "n'Line Lottery !ystem.
-othing herein shall preclude the LD!!"2 from recommending
dealers or retailers for appointment by C!", which shall act on
said recommendation within forty'eight #7B$ hours.
>.> C!" shall designate the necessary personnel to monitor
and audit the daily performance of the "n'Line Lottery !ystem.
/or this purpose, C!" designees shall be given, free of charge,
suitable and ade;uate space, furniture and fixtures, in all offices
of the LD!!"2, including but not limited to its head;uarters,
alternate site, regional and area offices.
>.5 C!" shall have the responsibility to resolve, and exclusive
jurisdiction over, all matters involving the operation of the "n'
Line Lottery !ystem not otherwise provided in this Contract.
>.? C!" shall promulgate procedural and coordinating rules
governing all activities relating to the "n'Line Lottery !ystem.
>.B C!" will be responsible for the payment of pri.e monies,
commissions to agents and dealers, and taxes and levies #if any$
chargeable to the operator of the "n'Line Lottery !ystem. The
LD!!"2 will bear all other &aintenance and "ther Costs, except
as provided in !ection 4.7.
>.6 C!" shall assist the LD!!"2 in the following<
>.6.4 0ork permits for the LD!!"2=s staffG
>.6.8 +pprovals for importation of the /acilitiesG
>.6.9 +pprovals and consents for the "n'Line Lottery
!ystemG and
>.6.7 *usiness and premises licenses for all offices of
the LD!!"2 and licenses for the telecommunications
network.
>.4@ )n the event that C!" shall pre'terminate this Contract or
suspend the operation of the "n'Line Lottery !ystem, in breach
of this Contract and through no fault of the LD!!"2, C!" shall
promptly, and in any event not later than sixty #5@$ days,
reimburse the LD!!"2 the amount of its total investment cost
associated with the "n'Line Lottery !ystem, including but not
limited to the cost of the /acilities, and further compensate the
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LD!!"2 for loss of expected net profit after tax, computed over
the unexpired term of the lease.
5. :CT)D! +-: 2D!"-!)*)L)T)D! "/ TFD LD!!"2
The LD!!"2 is one of not more than three #9$ lessors of similar
facilities for the nationwide "n'Line Lottery !ystem of C!". )t
is understood that the rights of the LD!!"2 are primarily those
of a lessor of the /acilities, and conse;uently, all rights involving
the business aspects of the use of the /acilities are within the
jurisdiction of C!". :uring the term of the lease, the LD!!"2
shall.
5.4 &aintain and preserve its corporate existence, rights and
privileges, and conduct its business in an orderly, efficient, and
customary manner.
5.8 &aintain insurance coverage with insurers acceptable to
C!" on all /acilities.
5.9 Comply with all laws, statues, rules and regulations, orders
and directives, obligations and duties by which it is legally
bound.
5.7 :uly pay and discharge all taxes, assessments and
government charges now and hereafter imposed of whatever
nature that may be legally levied upon it.
5.> (eep all the /acilities in fail safe condition and, if necessary,
upgrade, replace and improve the /acilities from time to time as
new technology develops, in order to make the "n'Line Lottery
!ystem more cost'effective andJor competitive, and as may be
re;uired by C!" shall not impose such re;uirements
unreasonably nor arbitrarily.
5.5 rovide C!" with management terminals which will allow
real'time monitoring of the "n'Line Lottery !ystem.
5.? Cpon effectivity of this Contract, commence the training of
C!" and other local personnel and the transfer of technology
and expertise, such that at the end of the term of this Contract,
C!" will be able to effectively take'over the /acilities and
efficiently operate the "n'Line Lottery !ystem.
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5.B Cndertake a positive advertising and promotions campaign
for both institutional and product lines without engaging in
negative advertising against other lessors.
5.6 *ear all expenses and risks relating to the /acilities
including, but not limited to, &aintenance and "ther Costs and<
xxx xxx xxx
5.4@ *ear all risks if the revenues from ticket sales, on an
annuali.ed basis, are insufficient to pay the entire pri.e money.
5.44 *e, and is hereby, authori.ed to collect and retain for its
own account, a security deposit from dealers and retailers, in an
amount determined with the approval of C!", in respect of
e;uipment supplied by the LD!!"2. C!"=s approval shall not be
unreasonably withheld.
xxx xxx xxx
5.48 Comply with procedural and coordinating rules issued by
C!".
?. 2D2D!D-T+T)"-! +-: 0+22+-T)D!
The LD!!"2 represents and warrants that<
?.4 The LD!!"2 is corporation duly organi.ed and existing under
the laws of the 2epublic of the hilippines, at least sixty percent
#5@A$ of the outstanding capital stock of which is owned by
/ilipino shareholders. The minimum re;uired /ilipino e;uity
participation shall not be impaired through voluntary or
involuntary transfer, disposition, or sale of shares of stock by the
present stockholders.
?.8 The LD!!"2 and its +ffiliates have the full corporate and
legal power and authority to own and operate their properties
and to carry on their business in the place where such properties
are now or may be conducted. . . .
?.9 The LD!!"2 has or has access to all the financing and
funding re;uirements to promptly and effectively carry out the
terms of this Contract. . . .
?.7 The LD!!"2 has or has access to all the managerial and
technical expertise to promptly and effectively carry out the
terms of this Contract. . . .
xxx xxx xxx
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4@. TDLDC"&&C-)C+T)"-! -DT0"2(
The LD!!"2 shall establish a telecommunications network that
will connect all municipalities and cities in the Territory in
accordance with, at the LD!!"2=s option, either of the LD!!"2=s
proposals #or a combinations of both such proposals$ attached
hereto as +nnex "*," and under the following C!" schedule<
xxx xxx xxx
C!" may, at its option, re;uire the LD!!"2 to establish the
telecommunications network in accordance with the above
Timetable in provinces where the LD!!"2 has not yet installed
terminals. rovided, that such provinces have existing nodes.
"nce a municipality or city is serviced by land lines of a licensed
public telephone company, and such lines are connected to
&etro &anila, then the obligation of the LD!!"2 to connect such
municipality or city through a telecommunications network shall
cease with respect to such municipality or city. The voice facility
will cover the four offices of the "ffice of the resident, -ational
:isaster Control Coordinating Council, hilippine -ational olice
and the -ational *ureau of )nvestigation, and each city and
municipality in the Territory except &etro &anila, and those
cities and municipalities which have easy telephone access from
these four offices. Eoice calls from the four offices shall be
transmitted via radio or E!+T to the remote municipalities which
will be connected to this voice facility through wired network or
by radio. The facility shall be designed to handle four private
conversations at any one time.
xxx xxx xxx
49. !T"C( :)!D2!+L L+-
0ithin two #8$ years from the effectivity of this Contract, the
LD!!"2 shall cause itself to be listed in the local stock exchange
and offer at least twenty five percent #8>A$ of its e;uity to the
public.
47. -"-'C"&DT)T)"-
The LD!!"2 shall not, directly or indirectly, undertake any
activity or business in competition with or adverse to the "n'Line
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Lottery !ystem of C!" unless it obtains the latter=s prior
written consent thereto.
4>. F"L: F+2&LD!! CL+C!D
4>.4 The LD!!"2 shall at all times protect and defend, at its cost
and expense, C!" from and against any and all liabilities and
claims for damages andJor suits for or by reason of any deaths
of, or any injury or injuries to any person or persons, or
damages to property of any kind whatsoever, caused by the
LD!!"2, its subcontractors, its authori.ed agents or employees,
from any cause or causes whatsoever.
4>.8 The LD!!"2 hereby covenants and agrees to indemnify and
hold C!" harmless from all liabilities, charges, expenses
#including reasonable counsel fees$ and costs on account of or
by reason of any such death or deaths, injury or injuries,
liabilities, claims, suits or losses caused by the LD!!"2=s fault or
negligence.
4>.9 The LD!!"2 shall at all times protect and defend, at its
own cost and expense, its title to the facilities and C!"=s
interest therein from and against any and all claims for the
duration of the Contract until transfer to C!" of ownership of
the serviceable /acilities.
45. !DCC2)T,
45.4 To ensure faithful compliance by the LD!!"2 with the
terms of the Contract, the LD!!"2 shall secure a erformance
*ond from a reputable insurance company or companies
acceptable to C!".
45.8 The erformance *ond shall be in the initial amount of
Three Fundred &illion esos #9@@,@@@,@@@.@@$, to its C.!.
dollar e;uivalent, and shall be renewed to cover the duration of
the Contract. Fowever, the erformance *ond shall be reduced
proportionately to the percentage of unencumbered terminals
installedG rovided, that the erformance *ond shall in no case
be less than "ne Fundred /ifty &illion esos #4>@,@@@,@@@.@@$.
45.9 The LD!!"2 may at its option maintain its Dscrow :eposit
as the erformance *ond. . . .
4?. D-+LT)D!
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4?.4 Dxcept as may be provided in !ection 4?.8, should the
LD!!"2 fail to take remedial measures within seven #?$ days,
and rectify the breach within thirty #9@$ days, from written
notice by C!" of any wilfull or grossly negligent violation of the
material terms and conditions of this Contract, all unencumbered
/acilities shall automatically become the property of C!"
without consideration and without need for further notice or
demand by C!". The erformance *ond shall likewise be
forfeited in favor of C!".
4?.8 !hould the LD!!"2 fail to comply with the terms of the
Timetables provided in !ection 6 and 4@, it shall be subject to an
initial enalty of Twenty Thousand esos #8@,@@@.@@$, per city
or municipality per every month of delayG rovided, that the
enalty shall increase, every ninety #6@$ days, by the amount of
Twenty Thousand esos #8@,@@@.@@$ per city or municipality
per month, whilst shall failure to comply persists. The penalty
shall be deducted by C!" from the rental fee.
xxx xxx xxx
8@. "0-D2!F) "/ TFD /+C)L)T)D!
+fter expiration of the term of the lease as provided in !ection 7,
the /acilities directly re;uired for the "n'Line Lottery !ystem
mentioned in !ection 4.9 shall automatically belong in full
ownership to C!" without any further consideration other than
the 2ental /ees already paid during the effectivity of the lease.
84. TD2&)-+T)"- "/ TFD LD+!D
C!" may terminate this Contract for any breach of the material
provisions of this Contract, including the following<
84.4 The LD!!"2 is insolvent or bankrupt or unable to pay its
debts, stops or suspends or threatens to stop or suspend
payment of all or a material part of its debts, or proposes or
makes a general assignment or an arrangement or compositions
with or for the benefit of its creditorsG or
84.8 +n order is made or an effective resolution passed for the
winding up or dissolution of the LD!!"2 or when it ceases or
threatens to cease to carry on all or a material part of its
operations or businessG or
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84.9 +ny material statement, representation or warranty made
or furnished by the LD!!"2 proved to be materially false or
misleadingG
said termination to take effect upon receipt of
written notice of termination by the LD!!"2 and
failure to take remedial action within seven #?$ days
and cure or remedy the same within thirty #9@$ days
from notice.
+ny suspension, cancellation or termination of this
Contract shall not relieve the LD!!"2 of any liability
that may have already accrued hereunder.
xxx xxx xxx
Considering the denial by the "ffice of the resident of its protest and the
statement of +ssistant Dxecutive !ecretary 2enato Corona that "only a court
injunction can stop &alaca1ang," and the imminent implementation of the
Contract of Lease in /ebruary 4667, ()L"!*+,+-, with its co'petitioners,
filed on 8B 3anuary 4667 this petition.
)n support of the petition, the petitioners claim that<
. . . K K TFD "//)CD "/ TFD 2D!):D-T, +CT)-%
TF2"C%F 2D!"-:D-T! DKDCCT)ED !DC2DT+2,
+-:J"2 +!!)!T+-T DKDCCT)ED !DC2DT+2, /"2
LD%+L +//+)2!, +-: TFD C!" %2+EDL, +*C!DL:M
TFD)2 :)!C2DT)"- +-:J"2 /C-CT)"-!
T+-T+&"C-T T" L+C( "/ 3C2)!:)CT)"- +-:J"2
+CTF"2)T, )- 2D!DCT)EDL,< #+$ +2"E)-% TFD
+0+2: "/ TFD C"-T2+CT T", +-: #*$ D-TD2)-%
)-T" TFD !"'C+LLD: "C"-T2+CT "/ LD+!D" 0)TF,
2D!"-:D-T %&C /"2 TFD )-!T+LL+T)"-,
D!T+*L)!F&D-T +-: "D2+T)"- "/ TFD "-'L)-D
L"TTD2, +-: TDLDC"&&C-)C+T)"- !,!TD&!
2DHC)2D: +-:J"2 +CTF"2)ND: C-:D2 TFD !+):
C"-T2+CT, C"-!):D2)-% TF+T<
a$ Cnder !ection 4 of the Charter of the C!", the C!" is
prohibited from holding and conducting lotteries "in
collaboration, association or joint venture with any person,
association, company or entity"G
15 | P a g e
b$ Cnder +ct -o. 9B75 and established jurisprudence, a
Congressional franchise is re;uired before any person may be
allowed to establish and operate said telecommunications
systemG
c$ Cnder !ection 44, +rticle K)) of the Constitution, a less than
5@A /ilipino'owned andJor controlled corporation, like the
%&C, is dis;ualified from operating a public service, like the
said telecommunications systemG and
d$ 2espondent %&C is not authori.ed by its charter and under
the /oreign )nvestment +ct #2.+. -o. ?@78$ to install, establish
and operate the on'line lotto and telecommunications systems.
1=
etitioners submit that the C!" cannot validly enter into the assailed
Contract of Lease with the %&C because it is an arrangement wherein the
C!" would hold and conduct the on'line lottery system in "collaboration" or
"association" with the %&C, in violation of !ection 4#*$ of 2.+. -o. 4456, as
amended by *.. *lg. 78, which prohibits the C!" from holding and
conducting charity sweepstakes races, lotteries, and other similar activities
"in collaboration, association or joint venture with any person, association,
company or entity, foreign or domestic." Dven granting arguendo that a
lease of facilities is not within the contemplation of "collaboration" or
"association," an analysis, however, of the Contract of Lease clearly shows
that there is a "collaboration, association, or joint venture between
respondents C!" and %&C in the holding of the "n'Line Lottery !ystem,"
and that there are terms and conditions of the Contract "showing that
respondent %&C is the actual lotto operator and not respondent C!"."
1
The petitioners also point out that paragraph 4@ of the Contract of Lease
re;uires or authori.es %&C to establish a telecommunications network that
will connect all the municipalities and cities in the territory. Fowever, %&C
cannot do that because it has no franchise from Congress to construct,
install, establish, or operate the network pursuant to !ection 4 of +ct -o.
9B75, as amended. &oreover, %&C is a ?>A foreign'owned or controlled
corporation and cannot, therefore, be granted a franchise for that purpose
because of !ection 44, +rticle K)) of the 46B? Constitution. /urthermore,
since "the subscribed foreign capital" of the %&C "comes to about ?>A, as
shown by paragraph D)%FT of its +rticles of )ncorporation," it cannot lawfully
enter into the contract in ;uestion because all forms of gambling I and
16 | P a g e
lottery is one of them I are included in the so'called foreign investments
negative list under the /oreign )nvestments +ct #2.+. -o. ?@78$ where only
up to 7@A foreign capital is allowed.
2>
/inally, the petitioners insist that the +rticles of )ncorporation of %&C do
not authori.e it to establish and operate an on'line lottery and
telecommunications systems.
21
+ccordingly, the petitioners pray that we issue a temporary restraining order
and a writ of preliminary injunction commanding the respondents or any
person acting in their places or upon their instructions to cease and desist
from implementing the challenged Contract of Lease and, after hearing the
merits of the petition, that we render judgment declaring the Contract of
Lease void and without effect and making the injunction permanent.
22
0e re;uired the respondents to comment on the petition.
)n its Comment filed on 4 &arch 4667, private respondent %&C asserts that
"#4$ LitM is merely an independent contractor for a piece of work, #i.e., the
building and maintenance of a lottery system to be used by C!" in the
operation of its lottery franchise$G and #8$ as such independent contractor,
%&C is not a co'operator of the lottery franchise with C!", nor is C!"
sharing its franchise, =in collaboration, association or joint venture= with
%&C I as such statutory limitation is viewed from the context, intent, and
spirit of 2epublic +ct 4456, as amended by *atas ambansa 78." )t further
claims that as an independent contractor for a piece of work, it is neither
engaged in "gambling" nor in "public service" relative to the
telecommunications network, which the petitioners even consider as an
"indispensable re;uirement" of an on'line lottery system. /inally, it states
that the execution and implementation of the contract does not violate the
Constitution and the lawsG that the issue on the "morality" of the lottery
franchise granted to the C!" is political and not judicial or legal, which
should be ventilated in another forumG and that the "petitioners do not
appear to have the legal standing or real interest in the subject contract and
in obtaining the reliefs sought."
23
)n their Comment filed by the "ffice of the !olicitor %eneral, public
respondents Dxecutive !ecretary Teofisto %uingona, 3r., +ssistant Dxecutive
!ecretary 2enato Corona, and the C!" maintain that the contract of lease
in ;uestion does not violate !ection 4 of 2.+. -o. 4456, as amended by *..
*lg. 78, and that the petitioner=s interpretation of the phrase "in
17 | P a g e
collaboration, association or joint venture" in !ection 4 is "much too narrow,
strained and utterly devoid of logic" for it "ignores the reality that C!", as
a corporate entity, is vested with the basic and essential prerogative to enter
into all kinds of transactions or contracts as may be necessary for the
attainment of its purposes and objectives." 0hat the C!" charter "seeks to
prohibit is that arrangement akin to a "joint venture" or partnership where
there is "community of interest in the business, sharing of profits and losses,
and a mutual right of control," a characteristic which does not obtain in a
contract of lease." 0ith respect to the challenged Contract of Lease, the
"role of %&C is limited to that of a lessor of the facilities" for the on'line
lottery systemG in "strict technical and legal sense," said contract "can be
categori.ed as a contract for a piece of work as defined in +rticles 475?,
4?49 and 4577 of the Civil Code."
They further claim that the establishment of the telecommunications system
stipulated in the Contract of Lease does not re;uire a congressional franchise
because %&C will not operate a public utilityG moreover, %&C=s
"establishment of a telecommunications system is not intended to establish
a telecommunications business," and it has been held that where the
facilities are operated "not for business purposes but for its own use," a
legislative franchise is not re;uired before a certificate of public convenience
can be granted.
2!
Dven granting arguendothat %&C is a public utility,
pursuant to *l.ano S.
Reyes,
25
"it can establish a telecommunications system even without a
legislative franchise because not every public utility is re;uired to secure a
legislative franchise before it could establish, maintain, and operate the
service"G and, in any case, "%&C=s establishment of the telecommunications
system stipulated in its contract of lease with C!" falls within the
exceptions under !ection 4 of +ct -o. 9B75 where a legislative franchise is
not necessary for the establishment of radio stations."
They also argue that the contract does not violate the /oreign )nvestment
+ct of 4664G that the +rticles of )ncorporation of %&C authori.e it to enter
into the Contract of LeaseG and that the issues of "wisdom, morality and
propriety of acts of the executive department are beyond the ambit of
judicial review."
18 | P a g e
/inally, the public respondents allege that the petitioners have no standing
to maintain the instant suit, citing our resolution in )almonte vs. P$ilippine
C$arity S/eepsta0es "ffi!e.
2<
!everal parties filed motions to intervene as petitioners in this case,
27
but
only the motion of !enators +lberto 2omulo, +rturo Tolentino, /rancisco
Tatad, %loria &acapagal'+rroyo, Eicente !otto ))), 3ohn "sme1a, 2amon
2evilla, and 3ose Lina
2=
was granted, and the respondents were re;uired to
comment on their petition in intervention, which the public respondents and
%&C did.
)n the meantime, the petitioners filed with the !ecurities and Dxchange
Commission on 86 &arch 4667 a petition against %&C for the nullification
of the latter=s %eneral )nformation !heets. That case, however, has no
bearing in this petition.
"n 44 +pril 4667, we heard the parties in oral arguments. Thereafter, we
resolved to consider the matter submitted for resolution and pending
resolution of the major issues in this case, to issue a temporary restraining
order commanding the respondents or any person acting in their place or
upon their instructions to cease and desist from implementing the challenged
Contract of Lease.
)n the deliberation on this case on 85 +pril 4667, we resolved to consider
only these issues< #a$ the lo!us standi of the petitioners, and #b$ the legality
and validity of the Contract of Lease in the light of !ection 4 of 2.+. -o.
4456, as amended by *.. *lg. 78, which prohibits the C!" from holding
and conducting lotteries "in collaboration, association or joint venture with
any person, association, company or entity, whether domestic or foreign."
"n the first issue, seven 3ustices voted to sustain the lo!us standi of the
petitioners, while six voted not to. "n the second issue, the seven 3ustices
were of the opinion that the Contract of Lease violates the exception to
!ection 4#*$ of 2.+. -o. 4456, as amended by *.. *lg. 78, and is,
therefore, invalid and contrary to law. The six 3ustices stated that they
wished to express no opinion thereon in view of their stand on the first
issue. The Chief 3ustice took no part because one of the :irectors of the
C!" is his brother'in'law.
This case was then assigned to this ponente for the writing of the opinion of
the Court.
19 | P a g e
The preliminary issue on the lo!us standi of the petitioners should, indeed,
be resolved in their favor. + party=s standing before this Court is a
procedural technicality which it may, in the exercise of its discretion, set
aside in view of the importance of the issues raised. )n the
landmark Emergen!y Po/ers Cases,
2
this Court brushed aside this
technicality because "the transcendental importance to the public of these
cases demands that they be settled promptly and definitely, brushing aside,
if we must, technicalities of procedure. #*velino vs. Cuen!o, %.2. -o. L'
8B84$." )nsofar as taxpayers= suits are concerned, this Court had declared
that it "is not devoid of discretion as to whether or not it should be
entertained,"
3>
or that it "enjoys an open discretion to entertain the same or
not."
31
)n -e La Llana vs. *l.a,
32
this Court declared<
4. The argument as to the lack of standing of petitioners is easily
resolved. +s far as 3udge de la Llana is concerned, he certainly
falls within the principle set forth in 3ustice Laurel=s opinion
in People vs. )era L5> hil. >5 #469?$M. Thus< "The unchallenged
rule is that the person who impugns the validity of a statute
must have a personal and substantial interest in the case such
that he has sustained, or will sustain, direct injury as a result of
its enforcement L(.id, B6M. The other petitioners as members of
the bar and officers of the court cannot be considered as devoid
of "any personal and substantial interest" on the matter. There is
relevance to this excerpt from a separate opinion in*1uino, Jr. v.
Commission on Ele!tions LL'7@@@7, 3anuary 94, 46?>, 58 !C2+
8?>M< "Then there is the attack on the standing of petitioners, as
vindicating at most what they consider a public right and not
protecting their rights as individuals. This is to conjure the
specter of the public right dogma as an inhibition to parties
intent on keeping public officials staying on the path of
constitutionalism. +s was so well put by 3affeG "The protection of
private rights is an essential constituent of public interest and,
conversely, without a well'ordered state there could be no
enforcement of private rights. rivate and public interests are,
both in a substantive and procedural sense, aspects of the
totality of the legal order." &oreover, petitioners have
convincingly shown that in their capacity as taxpayers, their
20 | P a g e
standing to sue has been amply demonstrated. There would be a
retreat from the liberal approach followed in Pas!ual v. Se!retary
of Pu.li! 2or0s, foreshadowed by the very decision of People v.
)era where the doctrine was first fully discussed, if we act
differently now. ) do not think we are prepared to take that step.
2espondents, however, would hard back to the +merican
!upreme Court doctrine in ellon v. Frot$ing$am, with their
claim that what petitioners possess "is an interest which is
shared in common by other people and is comparatively so
minute and indeterminate as to afford any basis and assurance
that the judicial process can act on it." That is to speak in the
language of a bygone era, even in the Cnited !tates. /or as
Chief 3ustice 0arren clearly pointed out in the later case of Flast
v. Co$en, the barrier thus set up if not breached has definitely
been lowered.
)n #apatiran ng mga ,agliling0od sa Pama$alaan ng Pilipinas, (n!. vs.
'an,
33
reiterated in Bas!o vs. P$ilippine *musements and Gaming
Corporation,
3!
this Court stated<
"bjections to taxpayers= suits for lack of sufficient personality
standing or interest are, however, in the main procedural
matters. Considering the importance to the public of the cases at
bar, and in keeping with the Court=s duty, under the 46B?
Constitution, to determine whether or not the other branches of
government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the
discretion given to them, this Court has brushed aside
technicalities of procedure and has taken cogni.ance of these
petitions.
and in *sso!iation of Small Lando/ners in t$e P$ilippines, (n!. vs. Se!retary
of *grarian Reform,
35
it declared<
0ith particular regard to the re;uirement of proper party as
applied in the cases before us, we hold that the same is satisfied
by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a
result of the acts or measures complained of. LE3 Parte Levitt,
9@9 C! 599M. *nd even if, stri!tly spea0ing, t$ey are not
21 | P a g e
!overed .y t$e definition, it is still /it$in t$e /ide dis!retion of
t$e Court to /aive t$e re1uirement and so remove t$e
impediment to its addressing and resolving t$e serious
!onstitutional 1uestions raised.
)n the first Dmergency owers Cases, ordinary citi.ens and
taxpayers were allowed to ;uestion the constitutionality of
several executive orders issued by resident Huirino although
they were invoking only an indirect and general interest shared
in common with the public. The Court dismissed the objective
that they were not proper parties and ruled that the
transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if
we must, technicalities of procedure. 0e have since then applied
this exception in many other cases. #Dmphasis supplied$
)n -aza vs. Singson,
3<
this Court once more said<
. . . /or another, we have early as in the Dmergency owers
Cases that where serious constitutional ;uestions are involved,
"the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing
aside, if we must, technicalities of procedure." The same policy
has since then been consistently followed by the Court, as
in Gonzales vs. Commission on Ele!tions L84 !C2+ ??7M . . .
The /ederal !upreme Court of the Cnited !tates of +merica has also
expressed its discretionary power to liberali.e the rule on lo!us standi.
)n &nited States vs. Federal Po/er Commission and )irginia Rea *sso!iation
vs. Federal Po/er Commission,
37
it held<
0e hold that petitioners have standing. :ifferences of view,
however, preclude a single opinion of the Court as to both
petitioners. )t would not further clarification of this complicated
specialty of federal jurisdiction, the solution of whose problems
is in any event more or less determined by the specific
circumstances of individual situations, to set out the divergent
grounds in support of standing in these cases.
)n line with the liberal policy of this Court on lo!us standi, ordinary
taxpayers, members of Congress, and even association of planters, and non'
profit civic organi.ations were allowed to initiate and prosecute actions
22 | P a g e
before this Court to ;uestion the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government agencies or
instrumentalities. +mong such cases were those assailing the
constitutionality of #a$ 2.+. -o. 9B95 insofar as it allows retirement gratuity
and commutation of vacation and sick leave to !enators and 2epresentatives
and to elective officials of both Fouses of CongressG
3=
#b$ Dxecutive "rder
-o. 8B7, issued by resident Cora.on C. +;uino on 8> 3uly 46B?, which
allowed members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positionsG
3
#c$ the
automatic appropriation for debt service in the %eneral +ppropriations
+ctG
!>
#d$ 2.+. -o. ?@>5 on the holding of desynchroni.ed electionsG
!1
#d$
2.+. -o. 4B56 #the charter of the hilippine +musement and %aming
Corporation$ on the ground that it is contrary to morals, public policy, and
orderG
!2
and #f$ 2.+. -o. 56?>, establishing the hilippine -ational
olice.
!3
"ther cases where we have followed a liberal policy regarding lo!us
standi include those attacking the validity or legality of #a$ an order allowing
the importation of rice in the light of the prohibition imposed by 2.+. -o.
97>8G
!!
#b$ .:. -os. 664 and 4@99 insofar as they proposed amendments
to the Constitution and .:. -o. 4@94 insofar as it directed the C"&DLDC to
supervise, control, hold, and conduct the referendum'plebiscite on 45
"ctober 46?5G
!5
#c$ the bidding for the sale of the 9,4?6 s;uare meters of
land at 2oppongi, &inato'ku, Tokyo, 3apanG
!<
#d$ the approval without
hearing by the *oard of )nvestments of the amended application of the
*ataan etrochemical Corporation to transfer the site of its plant from
*ataan to *atangas and the validity of such transfer and the shift of
feedstock from naphtha only to naphtha andJor li;uefied petroleum
gasG
!7
#e$ the decisions, orders, rulings, and resolutions of the Dxecutive
!ecretary, !ecretary of /inance, Commissioner of )nternal 2evenue,
Commissioner of Customs, and the /iscal )ncentives 2eview *oard
exempting the -ational ower Corporation from indirect tax and dutiesG
!=
#f$
the orders of the Dnergy 2egulatory *oard of > and 5 :ecember 466@ on the
ground that the hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross'examinationG
!
#g$
Dxecutive "rder -o. 7?B which levied a special duty of @.6> per liter or
4>4.@> per barrel of imported crude oil and 4.@@ per liter of imported oil
23 | P a g e
productsG
5>
#h$ resolutions of the Commission on Dlections concerning the
apportionment, by district, of the number of elective members
ofSanggunians4
51
and #i$ memorandum orders issued by a &ayor affecting
the Chief of olice of asay City.
52
)n the 46?> case of *1uino vs. Commission on Ele!tions,
53
this Court,
despite its une;uivocal ruling that the petitioners therein had no personality
to file the petition, resolved nevertheless to pass upon the issues raised
because of the far'reaching implications of the petition. 0e did no less in -e
Guia vs. C"ELEC
5!
where, although we declared that :e %uia "does not
appear to have lo!us standi, a standing in law, a personal or substantial
interest," we brushed aside the procedural infirmity "considering the
importance of the issue involved, concerning as it does the political exercise
of ;ualified voters affected by the apportionment, and petitioner alleging
abuse of discretion and violation of the Constitution by respondent."
0e find the instant petition to be of transcendental importance to the public.
The issues it raised are of paramount public interest and of a category even
higher than those involved in many of the aforecited cases. The ramifications
of such issues immeasurably affect the social, economic, and moral well'
being of the people even in the remotest barangays of the country and the
counter'productive and retrogressive effects of the envisioned on'line lottery
system are as staggering as the billions in pesos it is expected to raise. The
legal standing then of the petitioners deserves recognition and, in the
exercise of its sound discretion, this Court hereby brushes aside the
procedural barrier which the respondents tried to take advantage of.
+nd now on the substantive issue.
!ection 4 of 2.+. -o. 4456, as amending by *.. *lg. 78, prohibits the C!"
from holding and conducting lotteries "in collaboration, association or joint
venture with any person, association, company or entity, whether domestic
or foreign." !ection 4 provides<
!ec. 4. '$e P$ilippine C$arity S/eepsta0es "ffi!e. I The
hilippine Charity !weepstakes "ffice, hereinafter designated the
"ffice, shall be the principal government agency for raising and
providing for funds for health programs, medical assistance and
services and charities of national character, and as such shall
have the general powers conferred in section thirteen of +ct
24 | P a g e
-umbered "ne thousand four hundred fifty'nine, as amended,
and shall have the authority<
+. To hold and conduct charity sweepstakes races,
lotteries and other similar activities, in such
fre;uency and manner, as shall be determined, and
subject to such rules and regulations as shall be
promulgated by the *oard of :irectors.
*. !ubject to the approval of the &inister of Fuman
!ettlements, to engage in health and welfare'related
investments, programs, pro5e!ts and a!tivities which
may be profit'oriented, .y itself or in !olla.oration,
asso!iation or 5oint venture with any person,
association, company or entity, whether domestic or
foreign, e3!ept for t$e a!tivities mentioned in t$e
pre!eding paragrap$ 6*7, for the purpose of
providing for permanent and continuing sources of
funds for health programs, including the expansion
of existing ones, medical assistance and services,
andJor charitable grants< rovided, That such
investment will not compete with the private sector
in areas where investments are ade;uate as may be
determined by the -ational Dconomic and
:evelopment +uthority. #emphasis supplied$
The language of the section is indisputably clear that with respect to its
franchise or privilege "to hold and conduct charity sweepstakes races,
lotteries and other similar activities," the C!" !annot exercise it "in
collaboration, association or joint venture" with any other party. This is the
une;uivocal meaning and import of the phrase "except for the activities
mentioned in the preceding paragraph #+$," namely, "!$arity s/eepsta0es
ra!es, lotteries and ot$er similar a!tivities."
*.. *lg. 78 originated from arliamentary *ill -o. 588, which was covered
by Committee 2eport -o. 4@9 as reported out by the Committee on !ocio'
Dconomic lanning and :evelopment of the )nterim *atasang ambansa.
The original text of paragraph *, !ection 4 of arliamentary *ill -o. 588
reads as follows<
25 | P a g e
To engage in any and all investments and related profit'oriented
projects or programs and activities by itself or in collaboration,
association or joint venture with any person, association,
company or entity, whether domestic or foreign, for the main
purpose of raising funds for health and medical assistance and
services and charitable grants.
55
:uring the period of committee amendments, the Committee on !ocio'
Dconomic lanning and :evelopment, through +ssemblyman 2onaldo *.
Namora, introduced an amendment by substitution to the said paragraph *
such that, as amended, it should read as follows<
!ubject to the approval of the &inister of Fuman !ettlements, to
engage in health'oriented investments, programs, projects and
activities which may be profit' oriented, by itself or in
collaboration, association, or joint venture with any person,
association, company or entity, whether domestic or foreign, for
the purpose of providing for permanent and continuing sources
of funds for health programs, including the expansion of existing
ones, medical assistance and services andJor charitable
grants.
5<
*efore the motion of +ssemblyman Namora for the approval of the
amendment could be acted upon, +ssemblyman :avide introduced an
amendment to the amendment<
&2. :+E):D.
&r. !peaker.
TFD !D+(D2.
The gentleman from Cebu is recogni.ed.
&2. :+E):D.
&ay ) introduce an amendment to the
committee amendmentO The amendment
would be to insert after "foreign" in the
amendment just read the following<
DKCDT /"2 TFD +CT)E)T, )- LDTTD2
#+$ +*"ED.
2$en it is 5oint venture or in
!olla.oration /it$ any entity su!$
!olla.oration or 5oint venture must not
26 | P a g e
in!lude a!tivity a!tivity letter 6a7 /$i!$ is
t$e $olding and !ondu!ting of
s/eepsta0es ra!es, lotteries and ot$er
similar a!ts.
&2. N+&"2+.
0e accept the amendment, &r. !peaker.
&2. :+E):D.
Thank you, &r. !peaker.
TFD !D+(D2.
)s there any objection to the
amendmentO #!ilence$ The amendment,
as amended, is approved.
57
/urther amendments to paragraph * were introduced and approved. 0hen
+ssemblyman Namora read the final text of paragraph * as further
amended, the earlier approved amendment of +ssemblyman :avide became
"DKCDT /"2 TFD +CT)E)T)D! &D-T)"-D: )- +2+%2+F #+$"G and by
virtue of the amendment introduced by +ssemblyman Dmmanuel elae., the
word 2DCD:)-% was inserted before +2+%2+F. +ssemblyman elae.
introduced other amendments. Thereafter, the new paragraph * was
approved.
5=
This is now paragraph *, !ection 4 of 2.+. -o. 4456, as amended by *..
*lg. 78.
-o interpretation of the said provision to relax or circumvent the prohibition
can be allowed since the privilege to hold or conduct charity sweepstakes
races, lotteries, or other similar activities is a franchise granted by the
legislature to the C!". )t is a settled rule that "in all grants by the
government to individuals or corporations of rights, privileges and
franchises, the words are to be taken most strongly against the grantee ....
LoMne who claims a franchise or privilege in derogation of the common rights
of the public must prove his title thereto by a grant which is clearly and
definitely expressed, and he cannot enlarge it by e;uivocal or doubtful
provisions or by probable inferences. 0hatever is not une;uivocally granted
is withheld. -othing passes by mere implication."
5
)n short then, by the exception explicitly made in paragraph *, !ection 4 of
its charter, the C!" cannot share its franchise with another by way of
collaboration, association or joint venture. -either can it assign, transfer, or
27 | P a g e
lease such franchise. )t has been said that "the rights and privileges
conferred under a franchise may, without doubt, be assigned or transferred
when the grant is to the grantee and assigns, or is authori.ed by statute. "n
the other hand, the right of transfer or assignment may be restricted by
statute or the constitution, or be made subject to the approval of the grantor
or a governmental agency, such as a public utilities commission, exception
that an existing right of assignment cannot be impaired by subse;uent
legislation."
<>
)t may also be pointed out that the franchise granted to the C!" to hold
and conduct lotteries allows it to hold and conduct a species of gambling. )t
is settled that "a statute which authori.es the carrying on of a gambling
activity or business should be strictly construed and every reasonable doubt
so resolved as to limit the powers and rights claimed under its authority."
<1
:oes the challenged Contract of Lease violate or contravene the exception in
!ection 4 of 2.+. -o. 4456, as amended by *.. *lg. 78, which prohibits the
C!" from holding and conducting lotteries "in collaboration, association or
joint venture with" anotherO
0e agree with the petitioners that it does, notwithstanding its denomination
or designation as a #Contra!t of Lease$. 0e are neither convinced nor moved
or fa.ed by the insistence and forceful arguments of the %&C that it does
not because in reality it is only an independent contractor for a piece of
work, i.e., the building and maintenance of a lottery system to be used by
the C!" in the operation of its lottery franchise. 0hether the contract in
;uestion is one of lease or whether the %&C is merely an independent
contractor should not be decided on the basis of the title or designation of
the contract but by the intent of the parties, which may be gathered from
the provisions of the contract itself. *nimus $ominis est anima s!ripti. The
intention of the party is the soul of the instrument. )n order to give life or
effect to an instrument, it is essential to look to the intention of the
individual who executed it.
<2
+nd, pursuant to +rticle 49?4 of the Civil Code,
"to determine the intention of the contracting parties, their
contemporaneous and subse;uent acts shall be principally considered." To
put it more bluntly, no one should be deceived by the title or designation of
a contract.
+ careful analysis and evaluation of the provisions of the contract and a
consideration of the contemporaneous acts of the C!" and %&C
28 | P a g e
indubitably disclose that the contract is not in reality a contract of lease
under which the %&C is merely an independent contractor for a piece of
work, but one where the statutorily proscribed!olla.oration or asso!iation, in
the least, or 5oint venture, at the most, exists between the contracting
parties.Colla.oration is defined as the acts of working together in a joint
project.
<3
*sso!iation means the act of a number of persons in uniting
together for some special purpose or business.
<!
Joint venture is defined as
an association of persons or companies jointly undertaking some commercial
enterpriseG generally all contribute assets and share risks. )t re;uires a
community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and duty, which may
be altered by agreement to share both in profit and
losses.
<5
The contemporaneous acts of the C!" and the %&C reveal that the C!"
had neither funds of its own nor the expertise to operate and manage an on'
line lottery system, and that although it wished to have the system, it would
have it "at no expense or risks to the government." *ecause of these serious
constraints and unwillingness to bear expenses and assume risks, the C!"
was candid enough to state in its 2/ that it is seeking for "a suitable
contractor which shall build, at its own expense, all the facilities needed to
operate and maintain" the systemG exclusively bear "all capital, operating
expenses and expansion expenses and risks"G and submit "a comprehensive
nationwide lottery development plan . . . which will include the game, the
marketing of the games, and the logistics to introduce the game to all the
cities and municipalities of the country within five #>$ years"G and that the
operation of the on'line lottery system should be "at no expense or risk to
the government" I meaningitself, since it is a government'owned and
controlled agency. The fa!ilities referred to means "all capital e;uipment,
computers, terminals, software, nationwide telecommunications network,
ticket sales offices, furnishings and fixtures, printing costs, costs of salaries
and wages, advertising and promotions expenses, maintenance costs,
expansion and replacement costs, security and insurance, and all other
related expenses needed to operate a nationwide on'line lottery system."
)n short, the only contribution the C!" would have is its franchise or
authority to operate the on'line lottery systemG with the rest, including
the ris0s of the business, being borne by the proponent or bidder. )t could be
29 | P a g e
for this reason that it warned that "the proponent must be able to stand to
the acid test of proving that it is an entity able to take on t$e role of
responsi.le maintainer of t$e on8line lottery system." The C!", however,
makes it clear in its 2/ that the proponent can propose a period of the
contract which shall not exceed fifteen years, during which time it is assured
of a "rental" which shall not exceed 48A of gross receipts. +s admitted by
the %&C, upon learning of the C!"=s decision, the *erjaya %roup *erhad,
with its affiliates, wanted to offer itsservi!es and resour!es to the C!".
/orthwith, it organi.ed the %&C as "a medium through which the te!$ni!al
and management services re;uired for the project would be offered and
delivered to C!"."
<<
Cndoubtedly, then, the *erjaya %roup *erhad knew all along that in
connection with an on'line lottery system, the C!" had nothing but its
franchise, which it solemnly guaranteed it had in the %eneral )nformation of
the 2/.
<7
Fowsoever viewed then, from the very inception, the C!" and
the %&C mutually understood that any arrangement between them would
necessarily leave to the %&C the te!$ni!al, operations, and
managementaspects of the on'line lottery system while the C!" would,
primarily, provide the franchise. The words Gamingand anagement in the
corporate name of respondent hilippine %aming &anagement Corporation
could not have been conceived just for euphemistic purposes. "f course, the
2/ cannot substitute for the Contract of Lease which was subse;uently
executed by the C!" and the %&C. -evertheless, the Contract of Lease
incorporates their intention and understanding.
The so'called Contract of Lease is not, therefore, what it purports to be. )ts
denomination as such is a crafty device, carefully conceived, to provide a
built'in defense in the event that the agreement is ;uestioned as violative of
the exception in !ection 4 #*$ of the C!"=s charter. The acuity or skill of its
draftsmen to accomplish that purpose easily manifests itself in the Contract
of Lease. )t is outstanding for its careful and meticulous drafting designed to
give an immediate impression that it is a contract of lease. ,et, woven
therein are provisions which negate its title and betray the true intention of
the parties to be in or to have a 5oint venture for a period of eight years in
the operation and maintenance of the on'line lottery system.
Consistent with the above observations on the 2/, the C!" has only its
franchise to offer, while the %&C represents and warrants that it has
30 | P a g e
access to all managerial and te!$ni!al e3pertise to promptly and effectively
carry out the terms of the contract. +nd, for a period of eight years, the
%&C is under obligation to keep all theFa!ilities in safe condition and if
necessary, upgrade, replace, and improve them from time to time as new
technology develops to make the on'line lottery system more cost'effective
and competitiveG exclusively bear all costs and expenses relating to the
printing, manpower, salaries and wages, advertising and promotion,
maintenance, expansion and replacement, security and insurance, and all
other related expenses needed to operate the on'line lottery systemG
undertake a positive advertising and promotions campaign for both
institutional and product lines without engaging in negative advertising
against other lessorsG bear the salaries and related costs of skilled and
;ualified personnel for administrative and te!$ni!al operationsG comply
with pro!edural and !oordinating rules issued by the C!"G and to train
C!" and other local personnel and to effect the transfer of technology and
other expertise, such that at the end of the term of the contract, the C!"
will be able to effectively take over the /acilities and efficiently operate the
on'line lottery system. The latter simply means that, indeed, the managers,
technicians or employees who shall operate the on'line lottery system are
not managers, technicians or employees of the C!", but of the %&C and
that it is only after the expiration of the contract that the C!" will operate
the system. +fter eight years, the C!" would automatically become the
owner of the /acilities without any other further consideration.
/or these reasons, too, the %&C has the initial prerogative to prepare the
detailed plan of all games and the marketing thereof, and determine the
number of players, value of winnings, and the logistics re;uired to introduce
the games, including the &aster %ames lan. "f course, the C!" has the
reserved authority to disapprove them.
<=
+nd, while the C!" has the sole
responsibility over the appointment of dealers and retailers throughout the
country, the %&C may, nevertheless, recommend for appointment dealers
and retailers which shall be acted upon by the C!" within forty'eight hours
and collect and retain, for its own account, a security deposit from dealers
and retailers in respect of e;uipment supplied by it.
This joint venture is further established by the following<
#a$ 2ent is defined in the lease contract as the amount to be paid to the
%&C as compensation for the fulfillment of its obligations under the
31 | P a g e
contract, in!luding, .ut not limited to the lease of the /acilities. Fowever,
this rent is not actually a fixed amount. +lthough it is stated to be 7.6A of
gross receipts from ticket sales, payable net of taxes re;uired by law to be
withheld, it may be drastically reduced or, in extreme cases, nothing may be
due or demandable at all because the %&C binds itself to "bear all risks if
the revenue from the ticket sales, on an annuali.ed basis, are insufficient to
pay the entire pri.e money." This risk'bearing provision is unusual in a
lessor'lessee relationship, but inherent in a joint venture.
#b$ )n the event of pre'termination of the contract by the C!", or its
suspension of operation of the on'line lottery system in breach of the
contract and through no fault of the %&C, the C!" binds itself "to
promptly, and in any event not later than sixty #5@$ days, reimburse the
Lessor the amount of its total investment cost associated with the "n'Line
Lottery !ystem, including but not limited to the cost of the /acilities, and
further compensate the LD!!"2 for loss of expected net profit after tax,
computed over the unexpired term of the lease." )f the contract were indeed
one of lease, the payment of the expected profits or rentals for the
unexpired portion of the term of the contract would be enough.
#c$ The %&C cannot "directly or indirectly undertake any activity or
business in competition with or adverse to the "n'Line Lottery !ystem of
C!" unless it obtains the latter=s prior written consent." )f the %&C is
engaged in the business of leasing e;uipment and technology for an on'line
lottery system, we fail to see any acceptable reason why it should allow a
restriction on the pursuit of such business.
#d$ The %&C shall provide the C!" the audited +nnual 2eport sent to its
stockholders, and within two years from the effectivity of the contract, cause
itself to be listed in the local stock exchange and offer at least 8>A of its
e;uity to the public. )f the %&C is merely a lessor, this imposition is
unreasonable and whimsical, and could only be tied up to the fact that the
%&C will actually operate and manage the systemG hence, increasing public
participation in the corporation would enhance public interest.
#e$ The %&C shall put up an Dscrow :eposit of 9@@,@@@,@@@.@@ pursuant
to the re;uirements of the 2/, which it may, at its option, maintain as its
initial performance bond re;uired to ensure its faithful compliance with the
terms of the contract.
32 | P a g e
#f$ The C!" shall designate the necessary personnel to monitor and audit
the daily performance of the on'line lottery systemG and
promulgate pro!edural and !oordinating rules governing all activities relating
to the on'line lottery system. The first further confirms that it is the %&C
which will operate the system and the C!" may, for the protection of its
interest, monitor and audit the daily performance of the system. The second
admits the!oordinating and !ooperative powers and functions of the parties.
#g$ The C!" may validly terminate the contract if the %&C becomes
insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends
or threatens to stop or suspend payment of all or a material part of its
debts.
+ll of the foregoing unmistakably confirm the indispensable role of the %&C
in the pursuit, operation, conduct, and management of the "n'Line Lottery
!ystem. They exhibit and demonstrate the parties= indivisible community of
interest in the conception, birth and growth of the on'line lottery, and, above
all, in its profits, with each having a right in the formulation and
implementation of policies related to the business and sharing, as well, in
the losses I with the %&C bearing the greatest burden because of its
assumption of expenses and risks, and the C!" the least, because of its
confessed unwillingness to bear expenses and risks. )n a manner of
speaking, each is wed to the other for better or for worse. )n the final
analysis, however, in the light of the C!"=s 2/ and the above highlighted
provisions, as well as the "Fold Farmless Clause" of the Contract of Lease, it
is even safe to conclude that the actual lessor in this case is the C!" and
the subject matter thereof is its franchise to hold and conduct lotteries since
it is, in reality, the %&C which operates and manages the on'line lottery
system for a period of eight years.
0e thus declare that the challenged Contract of Lease violates the exception
provided for in paragraph *, !ection 4 of 2.+. -o. 4456, as amended by *..
*lg. 78, and is, therefore, invalid for being contrary to law. This conclusion
renders unnecessary further discussion on the other issues raised by the
petitioners.
0FD2D/"2D, the instant petition is hereby %2+-TD: and the challenged
Contract of Lease executed on 4? :ecember 4669 by respondent hilippine
Charity !weepstakes "ffice #C!"$ and respondent hilippine %aming
33 | P a g e
&anagement Corporation #%&C$ is hereby :DCL+2D: contrary to law and
invalid.
The Temporary 2estraining "rder issued on 44 +pril 4667 is hereby &+:D
D2&+-D-T.
-o pronouncement as to costs.
!" "2:D2D:.
PPPPPPPPPPPPPP
G.R. No. L?<5 A4@4.1 2, 1<>
LUCINA BIGLANGA(A a*+ LUCIA ESPIRITU, petitioners'appellees,
vs.
PASTOR B. CONSTANTINO, respondent'appellant.
-elgado, Flores and a!apagal for appellant.
Luis eneses for appellee.
BARRERA, J.:
The only issue, which is of law, involved in this appeal, is the legality of the
annotation of lis pendens predicated on the complaint of respondent'
appellant astor *. Constantino.
"n 3une 8>, 46>9, respondent astor *. Constantino filed with the Court of
/irst )nstance of 2i.al an amended complaint #docketed as Civil Case -o.
849B$ against petitioners Lucina *iglangawa and Lucia Dspiritu, as follows<
+&D-:D: C"&L+)-T
laintiff, by his undersigned counsel, alleges<
+s /irst Cause of +ction
4. laintiff and defendants are residents of &alabon, 2i.al.
8. :efendants Lucina *iglangawa and Lucia Dspiritu were or have been the
owners of a parcel of land in &arulas, olo, *ulacan, more particularly
described in "Transfer Certificate of Title -o. >7>6 as follows< . . . .
9. "n 3anuary 47, 46>@, defendant Lucina *iglangawa, with the consent of
her co'owner Lucia Dspiritu, appointed plaintiff their exclusive agent to
develop the area described in paragraph 8 into subdivision lots and to sell
them to prospective homeownersG and as compensation for his services,
defendants promised to pay him a commission of 8@A on the gross sales
and a fee of 4@A on the collections made by him payable from "the first
collections received from the purchasers in respect to each lot sold . . . .
7. The power thus conferred by Lucina *iglangawa to plaintiff was confirmed
in a notarial document executed on &arch 9, 46>@ by her and her co'
34 | P a g e
defendants, who are husband and wife, with the added stipulation that they
could not revoke the contract of agency without plaintiff=s consent. . . .
>. +dvancing all the expenses incurred in the development and
administration of the project, plaintiff caused the subdivision of said property
into 8@9 lots and advertised them for sale under the name "*** &+2CL+!
!C*:)E)!)"- -o. 9=G and up to "ctober, 46>4 plaintiff had disposed of more
than half of the entire area at 4@.@@ and 48.@@ per s;uare meter.
5. +lthough under the express terms of the contract of 3anuary 47, 46>@
#Dxhibit "+"$ the commissions of plaintiff for making 9? 9 those sales and his
collection fees of 4@A were to be paid to him "from the first collections
received from the purchasers in respect to each lot sold", defendants, in
contravention of that agreement, oppressively and in bad faith adopted the
practice of paying the latter=s compensation out of 9@A only of the gross
monthly collections from the sales, such that, as of "ctober 4>, 46>4 when a
li;uidation was made, there was still a balance on plaintiff=s commissions in
the amount of 7B,B66.8@.
?. Later, in "ctober, 46>4, defendants wantonly, oppressively, and in
evident bad faith terminated the agency contracts Dxhibits "+" and "*"
depriving plaintiff of his rights to commission fees of 8@A on the sale of the
remaining lots and 4@A fee on the cash receipts of the business every
month.
B. :efendants nevertheless, expressly acknowledge their liability to plaintiff
in the sum of 7B,B66.8@ for unpaid commissions as of "ctober 45, 46>4G
and they promised to pay indebtedness to plaintiff in successive monthly
installments beginning -ovember, 46>4, as follows< . . . .
6. laintiff consented to the settlement of the balance of his commission in
monthly installments after the termination of the agency in consideration of
defendant=s promises that they would compute and faithfully pay the
percentage of monthly installments on the basis of their monthly gross
collections from the operation of "*** &+2CL+! !C*:)E)!)"- -o. 9", as
stipulated in Dxhibit "C", and shall follow that procedure until their total
indebtedness is fully settled.
4@. /rom "ctober 45, 46>4 to &arch 94, 46>9, defendants made a total
monthly gross collection of around >8,B76.59 from the business, and out of
these receipts plaintiff was entitled to minimum payments of B,?44.49
pursuant to Dxhibit "C"G but again defendant wantonly, fraudulently,
35 | P a g e
oppressively, and in evident bad faith paid plaintiff only the sum of
5,8@7.49 or 8,>@?.@@ short of what plaintiff should have received during
the period.
44. Cpon gaining information of the breach of the contract by defendants
about the end of &arch, 46>9 and verifying the existence of such breach,
plaintiff immediately demanded of defendants the difference between the
amounts due to him under the contract Dxhibit "C" and those actually paid
by them, but defendants wantonly, fraudulently, and without cause refused
to make necessary settlement.
x x x x x x x x x
49. The balance of plaintiff=s commissions remaining unpaid as of the filing of
this complaint, excluding the underpayments from -ovember, 46>4 to
&arch, 46>9, is 96,>97.58.
+s to !econd Cause of +ction
4. laintiff reproduces paragraphs 4 to 49 of the first cause 9n 9 of action.
8. /or defendants= gross and evident bad faith in refusing plaintiff=s valid,
just, and demandable claim against them, plaintiff was forced to prosecute
the present case against them, and became liable for attorney=s fees in the
sum of ?,@@@.@@.
0FD2D/"2D, plaintiff prays for judgment I
#a$ "rdering defendants to pay plaintiff the sum of 8,>@?.@@ which is
defendants= underpayments from -ovember, 46>4 to &arch, 46>9, with
interest at the legal rateG
#b$ :eclaring defendants to have lost the right to pay plaintiff in monthly
installments and re;uiring them to pay plaintiff at once the balance of his
commissions and fees in the amount of B6,>79.58, with interest at the legal
rate from the filing of this complaintG
#c$ "rdering defendants to pay plaintiff moral damages in the sum of
7@,@@@.@@, exemplary damages in the sum of 9@,@@@.@@, and attorney=s
fees in the sum of ?,@@@.@@.
#d$ %ranting costs and such other reliefs as this court may deem just and
e;uitable in the premises.
To this complaint, petitioners filed their answer on +ugust 8>, 46>9.
0hile said Civil Case -o. 849B was pending in said court, respondent, on
+pril >, 46>>, filed with the "ffice of the 2egister of deeds of *ulacan, the
following notice of lis pendens<
36 | P a g e
lease make of record the pendency of a complaint involving, among other
things, rights and interests and claims for services and damages on the
following described property, which has been converted into a subdivision as
shown by the plan sd'86657, situated in &arulas, olo, *ulacan, to wit<
#Technical description of the real property mentioned in the complaint$ which
property is more particularly described in Transfer Certificate of Title -o.
>7>6 of the 2egister of :eeds of *ulacan. + copy of the complaint and
amended complaint, marked +ppendices + and +'4, are attached hereto and
made integral part hereof.
"n +pril 5, 46>>, the 2egister of :eeds of *ulacan re;uested petitioners to
surrender their owner=s copy of Transfer Certificate of Title -o. >7>6 for
annotation of said notice of lis pendens, but petitioners refused to do so.
Fowever, on &ay 4?, 46>>, when petitioners registered the absolute deed of
sale in favor of Carmelita L. !antos covering some of the lots of the
subdivision, said official without their knowledge and consent, made the
annotation of the lis pendens on petitioners= aforementioned title, as well as
on the title issued to Carmelita L. !antos.
etitioners, therefore, on 3une 44, 46>>, filed with the Court of /irst
)nstance of *ulacan, a petition praying for the cancellation of said notice
of lis pendens. To this petition, respondent filed his answer on 3une 4?,
46>>, to which, petitioners filed their reply on 3une 89, 46>>. "n 3une 87,
46>>, respondent filed a rejoinder to said reply.
+cting on said petition, the court issued an order on 3uly 46, 46>>, which
reads<
""2:D2
Cpon consideration of the petition filed by Lucina *iglangawa and Lucia
Dspiritu dated 3une 44, 46>> and the answer thereto, and it appearing from
the amended complaint of astor *. Constantino, plaintiff in Civil Case -o.
849B of the Court of /irst )nstance of 2i.al #respondent herein$ that said
action is purely and clearly a claim for money judgment which does not
affect the title or the right of possession of real property covered by Transfer
Certificate of Title -o. T'>7>6 and it being a settled rule in this jurisdiction
that a notice of lis pendens may be invoked as a remedy in cases where the
very lis mota of the pending litigation concerns directly the possession of, or
title to a specific real propertyG
37 | P a g e
0herefore, as prayed for, the 2egister of :eeds of *ulacan is hereby
ordered to cancel Dntry -o. 8B4?5 forlis pendens on Transfer Certificate of
Title -o. T'>7>6 of the petitioners as well as the annotation of the same on
Transfer Certificate of Title -o. T'@477B@ of Carmelita L. !antos.
!o ordered.
2espondent, on +ugust B, 46>>, filed a motion for reconsideration of the
above order, but the same was denied by the court on !eptember 9@, 46>>.
Fence, this appeal.
2espondent'appellant claims that the lower court erred in holding that his
pending action #Civil Case -o. 849B$ in the Court of /irst )nstance of 2i.al, is
purely a claim for money judgment which does not affect the title or right of
possession of petitioners= real property, covered by Transfer Certificate of
Title -o. T'>7>6. )nstead, he contends that the agreement whereby he was
to be paid a commission of 8@A on the gross sales and a fee of 4@A on the
collections made by him, converted him into a partner and gave him 4J>
participation in the property itself. Fence, he argues, his suit is one for the
settlement and adjustment of partnership interest or a partition action or
proceeding.
+ppellant=s theory is neither supported by the allegations of his complaint,
nor borne out by the purpose of his action. There is no word or expression in
the various paragraphs of his amended complaint that suggests any idea of
partnership. "n the contrary, appellant expressly averred that petitioners
"appointed plaintiff #appellant$ theire3!lusive agent to develop the area
described in paragraph 8 into subdivision lots and to sell them to prospective
homeownersG and as !ompensation for his services defendants #appellees$
promised to pay him a !ommission of 8@A on the gross sales and a fee of
4@A on the collections made by him. . . ." #!ee paragraph 9 of amended
complaint.$ Categorically, appellant referred to himself as an agent, not a
partnerG entitled to compensation, not participation, in the form of
commission or fee, not a share.
)t is true that in paragraph > of the amended complaint #supra$ appellant
claims to have made advan!es for the expenses incurred in the development
and administration of the property. *ut again he never considered these
as!ontri.utions to the business as to make him a partnerG otherwise, he
would have so stated it in his complaint. )n fact, after a li;uidation of these
advances and the commissions due to appellant at the time of
38 | P a g e
the termination of t$e agen!y, the whole balance was considered as
appellees= inde.tedness which appellant consented to be settled in monthly
installments #see paragraphs 5, B, and 6 of the amended complaint$.
0hile it is true again that the prayer in a complaint does not determine the
nature of the action, it not being a material part of the cause of action, still it
logically indicates, as it does in this case, the purpose of the actor. The four
paragraphs of the prayer seeks the recovery of fixed amounts
of underpayments and commissions and feesG not li;uidation or accounting
or partition as now insisted upon by appellant.
+ppellants=s amended complaint, not being "an action affecting the title or
the right of possession of real property",
4
nor one "to recover possession of
real estate, or to ;uiet title thereto, or to remove clouds upon the title
thereof, or for partition or other proceeding of any kind in court affecting the
title to real estate or the use or occupation thereof or the buildings thereon .
. .",
8
the same can not be the basis for annotating a notice of lis pendens on
the title of the petitioners'appellees.
Faving reached the above conclusion, this Court finds it unnecessary to
decide the incidental matters raised by the parties during the pendency of
this appeal.
0herefore, finding no error in the appealed order of the court a 1uo, the
same is hereby affirmed, with costs against the respondent'appellant. !o
ordered.
Paras, C.J., Bengzon, Padilla, Bautista *ngelo, La.rador, Reyes, J.B.L. and
Gutierrez -avid, JJ., concur.
PPPPPPPPPPPPPPPPPPPP
CLASSES OF PARTNERSHIP AND PARTNERS 177<?17=3
L#ONS %S ROSENTOC"
CIR %S SUTER
ORTEGA %S CA
AR3736 1o 0635,o4. /a.3.B
CCCCCCCCCCCC
(HO ARE PARTNERSD AART. 17<B
39 | P a g e
G.R. No. 1>1=!7 May 27, 13
LOURDES NA%ARRO AND MENARDO NA%ARRO, 031,1,o*36.,
5..
COURT OF APPEALS, $UDGE BETHEL "ATALBAS?MOSCARDON,
P63.,+,*@ $4+@3, R3@,o*a: T6,a: Co461 o7 Ba/o:o+ C,1y, B6a*/- 52,
S,21- $4+,/,a: R3@,o* a*+ S0o4.3. OLI%IA %. #ANSON AND RICARDO
B. #ANSON, 63.0o*+3*1..
George L. Howard Law Office for petitioners
Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private
respondents.

&DL", J.9
+ssailed and sought to be set aside by the petition before us is the
2esolution of the Court of +ppeals dated 3une 8@, 4664 which dismissed the
petition for annulment of judgment filed by the !pouses Lourdes and
&enardo -avarro, thusly<
The instant petition for annulment of decision is :)!&)!!D:.
4. 3udgments may be annulled only on the ground of extrinsic or collateral
fraud, as distinguished from intrinsic fraud #Canlas vs. Court of +ppeals, 457
!C2+ 45@, 4?@$. -o such ground is alleged in the petition.
8. Dven if the judgment rendered by the respondent Court were erroneous,
it is not necessarily void #Chereau vs. /uentebella, 79 hil. 845$. Fence, it
cannot be annulled by the proceeding sought to be commenced by the
petitioners.
9. The petitioners= remedy against the judgment enforcement of which is
sought to be stopped should have been appeal.
!" "2:D2D:. #pp. 87'8>, Rollo.$
The antecedent facts of the case are as follows<
"n 3uly 89, 46?5, herein private respondent "livia E. ,anson filed a
complaint against petitioner Lourdes -avarro for ":elivery of ersonal
roperties 0ith :amages". The complaint incorporated an application for a
writ of replevin. The complaint was later docketed as Civil Case -o. ?45
#48>58$ of the then Court of /irst )nstance of *acolod #*ranch >>$ and was
subse;uently amended to include private respondent=s husband, 2icardo *.
,anson, as co'plaintiff, and petitioner=s husband, as co'defendant.
40 | P a g e
"n 3uly 8?, 46?5, then Dxecutive 3udge "scar 2. Eictoriano #later to be
promoted and to retire as residing 3ustice of the Court of +ppeals$
approved private respondents= application for a writ of replevin. The !heriff=s
2eturn of !ervice dated &arch 9, 46?B affirmed receipt by private
respondents of all pieces of personal property sought to be recovered from
petitioners.
"n +pril 9@, 466@, residing 3udge *ethel (atalbas'&oscardon rendered a
decision, disposing as follows <
+ccordingly, in the light of the aforegoing findings, all chattels already
recovered by plaintiff by virtue of the 0rit of 2eplevin and as listed in the
complaint are hereby sustained to belong to plaintiff being the owner of
these propertiesG the motor vehicle, particularly that /ord /iera 3eep
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 5,>@@.@@ representing the amount
advanced to pay part of the price thereforG and said defendant is likewise
hereby ordered to return to plaintiff such other e;uipmentLsM 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
0rit of 2eplevin. #p. 48, Rollo.$
etitioner received a copy of the decision on 3anuary 4@, 4664 #almost 6
months after its rendition$ and filed on 3anuary 45, 4664 a "&otion for
Dxtension of Time To /ile a &otion for 2econsideration". This was granted on
3anuary 4B, 4664. rivate respondents filed their opposition, !iting the ruling
in the case of :a.aluyas Enterprises, (n!. vs. Japson #478 !C2+ 8@B L46B5M$
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
3anuary 4B, 4664 and declared the decision of +pril 9@, 466@ as final and
executory. #etitioners= motion for reconsideration was subse;uently filed on
/ebruary 4, 4664 or 88 days after the receipt of the decision$.
"n /ebruary 7, 4664, the trial court issued a writ of execution #+nnex ">", p.
?6, Rollo$. The !heriff=s 2eturn of !ervice #+nnex "5", p. B8, Rollo$ declared
that the writ was "duly served and satisfied". + receipt for the amount of
5,>@@.@@ issued by &rs. Lourdes ,anson, co'petitioner in this case, was
likewise submitted by the !heriff #+nnex "?", p. B9, Rollo$.
41 | P a g e
"n 3une 85, 4664, petitioners filed with respondent court a petition for
annulment of the trial court=s decision, claiming that the trial judge erred in
declaring the non'existence of a partnership, contrary to the evidence on
record.
The appellate court, as aforesaid, outrightly dismissed the petition due to
absence of extrinsic or collateral fraud, observing further that an appeal was
the proper remedy.
)n the petition before us, petitioners claim that the trial judge ignored
evidence that would show that the parties "clearly intended to form, and #in
fact$ actually formed a verbal partnership engaged in the business of +ir
/reight !ervice +gency in *acolod"G 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. 4>, Rollo$. These issues, however, were extensively
discussed by the trial judge in her 45'page, single'spaced decision.
0e agree with respondents that the decision in this case has become final.
)n fact a writ of execution had been issued and was promptly satisfied by the
payment of 5,>@@.@@ to private respondents.
Faving 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 +ppeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the
trial court=s decision. 0e respect the appellate court=s finding in this regard.
etitioners have come to us in a petition for review. Fowever, the petition is
focused solely on factual issues which can no longer be entertained.
etitioners= arguments are all directed against the decision of the regional
trial courtG not a word is said in regard to the appellate=s court disposition of
their petition for annulment of judgment. Eerily, petitioners keeps on
pressing that the idea of a partnership exists on account of the so'called
admissions in 5udi!io. *ut 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
contentionG whether the properties that were commonly used in the
operation of +llied +ir /reight belonged to the alleged partnership businessG
and the status of the parties in this transaction of alleged partnership. "n
42 | P a g e
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.
+s a premise, +rticle 4?5? of the -ew Civil Code defines the contract of
partnership to ;uote<
+rt. 4?5?. *y 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 +rticle 4?56, to wit<
xxx xxx xxx
/urthermore, the Code provides under +rticle 4??4 and 4??8 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 capitali.ation of 9,@@@.@@ or more in money or property, the
same must appear in a public instrument which must be recorded in the
"ffice of the !ecurities and Dxchange Commission. /ailure to comply with
these re;uirements shall only affect liability of the partners to third persons.
)n 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 +llied +ir /reight +gency of which the plaintiff personally
constituted with the &anila "ffice in a sense that the plaintiff did supply the
necessary e;uipments and money while her brother +tty. 2odolfo Eillaflores
was the &anager and the defendant the Cashier. )t was also admitted that
part of this agreement was an e;ual sharing of whatever proceeds reali.ed.
Conse;uently, 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. +
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.
0hile there may have been co'ownership or co'possession of some items
andJor any sharing of proceeds by way of advances received by both plaintiff
43 | P a g e
and the defendant, these are not indicative and supportive of the existence
of any partnership between them. +rticle 4?56 of the -ew Civil Code is
explicit. Dven the books and records retrieved by the Commissioner
appointed by the Court did not show proof of the existence of a partnership
as conceptuali.ed by law. !uch that if assuming that there were profits
reali.ed in 46?> after the two'year deficits were compensated, this could
only be subject to an e;ual sharing consonant to the agreement to e;ually
divide any profit reali.ed. Fowever, this Court cannot overlook the fact that
the +udit 2eport 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. *esides, the alleged profits was a difference found after valuating the
assets and not arising from the real operation of the business. )n accounting
procedures, strictly, this could not be profit but a net worth.
)n view of the above factual findings of the Court it follows inevitably
therefore that there being no partnership that existed, any dissolution,
li;uidation 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. "n the other hand, the assumption by the defendant
in negotiating for herself the continuance of the +gency with the principal in
&anila is comparable to plaintiff=s. +ny account of plaintiff with the principal
as alleged, bore no evidence as no collection was ever demanded of from
her. The alleged 8@,@@@.@@ assumption specifically, as would have been
testified to by the defendant=s husband remain a mere allegation.
+s to the properties sought to be recovered, the Court sustains the
possession by plaintiff of all e;uipments and chattels recovered by virtue of
the 0rit of 2eplevin. 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
+udit 2eport 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 2eport there has been disbursed and
paid for in this vehicle out of the business funds in the total sum of
5,>@@.@@, it is only fitting and proper that validity of these disbursements
must be sustained as true #Dxhs. &'4 to &'9, p. 4B@, 2ecords$. )n this
connection and taking into account the earlier agreement that only profits
44 | P a g e
were to be shared e;ually, the plaintiff must be reimbursed of this cost if
only to allow the defendant continuous possession of the vehicle in ;uestion.
)t is a fundamental moral, moral and civil injunction that no one shall enrich
himself at the expense of another. #pp. ?4'?>, Rollo.$
0ithal, 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.
0FD2D/"2D, the petition is :)!&)!!D:. The 2esolution of the Court of
+ppeals dated 3une 8@, 4664 is +//)2&D: in all respects.
-o special pronouncement is made as to costs.
!" "2:D2D:.
PPPPPPPPPPPPPPPP
G.R. No. L?<=11= O/1oE36 2, 1=5
$OSE P. OBILLOS, $R., SARAH P. OBILLOS, ROMEO P. OBILLOS a*+
REMEDIOS P. OBILLOS, E6o1-36. a*+ .,.136., petitioners
vs.
COMMISSIONER OF INTERNAL RE%ENUE a*+ COURT OF TAX
APPEALS, respondents.
-emost$enes B. Gadioma for petitioners.

A'UINO, J.:
This case is about the income tax liability of four brothers and sisters who
sold two parcels of land which they had ac;uired from their father.
"n &arch 8, 46?9 3ose "billos, !r. completed payment to "rtigas Q Co., Ltd.
on two lots with areas of 4,487 and 659 s;uare meters located at %reenhills,
!an 3uan, 2i.al. The next day he transferred his rights to his four children,
the petitioners, to enable them to build their residences. The company sold
the two lots to petitioners for 4?B,?@B.48 on &arch 49 #Dxh. + and *, p.
77, 2ollo$. resumably, the Torrens titles issued to them would show that
they were co'owners of the two lots.
)n 46?7, or after having held the two lots for more than a year, the
petitioners resold them to the 0alled City !ecurities Corporation and "lga
Cru. Canda for the total sum of 949,@>@ #Dxh. C and :$. They derived from
the sale a total profit of 497,974.BB or 99,>B7 for each of them. They
45 | P a g e
treated the profit as a capital gain and paid an income tax on one'half
thereof or of 45,?68.
)n +pril, 46B@, or one day before the expiration of the five'year prescriptive
period, the Commissioner of )nternal 2evenue re;uired the four petitioners
to pay !orporate in!ome ta3 on the total profit of 497,995 in addition to
individual income tax on their shares thereof Fe assessed 9?,@4B as
corporate income tax, 4B,>@6 as >@A fraud surcharge and 4>,>7?.>5 as
78A accumulated interest, or a total of P;<,=;>.?@.
-ot only that. Fe considered the share of the profits of each petitioner in the
sum of 99,>B7 as a " taxable in full #not a mere capital gain of which R is
taxable$ and re;uired them to pay deficiency income taxes aggregating
>5,?@?.8@ including the >@A fraud surcharge and the accumulated
interest.
Thus, the petitioners are being held liable for deficiency income taxes and
penalties totalling 48?,?B4.?5 on their profit of 497,995, in addition to the
tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed
an unregistered partnership or joint venture within the meaning of sections
87#a$ and B7#b$ of the Tax Code #Collector of )nternal 2evenue vs. *atangas
Trans. Co., 4@8 hil. B88$.
The petitioners contested the assessments. Two 3udges of the Tax Court
sustained the same. 3udge 2oa;uin dissented. Fence, the instant appeal.
0e hold that it is error to consider the petitioners as having formed a
partnership under article 4?5? of the Civil Code simply because they
allegedly contributed 4?B,?@B.48 to buy the two lots, resold the same and
divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be
obviated.
+s testified by 3ose "billos, 3r., they had no such intention. They were co'
owners pure and simple. To consider them as partners would obliterate the
distinction between a co'ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. )f later
on they found it not feasible to build their residences on the lots because of
46 | P a g e
the high cost of construction, then they had no choice but to resell the same
to dissolve the co'ownership. The division of the profit was merely incidental
to the dissolution of the co'ownership which was in the nature of things a
temporary state. )t had to be terminated sooner or later. Castan Tobe1as
says<
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la
sociedadO
Dl criterio diferencial'segun la doctrina mas generali.ada'esta< por ra.on del
origen, en ;ue la sociedad presupone necesariamente la convencion,
mentras ;ue la comunidad puede existir y existe ordinariamente sin elaG y
por ra.on del fin objecto, en ;ue el objeto de la sociedad es obtener lucro,
mientras ;ue el de la indivision es solo mantener en su integridad la cosa
comun y favorecer su conservacion.
2eflejo de este criterio es la sentencia de 4> de "ctubre de 467@, en la ;ue
se dice ;ue si en nuestro :erecho positive se ofrecen a veces dificultades al
tratar de fijar la linea divisoria entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina cientifica se1ala como nota
fundamental de diferenciacion aparte del origen de fuente de ;ue surgen, no
siempre uniforme, la finalidad perseguida por los interesados< lu!ro !omun
parti.le en la sociedad, y mera !onserva!ion y aprovechamiento en la
comunidad. #:erecho Civil Dspanol, Eol. 8, art 4, 4@ Dd., 46?4, 98B' 986$.
+rticle 4?56#9$ of the Civil Code provides that "the sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which
the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.F
!uch intent was present in %atchalian vs. Collector of )nternal 2evenue, 5?
hil. 555, where 4> persons contributed small amounts to purchase a two'
peso sweepstakes ticket with the agreement that they would divide the pri.e
The ticket won the third pri.e of >@,@@@. The 4> persons were held liable
for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged
in joint ventures for profit. Thus, in "1a vs.
SS This view is supported by the following rulings of respondent
Commissioner<
47 | P a g e
Co8o/ers$ip distinguis$ed from partners$ip.I0e find that the case at bar is
fundamentally similar to the :e Leon case. Thus, like the :e Leon heirs, the
Longa heirs inherited the =hacienda= in ;uestionpro8indiviso from their
deceased parentsG they did not contribute or invest additional = capital to
increase or expand the inherited propertiesG they merely continued
dedicating the property to the use to which it had been put by their
forebearsG they individually reported in their tax returns their corresponding
shares in the income and expenses of the =hacienda=, and they continued for
many years the status of co'ownership in order, as conceded by respondent,
=to preserve its #the =hacienda=$ value and to continue the existing
contractual relations with the Central +.ucarera de *ais for milling purposes.
Longa vs. +ranas, CT+ Case -o. 5>9, 3uly 94, 4659$.
*ll !o8o/ners$ips are not deemed unregistered pratners$ip.ACo'"wnership
who own properties which produce income should not automatically be
considered partners of an unregistered partnership, or a corporation, within
the purview of the income tax law. To hold otherwise, would be to subject
the income of all
!o8o/ners$ips of inherited properties to the tax on corporations, inasmuch
as if a property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the income tax
on corporation. #:e Leon vs. C) 2, CT+ Case -o. ?9B, !eptember 44, 4654,
cited in +ra1as, 46?? Tax Code +nnotated, Eol. 4, 46?6 Dd., pp. ??'?B$.
Commissioner of )nternal 2evenue, L'46978, &ay 8>, 46?8, 7> !C2+ ?7,
where after an extrajudicial settlement the co'heirs used the inheritance or
the incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered
partnership.
)t is likewise different from 2eyes vs. Commissioner of )nternal 2evenue, 87
!C2+ 46B, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided e;ually the net
income, and from Dvangelista vs. Collector of )nternal 2evenue, 4@8 hil.
47@, where the three Dvangelista sisters bought four pieces of real property
which they leased to various tenants and derived rentals therefrom. Clearly,
the petitioners in these two cases had formed an unregistered partnership.
)n the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he
48 | P a g e
paid the donor=s tax #!ee +rt. 477B, Civil Code$. 0e are not prejudging this
matter. )t might have already prescribed.
0FD2D/"2D, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. -o costs.
!" "2:D2D:.
PPPPPPPPPPPPPP
G.R. No.. L?2!>2>?21 $4:y 2, 1<=
FLORENCIO RE#ES a*+ ANGEL RE#ES, petitioners,
vs.
COMMISSIONER OF INTERNAL RE%ENUE a*+ HON. COURT OF TAX
APPEALS, respondents.
Jose 2. -io0no and -omingo Sandoval for petitioners.
"ffi!e of t$e Soli!itor General for respondents.
FERNANDO, J.:
etitioners in this case were assessed by respondent Commissioner of
)nternal 2evenue the sum of 75,57?.@@ as income tax, surcharge and
compromise for the years 46>4 to 46>7, an assessment subse;uently
reduced to 9?,>8B.@@. This assessment sought to be reconsidered
unsuccessfully was the subject of an appeal to respondent Court of Tax
+ppeals. Thereafter, another assessment was made against petitioners, this
time for back income taxes plus surcharge and compromise in the total sum
of 8>,6?9.?>, covering the years 46>> and 46>5. There being a failure on
their part to have such assessments reconsidered, the matter was likewise
taken to the respondent Court of Tax +ppeals. The two cases
4
involving as
they did identical issues and ultimately traceable to facts similar in character
were heard jointly with only one decision being rendered.
)n that joint decision of respondent Court of Tax +ppeals, the tax liability for
the years 46>4 to 46>7 was reduced to 9?,48B.@@ and for the years 46>>
and 46>5, to 8@,546.@@ as income tax due "from the partnership formed"
by petitioners.
8
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.
9
+ reconsideration of the aforesaid decision
49 | P a g e
was sought and denied by respondent Court of Tax +ppeals. Fence this
petition for review.
The facts as found by respondent Court of Tax +ppeals, which being
supported by substantial evidence, must be respected
7
follow< ""n "ctober
94, 46>@, petitioners, father and son, purchased a lot and building, known
as the %ibbs *uilding, situated at 5?4 :asmari1as !treet, &anila, for
B9>,@@@.@@, of which they paid the sum of 9?>,@@@.@@, leaving a balance
of 75@,@@@.@@, representing the mortgage obligation of the vendors with
the China *anking Corporation, which mortgage obligations were assumed
by the vendees. The initial payment of 9?>,@@@.@@ was shared e;ually by
petitioners. +t 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 rentsG kept its
books and records and rendered statements of accounts to the ownersG
negotiated leasesG made necessary repairs and disbursed payments,
whenever necessary, after approval by the ownersG and performed such
other functions necessary for the conservation and preservation of the
building. etitioners divided e;ually the income of operation and
maintenance. The gross income from rentals of the building amounted to
about 6@,@@@.@@ annually."
>
/rom the above facts, the respondent Court of Tax +ppeals applying the
appropriate provisions of the -ational )nternal 2evenue Code, the first of
which imposes an income tax on corporations "organi.ed in, or existing
under the laws of the hilippines, no matter how created or organi.ed but
not including duly registered general co'partnerships #companias colectivas$,
...,"
5
a term, which according to the second provision cited, includes
partnerships "no matter how created or organi.ed, ...,"
?
and applying the
leading case of Evangelista v. Colle!tor of (nternal Revenue,
B
sustained the
action of respondent Commissioner of )nternal 2evenue, but reduced the tax
liability of petitioners, as previously noted.
etitioners maintain the view that the Dvangelista ruling does not applyG for
them, the situation is dissimilar.<B/p$C<.DEtConse;uently they allege that
the reliance by respondent Court of Tax +ppeals was unwarranted and the
decision should be set aside. )f their interpretation of the authoritative
doctrine therein set forth commands assent, then clearly what respondent
50 | P a g e
Court of Tax +ppeals did fails to find shelter in the law. That is the crux of
the matter. + perusal of the Dvangelista decision is therefore unavoidable.
+s noted in the opinion of the Court, penned by the present Chief 3ustice,
the issue was whether petitioners are subject to the tax on corporations
provided for in section 87 of Commonwealth +ct -o. 755, otherwise known
as the -ational )nternal 2evenue Code, ..."
6
+fter referring to another
section of the -ational )nternal 2evenue Code, which explicitly provides that
the term corporation "includes partnerships" and then to +rticle 4?5? of the
Civil Code of the hilippines, 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 fundG 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. Fence, the issue narrows down to their intent in
acting as they did. Cpon 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, ..."
4@
)n 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 transactionsG the lots thus
ac;uired not being devoted to residential purposes or to other personal uses
of petitioners in that caseG 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 checksG the above conditions having existed for more than 4@ years
since the ac;uisition of the above propertiesG 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."
44
The conclusion that emerged
had all the imprint of inevitability. Thus< "+lthough, 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."
48
51 | P a g e
)t may be said that there could be a differentiation made between the
circumstances above detailed and those existing in the present case. )t does
not suffice though to preclude the applicability of the Dvangelista decision.
etitioners could harp on these being only one transaction. They could stress
that an affidavit of one of them found in the *ureau of )nternal 2evenue
records would indicate that their intention was to house in the building
ac;uired by them the respective enterprises, coupled with a plan of effecting
a division in 4@ years. )t is a little surprising then that while the purchase
was made on "ctober 94, 46>@ and their brief as petitioners filed on "ctober
8@, 465>, almost 4> years later, there was no allegation that such division
as between them was in fact made. &oreover, the facts as found and as
submitted in the brief made clear that the building in ;uestion continued to
be leased by other parties with petitioners dividing "e;ually the income ...
after deducting the expenses of operation and maintenance ..."
49
:ifferences
of such slight significance do not call for a different ruling.
)t is obvious that petitioners= effort to avoid the controlling force of the
Dvangelista ruling cannot be deemed successful. 2espondent Court of Tax
+ppeals acted correctly. )t yielded to the command of an authoritative
decisionG it recogni.ed 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 +ppeals in
holding that petitioners, in ac;uiring the %ibbs *uilding, established a
partnership subject to income tax as a corporation under the -ational
)nternal 2evenue Code is likewise untenable. )n their discussion in their brief
of this alleged error, stress is laid on their being co'owners and not partners.
!uch an allegation was likewise made in the Dvangelista case.
This is the way it was disposed of in the opinion of the present Chief 3ustice<
"This pretense was correctly rejected by the Court of Tax +ppeals."
47
Then
came the explanation why< "To begin with, the tax in ;uestion is one
imposed upon "corporations", which, strictly speaking, are distinct and
different from "partnerships". 0hen our )nternal 2evenue Code includes
"partnerships" among the entities subject to the tax on "corporations", said
Code must allude, therefore, to organi.ations which are not
ne!essarily "partnerships", in the technical sense of the term. Thus, for
instance, section 87 of said Code e3empts from the aforementioned tax
52 | P a g e
"duly registered general partnerships", which constitute precisely one of the
most typical forms of partnerships in this jurisdiction. Likewise, as defined in
section B7#b$ of said Code, "the term corporation includes partnerships, no
matter $o/ !reated or organized." This ;ualifying expression clearly
indicates that a joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual re;uirements of the law on
partnerships, in order that one could be deemed constituted for purposes of
the tax on corporations. +gain, pursuant to said section B7#b$, the term
"corporation" includes, among others, "joint accounts, #!uentas en
parti!ipa!ion$" and "associations", none of /$i!$ $as a legal personality of
its o/n, independent of t$at of its mem.ers. +ccordingly, the lawmaker
could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. )n fact, as above stated,
"duly registered general copartnerships" I which are possessed of the
aforementioned personality ' have been expressly excluded by law #sections
87 and B7LbM$ from the connotation of the term "corporation"."
4>
The opinion
went on to summari.e the matter aptly< "/or purposes of the tax on
corporations, our ,ational (nternal Revenue Code, in!lude t$ese
partners$ips I with the exception only of duly registered general co'
partnerships within the purview of the term "corporation." )t 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."
45
)n the light of the above, it cannot be said that the respondent Court of Tax
+ppeals decided the matter incorrectly. There is no warrant for the assertion
that it failed to apply the settled law to uncontroverted facts. )ts decision
cannot be successfully assailed. &oreover, an observation made in *l$am.ra
Cigar F Cigarette anufa!turing Co. v. Commissioner of (nternal
Revenue,
4?
is well'worth recalling. Thus< "-or as a matter of principle is it
advisable for this Court to set aside the conclusion reached by an agency
such as the Court of Tax +ppeals which is, by the very nature of its
functions, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject, unless,
as did not happen here, there has been an abuse or improvident exercise of
its authority."
53 | P a g e
0FD2D/"2D, the decision of the respondent Court of Tax +ppeals ordering
petitioners "to pay the sums of 9?,48B.@@ as income tax due from the
partnership formed by herein petitioners for the years 46>4 to 46>7 and
8@,546.@@ for the years 46>> and 46>5 within thirty days from the date
this decision becomes final, plus the corresponding surcharge and interest in
case of delin;uency," is affirmed. 0ith costs against petitioners.
Con!ep!ion, C.J., Reyes, J.B.L., -izon, a0alintal, Galdivar, San!$ez, Castro
and *ngeles, JJ., !on!ur.
PPPPPPPPPPPPPPPP
EN BANC
G.R. No. L?2!=! A06,: 11, 1><
$OHN FORTIS, Plaintiff8*ppellee , vs. GUTIERRE&
HERMANOS, -efendants8*ppellants.
(ILLARD, J.: chanrobles virtual law library
laintiff, an employee of defendants during the years 46@@, 46@4, and 46@8,
brought this action to recover a balance due him as salary for the year 46@8.
Fe alleged that he was entitled, as salary, to > per cent of the net profits of
the business of the defendants for said year. The complaint also contained a
cause of action for the sum of 5@@ pesos, money expended by plaintiff for
the defendants during the year 46@9. The court below, in its judgment,
found that the contract had been made as claimed by the plaintiffG that > per
cent of the net profits of the business for the year 46@8 amounted to
85,9?B.5B pesos, &exican currencyG that the plaintiff had received on
account of such salary 48,B44.?> pesos, &exican currency, and ordered
judgment against the defendants for the sum 49,>55.69 pesos, &exican
currency, with interest thereon from :ecember 94, 46@7. The court also
ordered judgment against the defendants for the 5@@ pesos mentioned in
the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to hilippine currency,
amounted to 49,@8>.7@. The defendants moved for a new trial, which was
denied, and they have brought the case here by bill of
exceptions.chanroblesvirtualawlibrarychanrobles virtual law library
#4$ The evidence is sufifcient to support the finding of the court below to the
effect that the plaintiff worked for the defendants during the year 46@8
under a contract by which he was to receive as compensation > per cent of
the net profits of the business. The contract was made on the part of the
54 | P a g e
defendants by &iguel +lon.o %utierre.. *y the provisions of the articles of
partnership he was made one of the managers of the company, with full
power to transact all of the business thereof. +s such manager he had
authority to make a contract of employment with the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
#8$ *efore answering in the court below, the defendants presented a motion
that the complaint be made more definite and certain. This motion was
denied. To the order denying it the defendants excepted, and they have
assigned as error such ruling of the court below. There is nothing in the
record to show that the defendants were in any way prejudiced by this ruling
of the court below. )f it were error it was error without prejudice, and not
ground for reversal. #!ec. >@9, Code of Civil rocedure.$chanrobles virtual
law library
#9$ )t is claimed by the appellants that the contract alleged in the complaint
made the plaintiff a copartner of the defendants in the business which they
were carrying on. This contention can not bo sustained. )t was a mere
contract of employnent. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the compensation
received by him was to be determined with reference to the profits made by
the defendants in their business did not in any sense make by a partner
therein. The articles of partnership between the defendants provided that
the profits should be divided among the partners named in a certain
proportion. The contract made between the plaintiff and the then manager of
the defendant partnership did not in any way vary or modify this provision of
the articles of partnership. The profits of the business could not be
determined until all of the expenses had been paid. + part of the expenses
to be paid for the year 46@8 was the salary of the plaintiff. That salary had
to be deducted before the net profits of the business, which were to be
divided among the partners, could be ascertained. )t was undoubtedly
necessary in order to determine what the salary of the plaintiff was, to
determine what the profits of the business were, after paying all of the
expenses except his, but that determination was not the final determination
of the net profits of the business. )t was made for the purpose of fixing the
basis upon which his compensation should be
determined.chanroblesvirtualawlibrary chanrobles virtual law library
55 | P a g e
#7$ )t was no necessary that the contract between the plaintiff and the
defendants should be made in writing. #Thunga Chui vs. Hue *entec,
1
4 "ff.
%a.., B4B, "ctober B, 46@9.$chanrobles virtual law library
#>$ )t appearred that &iguel +lon.o %utierre., with whom the plaintiff had
made the contract, had died prior to the trial of the action, and the
defendants claim that by reasons of the provisions of section 9B9, paragraph
?, of the Code of Civil rocedure, plaintiff could not be a witness at the trial.
That paragraph provides that parties to an action against an executor or
aministrator upon a claim or demand against the estate of a deceased
person can not testify as to any matter of fact occurring before the death of
such deceased person. This action was not brought against the administrator
of &iguel +lon.o, nor was it brought upon a claim against his estate. )t was
brought against a partnership which was in existence at the time of the trial
of the action, and which was juridical person. The fact that &iguel +lon.o
had been a partner in this company, and that his interest therein might be
affected by the result of this suit, is not sufficient to bring the case within
the provisions of the section above
cited.chanroblesvirtualawlibrary chanrobles virtual law library
#5$ The plaintiff was allowed to testify against the objection and exception of
the defendants, that he had been paid as salary for the year 46@@ a part of
the profits of the business. This evidence was competent for the purpose of
corroborating the testimony of the plaintiff as to the existence of the
contract set out in the complaint.chanroblesvirtualawlibrary chanrobles
virtual law library
#?$ The plaintiff was allowed to testify as to the contents of a certain letter
written by &iguel %lutierre., one of the partners in the defendant company,
to &iguel +lon.o %utierre., another partner, which letter was read to plaintiff
by &iguel +lon.o. )t is not necessary to in;uire whether the court committed
an error in admitting this evidence. The case already made by the plaintiff
was in itself sufficient to prove the contract without reference to this letter.
The error, if any there were, was not prejudicial, and is not ground for
revesal. #!ec. >@9, Code of Civil rocedure.$chanrobles virtual law library
#B$ /or the purpose of proving what the profits of the defendants were for
the year 46@8, the plaintiff presented in evidence the ledger of defendants,
which contained an entry made on the 94st of :ecember, 46@8, as follows<
56 | P a g e
erdidas y %anancias ...................................... a Earios s. >8?,>?9.55
Ctilidades li;uidas obtenidas durante el ano y ;ue abonamos conforme a la
proporcion ;ue hemos establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits &iguel
%utierre., one of the defendants, who testiffied, among other things, that
there were no profits during the year 46@8, but, on the contrary, that the
company suffered considerable loss during that year. 0e do not think the
evidence of this witnees sufficiently definite and certain to overcome the
positive evidence furnished by the books of the defendants
themselves.chanroblesvirtualawlibrary chanrobles virtual law library
#6$ )n reference to the cause of action relating to the 5@@ pesos, it appears
that the plaintiff left the employ of the defendants on the 46th of &acrh,
46@9G that at their re;uest he went to Fongkong, and was there for about
two months looking after the business of the defendants in the matter of the
repair of a certain steamship. The appellants in their brief say that the
plaintiff is entitled to no compensation for his services thus rendered,
because by the provisions of article 4?44 of the Civil Code, in the absence of
an agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of
5@@ pesos not claimed as compensation for services but as a reimbursment
for money expended by the plaintiff in the business of the defendants. The
article of the code that is applicable is article
4?8B.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment of the court below is affirmed, with the costs, of this instance
against the appellants. +fter the expiration of twenty days from the date of
this decision let final judgment be entered herein, and ten days thereafter let
the case be remanded to the lower court for execution. !o
ordered.chanroblesvirtualawlibrary chanrobles virtual law library
*rellano, C.J., 'orres, apa, Jo$nson and Carson, JJ., concur.
PPPPPPPPPPPPPPPPP
G.R. No. L?!5!25 A06,: 2, 13
$OSE GATCHALIAN, ET AL., plaintiffs'appellants,
vs.
THE COLLECTOR OF INTERNAL RE%ENUE, defendant'appellee.
Guillermo B. Reyes for appellants.
"ffi!e of t$e Soli!itor8General 'uason for appellee.
57 | P a g e
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of
)nternal 2evenue the sum of 4,B59.77, with legal interest thereon, which
they paid under protest by way of income tax. They appealed from the
decision rendered in the case on "ctober 89, 4695 by the Court of /irst
)nstance of the City of &anila, 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
Fonorable Court the case upon the following statement of facts<
4. That plaintiff are all residents of the municipality of ulilan, *ulacan, and
that defendant is the Collector of )nternal 2evenue of the hilippinesG
8. That prior to :ecember 4>, 4697 plaintiffs, in order to enable them to
purchase one sweepstakes ticket valued at two pesos #8$, subscribed and
paid therefor the amounts as follows<
4. 3ose
%atchalian ...........................................................................
.........................
@.4
B
8. %regoria
Cristobal .............................................................................
..................
.4B
9. !aturnina
!ilva ...................................................................................
.................
.@B
7. %uillermo
Tapia ..................................................................................
.................
.49
>. 3esus
Legaspi ...............................................................................
.......................
.4>
5. 3ose
!ilva ...................................................................................
..........................
.@?
?. Tomasa
&ercado ..............................................................................
.@B
58 | P a g e
..................
B. 3ulio
%atchalian ...........................................................................
........................
.49
6. Dmiliana
!antiago .............................................................................
...................
.49
4@. &aria C.
Legaspi ...............................................................................
................
.45
44. /rancisco
Cabral .................................................................................
..............
.49
48. %on.alo
3avier .................................................................................
...................
.47
49. &aria
!antiago .............................................................................
......................
.4?
47. *uenaventura
%u.man ..............................................................................
........
.49
4>. &ariano
!antos ................................................................................
.................
.47
Total ...................................................................................
.....................
8.@@
9. That immediately thereafter but prior to :ecember 4>, 4697, plaintiffs
purchased, in the ordinary course of business, from one of the duly
authori.ed agents of the -ational Charity !weepstakes "ffice one ticket
bearing -o. 4?B59? for the sum of two pesos #8$ and that the said ticket
was registered in the name of 3ose %atchalian and CompanyG
7. That as a result of the drawing of the sweepstakes on :ecember 4>,
4697, the above'mentioned ticket bearing -o. 4?B59? won one of the third
pri.es in the amount of >@,@@@ and that the corresponding check covering
the above'mentioned pri.e of >@,@@@ was drawn by the -ational Charity
59 | P a g e
!weepstakes "ffice in favor of 3ose %atchalian Q Company against the
hilippine -ational *ank, which check was cashed during the latter part of
:ecember, 4697 by 3ose %atchalian Q CompanyG
>. That on :ecember 86, 4697, 3ose %atchalian was re;uired by income tax
examiner +lfredo :avid to file the corresponding income tax return covering
the pri.e won by 3ose %atchalian Q Company and that on :ecember 86,
4697, the said return was signed by 3ose %atchalian, a copy of which return
is enclosed as Dxhibit + and made a part hereofG
5. That on 3anuary B, 469>, the defendant made an assessment against 3ose
%atchalian Q Company re;uesting the payment of the sum of 4,766.67 to
the deputy provincial treasurer of ulilan, *ulacan, giving to said 3ose
%atchalian Q Company until 3anuary 8@, 469> within which to pay the said
amount of 4,766.67, a copy of which letter marked Dxhibit * is enclosed
and made a part hereofG
?. That on 3anuary 8@, 469>, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Dxhibit C is attached and made a
part hereof, re;uesting exemption from payment of the income tax to which
reply there were enclosed fifteen #4>$ separate individual income tax returns
filed separately by each one of the plaintiffs, copies of which returns are
attached and marked Dxhibit :'4 to :'4>, respectively, in order of their
names listed in the caption of this case and made parts hereofG a statement
of sale signed by 3ose %atchalian showing the amount put up by each of the
plaintiffs to cover up the attached and marked as Dxhibit D and made a part
hereofG and a copy of the affidavit signed by 3ose %atchalian dated
:ecember 86, 4697 is attached and marked Dxhibit / and made part
thereofG
B. That the defendant in his letter dated 3anuary 8B, 469>, a copy of which
marked Dxhibit % is enclosed, denied plaintiffs= re;uest of 3anuary 8@, 469>,
for exemption from the payment of tax and reiterated his demand for the
payment of the sum of 4,766.67 as income tax and gave plaintiffs until
/ebruary 4@, 469> within which to pay the said taxG
6. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subse;uent demand made by
defendant upon the plaintiffs through their attorney on &arch 89, 469>, a
copy of which marked Dxhibit F is enclosed, defendant on &ay 49, 469>
60 | P a g e
issued a warrant of distraint and levy against the property of the plaintiffs, a
copy of which warrant marked Dxhibit ) is enclosed and made a part hereofG
4@. That to avoid embarrassment arising from the embargo of the property
of the plaintiffs, the said plaintiffs on 3une 4>, 469>, through %regoria
Cristobal, &aria C. Legaspi and 3esus Legaspi, paid under protest the sum of
5@4.>4 as part of the tax and penalties to the municipal treasurer of
ulilan, *ulacan, as evidenced by official receipt -o. ?7>7B?6 which is
attached and marked Dxhibit 3 and made a part hereof, and re;uested
defendant that plaintiffs be allowed to pay under protest the balance of the
tax and penalties by monthly installmentsG
44. That plaintiff=s re;uest 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 dueG
48. That on 3uly 45, 469>, plaintiff filed a bond, a copy of which marked
Dxhibit ( 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
44B.?@ a month, the first payment under protest to be effected on or
before 3uly 94, 469>G
49. That on 3uly 45, 469> the said plaintiffs formally protested against the
payment of the sum of 5@8.>4, a copy of which protest is attached and
marked Dxhibit L, but that defendant in his letter dated +ugust 4, 469>
overruled the protest and denied the re;uest for refund of the plaintiffsG
47. 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 3uly 89, 469>, copy of which is
attached and marked Dxhibit &, ordered the municipal treasurer of ulilan,
*ulacan to execute within five days the warrant of distraint and levy issued
against the plaintiffs on &ay 49, 469>G
4>. That in order to avoid annoyance and embarrassment arising from the
levy of their property, the plaintiffs on +ugust 8B, 4695, through 3ose
%atchalian, %uillermo Tapia, &aria !antiago and Dmiliano !antiago, paid
under protest to the municipal treasurer of ulilan, *ulacan the sum of
4,85@.69 representing the unpaid balance of the income tax and penalties
demanded by defendant as evidenced by income tax receipt -o. 9>B44
which is attached and marked Dxhibit - and made a part hereofG and that on
61 | P a g e
!eptember 9, 4695, the plaintiffs formally protested to the defendant
against the payment of said amount and re;uested the refund thereof, copy
of which is attached and marked Dxhibit " and made part hereofG but that
on !eptember 7, 4695, the defendant overruled the protest and denied the
refund thereofG copy of which is attached and marked Dxhibit and made a
part hereofG and
45. That plaintiffs demanded upon defendant the refund of the total sum of
one thousand eight hundred and sixty three pesos and forty'four centavos
#4,B59.77$ paid under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the plaintiffs= demands.
4?. The parties hereto reserve the right to present other and additional
evidence if necessary.
Dxhibit D referred to in the stipulation is of the following tenor<
'o /$om it may !on!ern9
), 3ose %atchalian, a resident of ulilan, *ulacan, married, of age, hereby
certify, that on the 44th day of +ugust, 4697, ) sold parts of my shares on
ticket -o. 4?B59? to the persons and for the amount indicated below and
the part of may share remaining is also shown to wit<
Pur!$aser *mount *ddress
4. &ariano
!antos ...........................................
@.47
ulilan,
*ulacan.
8. *uenaventura
%u.man ...............................
.49 ' :o '
9. &aria
!antiago ............................................
.4? ' :o '
7. %on.alo
3avier ..............................................
.47 ' :o '
>. /rancisco
Cabral ..........................................
.49 ' :o '
5. &aria C.
Legaspi ..........................................
.45 ' :o '
?. Dmiliana
!antiago .........................................
.49 ' :o '
B. 3ulio
%atchalian ............................................
.49 ' :o '
6. 3ose .@? ' :o '
62 | P a g e
!ilva ......................................................
4@. Tomasa
&ercado .......................................
.@B ' :o '
44. 3esus
Legaspi .............................................
.4> ' :o '
48. %uillermo
Tapia ...........................................
.49 ' :o '
49. !aturnina
!ilva ............................................
.@B ' :o '
47. %regoria
Cristobal .......................................
.4B ' :o '
4>. 3ose
%atchalian ............................................
.4B ' :o '
8.@@
Total cost of
said
ticketG and that, therefore, the persons named above are entitled to the
parts of whatever pri.e that might be won by said ticket.
ulilan, *ulacan, .).
#!gd.$ 3"!D %+TCF+L)+-
+nd a summary of Dxhibits :'4 to :'4> is inserted in the bill of exceptions
as follows<
2DC+)TCL+T)"-! "/ 4> )-:)E):C+L )-C"&D T+K 2DTC2-! /"2 4697 +LL
:+TD: 3+-C+2, 46, 469> !C*&)TTD: T" TFD C"LLDCT"2 "/ )-TD2-+L
2DED-CD.
,ame
E3$i.i
t
,o.
Pur!$as
e
Pri!e
Pri!e
2on
E3penses
,et
priz
e
4. 3ose
%atchalian ..........................
................
:'4 @.4B
7,78
>
7B@
9,67
>
8. %regoria
Cristobal .............................
.........
:'8 .4B 7,>?> 8,@@@
8,>?
>
9. !aturnina
!ilva ..................................
...........
:'9 .@B 4,B?> 95@
4,>4
>
63 | P a g e
7. %uillermo
Tapia .................................
.........
:'7 .49 9,98> 95@
8,65
>
>. 3esus Legaspi by &aria
Cristobal .........
:'> .4> 9,B8> ?8@
9,4@
>
5. 3ose
!ilva ..................................
..................
:'5 .@B 4,B?> 95@
4,>4
>
?. Tomasa
&ercado .............................
..........
:'? .@? 4,B?> 95@
4,>4
>
B. 3ulio %atchalian by *eatri.
%u.man .......
:'B .49 9,4>@ 87@
8,64
@
6. Dmiliana
!antiago .............................
.........
:'6 .49 9,98> 95@
8,65
>
4@. &aria C.
Legaspi ..............................
........
:'4@ .45 7,4@@ 65@
9,47
@
44. /rancisco
Cabral ................................
......
:'44 .49 9,98> 95@
8,65
>
48. %on.alo
3avier .................................
.........
:'48 .47 9,98> 95@
8,65
>
49. &aria
!antiago .............................
.............
:'49 .4? 7,9>@ 95@
9,66
@
47. *uenaventura
%u.man ...........................
:'47 .49 9,98> 95@
8,65
>
4>. &ariano
!antos ...............................
.........
:'4> .47 9,98> 95@
8,65
>
8.@@ >@,@@
@
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V
The legal ;uestions raised in plaintiffs'appellants= five assigned errors may
properly be reduced to the two following< #4$ 0hether the plaintiffs formed a
partnership, or merely a community of property without a personality of its
ownG 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 paymentG and #8$ whether they should
pay the tax collectively or whether the latter should be prorated among
them and paid individually.
The Collector of )nternal 2evenue collected the tax under section 4@ of +ct
-o. 8B99, as last amended by section 8 of +ct -o. 9?54, reading as follows<
!DC. 4@. #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$, association or insurance company,
organi.ed in the hilippine )slands, no matter how created or organi.ed, but
not including duly registered general copartnership #compa1ias colectivas$, a
tax of three per centum upon such incomeG 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 hilippine )slands by
every corporation, joint'stock company, partnership, joint account #cuenta
en participacion$, association, or insurance company organi.ed, authori.ed,
or existing under the laws of any foreign country, including interest on
bonds, notes, or other interest'bearing obligations of residents, corporate or
65 | P a g e
otherwise< Provided, $o/ever, That nothing in this section shall be construed
as permitting the taxation of the income derived from dividends or net
profits on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a
corporation, joint'stock company, partnership, joint account #cuenta en
participacion$, association, or insurance company, or property, real,
personal, or mixed, shall be ascertained in accordance with subsections #!$
and #d$ of section two of +ct -umbered Two thousand eight hundred and
thirty'three, as amended by +ct -umbered 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$, association, or insurance company in the calendar year
nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of
property the latter is exempt from the payment of income tax under the law.
*ut according to the stipulation facts the plaintiffs organi.ed a partnership of
a civil nature because each of them put up money to buy a sweepstakes
ticket for the sole purpose of dividing e;ually the pri.e which they may win,
as they did in fact in the amount of >@,@@@ #article 455>, Civil Code$. The
partnership was not only formed, but upon the organi.ation thereof and the
winning of the pri.e, 3ose %atchalian personally appeared in the office of the
hilippines Charity !weepstakes, in his capacity as co'partner, as such
collection the pri.e, the office issued the check for >@,@@@ in favor of 3ose
%atchalian and company, and the said partner, in the same capacity,
collected the said check. +ll these circumstances repel the idea that the
plaintiffs organi.ed and formed a community of property only.
Faving organi.ed 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 4@ #a$ of +ct -o. 8B99, as amended by section 8
of +ct -o. 9?54. 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.
)n view of the foregoing, the appealed decision is affirmed, with the costs of
this instance to the plaintiffs appellants. !o ordered.
*van!eDa, C.J., )illa8Real, -iaz, Laurel, Con!ep!ion and oran, JJ., !on!ur.
66 | P a g e
FORMAL RE'UIREMENTS AARTS. 1771,17=!,1772, 1773,1=15B
G.R. No. 7=>3 F3E64a6y 2=, 1>
SPS. SEGUNDO DALION AND EPIFANIA SABESA$E?
DALION, 031,1,o*36.,
5..
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESA$E,
$R., 63.0o*+3*1..
Francisco A. Pura, !r. for petitioners.
Ga"rie# $. %ua&o for private respondent.

&D:)+L:D+, J.9
This is a petition to annul and set aside the decision of the Court of +ppeals
rendered on &ay 85, 46B?, upholding the validity of the sale of a parcel of
land by petitioner !egundo :alion #hereafter, ":alion"$ in favor of private
respondent 2uperto !abesaje, 3r. #hereafter, "!abesaje"$, described thus<
+ parcel of land located at anyawan, !ogod, !outhern Leyte, declared in
the name of !egundo :alion, under Tax :eclaration -o. 4447B, with an area
of B67? hectares, assessed at 4B@.@@, and bounded on the -orth, by
!ergio :estri.a and Titon Eeloso, Dast, by /eliciano :estri.a, by *arbara
*onesa #sic$G and 0est, by Catalino Dspina. #pp. 95'9?, 2ollo$
The decision affirms in toto the ruling of the trial court
4
issued on 3anuary
4?, 46B7, the dispositive portion of which provides as follows<
0FD2D/"2D, )- E)D0 "/ TFD /"2D%")-%, the Court hereby renders
judgment.
#a$ "rdering the defendants to deliver to the plaintiff the parcel of land
subject of this case, declared in the name of !egundo :alion previously
under Tax :eclaration -o. 4447B and lately under Tax :eclaration -o. 886?
#46?7$ and to execute the corresponding formal deed of conveyance in a
public document in favor of the plaintiff of the said property subject of this
case, otherwise, should defendants for any reason fail to do so, the deed
shall be executed in their behalf by the rovincial !heriff or his :eputyG
#b$ "rdering the defendants to pay plaintiff the amount of 8,@@@.@@ as
attorney=s fees and >@@.@@ as litigation expenses, and to pay the costsG
and
#c$ :ismissing the counter'claim. #p. 9B, 2ollo$
67 | P a g e
The facts of the case are as follows<
"n &ay 8B, 46?9, !abesaje sued to recover ownership of a parcel of land,
based on a private document of absolute sale, dated 3uly 4, 465> #Dxhibit
"+"$, allegedly executed by :alion, who, however denied the fact of sale,
contending that the document sued upon is fictitious, his signature thereon,
a forgery, and that subject land is conjugal property, which he and his wife
ac;uired in 465@ from !aturnina !abesaje as evidenced by the "Dscritura de
Eenta +bsoluta" #Dxhibit "*"$. The spouses denied claims of !abesaje that
after executing a deed of sale over the parcel of land, they had pleaded with
!abesaje, their relative, to be allowed to administer the land because :alion
did not have any means of livelihood. They admitted, however,
administering since 46>B, five #>$ parcels of land in !ogod, !outhern Leyte,
which belonged to Leonardo !abesaje, grandfather of !abesaje, who died in
46>5. They never received their agreed 4@A and 4>A commission on the
sales of copra and abaca, respectively. !abesaje=s suit, they countered, was
intended merely to harass, preempt and forestall :alion=s threat to sue for
these unpaid commissions.
/rom the adverse decision of the trial court, :alion appealed, assigning
errors some of which, however, were disregarded by the appellate court, not
having been raised in the court below. 0hile the Court of +ppeals duly
recogni.es "ur authority to review matters even if not assigned as errors in
the appeal, 0e are not inclined to do so since a review of the case at bar
reveals that the lower court has judicially decided the case on its merits.
+s to the controversy regarding the identity of the land, 0e have no reason
to dispute the Court of +ppeals= findings as follows<
To be sure, the parcel of land described in Dxhibit "+" is the same property
deeded out in Dxhibit "*". The boundaries delineating it from adjacent lots
are identical. *oth documents detail out the following boundaries, to wit<
"n the -orth'property of !ergio :estri.a and Titon EelosoG
"n the Dast'property of /eliciano :estri.aG
"n the !outh'property of *arbara *oni.a and
"n the 0est'Catalino Dspina.
#pp. 74'78, 2ollo$
The issues in this case may thus be limited to< a$ the validity of the contract
of sale of a parcel of land and b$ the necessity of a public document for
transfer of ownership thereto.
68 | P a g e
The appellate court upheld the validity of the sale on the basis of !ecs. 84
and 89 of 2ule 498 of the 2evised 2ules of Court.
!DC. 84. Private /riting, its e3e!ution and aut$enti!ity, $o/ proved.'*efore
any private writing may be received in evidence, its due execution and
authenticity must be proved either<
#a$ *y anyone who saw the writing executedG
#b$ *y evidence of the genuineness of the handwriting of the makerG or
#c$ *y a subscribing witness
xxx xxx xxx
!DC. 89. :and/riting, $o/ proved. A The handwriting of a person may be
proved by any witness who believes it to be the handwriting of such person,
and has seen the person write, or has seen writing purporting to be his upon
which the witness has acted or been charged, and has thus ac;uired
knowledge of the handwriting of such person. Dvidence respecting the
handwriting may also be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the party against
whom the evidence is offered, or proved to be genuine to the satisfaction of
the judge. #2ule 498, 2evised 2ules of Court$
+nd on the basis of the findings of fact of the trial court as follows<
Fere, people who witnessed the execution of subject deed positively testified
on the authenticity thereof. They categorically stated that it had been
executed and signed by the signatories thereto. )n fact, one of such
witnesses, %erardo &. "gsoc, declared on the witness stand that he was the
one who prepared said deed of sale and had copied parts thereof from the
"Dscritura :e Eenta +bsoluta" #Dxhibit *$ by which one !aturnina !abesaje
sold the same parcel of land to appellant !egundo :alion. "gsoc copied the
bounderies thereof and the name of appellant !egundo :alion=s wife,
erroneously written as "Dsmenia" in Dxhibit "+" and "Dsmenia" in Dxhibit "*".
#p. 74, 2ollo$
xxx xxx xxx
+gainst defendant=s mere denial that he signed the document, the positive
testimonies of the instrumental 0itnesses "gsoc and Dspina, aside from the
testimony of the plaintiff, must prevail. :efendant has affirmatively alleged
forgery, but he never presented any witness or evidence to prove his claim
of forgery. Dach party must prove his own affirmative allegations #!ection 4,
2ule 494, 2ules of Court$. /urthermore, it is presumed that a person is
69 | P a g e
innocent of a crime or wrong #!ection > #a$,(dem$, and defense should have
come forward with clear and convincing evidence to show that plaintiff
committed forgery or caused said forgery to be committed, to overcome the
presumption of innocence. &ere denial of having signed, does not suffice to
show forgery.
)n addition, a comparison of the ;uestioned signatories or specimens #Dxhs.
+'8 and +'9$ with the admitted signatures or specimens #Dxhs. K and , or 9'
C$ convinces the court that Dxhs. +'8 or N and +'9 were written by
defendant !egundo :alion who admitted that Dxhs. K and , or 9'C are his
signatures. The ;uestioned signatures and the specimens are very similar to
each other and appear to be written by one person.
/urther comparison of the ;uestioned signatures and the specimens with the
signatures !egundo :. :alion appeared at the back of the summons #p. 6,
2ecord$G on the return card #p. 8>, (.id.$G back of the Court "rders dated
:ecember 4?, 46?9 and 3uly 9@, 46?7 and for "ctober ?, 46?7 #p. >7 Q p.
>5, respectively, (.id.$, and on the open court notice of +pril 49, 46B9 #p.
89>, (.id.$ readily reveal that the ;uestioned signatures are the signatures
of defendant !egundo :alion.
)t may be noted that two signatures of !egundo :. :alion appear on the
face of the ;uestioned document #Dxh. +$, one at the right corner bottom of
the document #Dxh. +'8$ and the other at the left hand margin thereof #Dxh.
+'9$. The second signature is already a surplusage. + forger would not
attempt to forge another signature, an unnecessary one, for fear he may
commit a revealing error or an erroneous stroke. #:ecision, p. 4@$ #pp. 78'
79, 2ollo$
0e see no reason for deviating from the appellate court=s ruling #p. 77,
2ollo$ as we reiterate that
+ppellate courts have consistently subscribed to the principle that
conclusions and findings of fact by the trial courts are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent
reasons, since it is undeniable that the trial court is in a more advantageous
position to examine real evidence, as well as to observe the demeanor of the
witnesses while testifying in the case #Chase v. *uencamino, !r., %.2. -o. L'
8@96>, &ay 49, 46B>, 495 !C2+ 95>G ring v. Court of +ppeals, %.2. -o. L'
745@>, +ugust 46, 46B>, 49B !C2+ 4B>$
70 | P a g e
+ssuming authenticity of his signature and the genuineness of the
document, :alion nonetheless still impugns the validity of the sale on the
ground that the same is embodied in a private document, and did not thus
convey title or right to the lot in ;uestion since "acts and contracts which
have for their object the creation, transmission, modification or extinction of
real rights over immovable property must appear in a public instrument"
#+rt. 49>B, par 4, -CC$.
This argument is misplaced. The provision of +rt. 49>B on the necessity of a
public document is only for convenience, not for validity or enforceability. )t
is not a re;uirement for the validity of a contract of sale of a parcel of land
that this be embodied in a public instrument.
+ contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. -o particular form is re;uired for its validity.
Cpon perfection of the contract, the parties may reciprocally demand
performance #+rt. 47?>, -CC$, i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may re;uire the vendee
to pay the thing sold #+rt. 47>B, -CC$.
The trial court thus rightly and legally ordered :alion to deliver to !abesaje
the parcel of land and to execute corresponding formal deed of conveyance
in a public document. Cnder +rt. 476B, -CC, when the sale is made through
a public instrument, the execution thereof is e;uivalent to the delivery of the
thing. :elivery may either be actual #real$ or constructive. Thus delivery of a
parcel of land may be done by placing the vendee in control and possession
of the land #real$ or by embodying the sale in a public instrument
#constructive$.
+s regards petitioners= contention that the proper action should have been
one for specific performance, 0e believe that the suit for recovery of
ownership is proper. +s earlier stated, +rt. 47?> of the Civil Code gives the
parties to a perfected contract of sale the right to reciprocally demand
performance, and to observe a particular form, if warranted, #+rt. 49>?$.
The trial court, aptly observed that !abesaje=s complaint sufficiently alleged
a cause of action to compel :alion to execute a formal deed of sale, and the
suit for recovery of ownership, which is premised on the binding effect and
validity inter partes of the contract of sale, merely seeks !onsummation of
said contract.
71 | P a g e
... . + sale of a real property may be in a private instrument but that
contract is valid and binding between the parties upon its perfection. +nd a
party may compel the other party to execute a public instrument embodying
their contract affecting real rights once the contract appearing in a private
instrument hag been perfected #!ee +rt. 49>?$.
... . #p. 48, :ecision, p. 8?8, 2ecords$
+CC"2:)-%L,, the petition is :D-)D: and the decision of the Court of
+ppeals upholding the ruling of the trial court is hereby +//)2&D:. -o costs.
!" "2:D2D:.
,arvasa, Cruz, Gan!ay!o and Grino8*1uino, JJ., !on!ur.
HHHHHHHHHHHHHHH

GG.R. No. 1!2<12. $4:y 2, 2>>5H
OSCAR ANGELES a*+ EMERITA ANGELES, petitioners, vs. THE HON.
SECRETAR# OF $USTICE a*+ FELINO MERCADO, respondents.
D E C I S I O N
CARPIO, J.:
T-3 Ca.3
This is a petition for !ertiorari
L4M
to annul the letter'resolution
L8M
dated 4
/ebruary 8@@@ of the !ecretary of 3ustice in 2esolution -o. 4>>.
L9M
The
!ecretary of 3ustice affirmed the resolution
L7M
in ).!. -o. 65'696 dated 8B
/ebruary 466? rendered by the rovincial rosecution "ffice of the
:epartment of 3ustice in !anta Cru., Laguna #Wrovincial rosecution
"fficeX$. The rovincial rosecution "ffice resolved to dismiss the complaint
for estafa filed by petitioners "scar and Dmerita +ngeles #W+ngeles spousesX$
against respondent /elino &ercado #W&ercadoX$.
A*13/3+3*1 Fa/1.
"n 46 -ovember 4665, the +ngeles spouses filed a criminal complaint for
estafa under +rticle 94> of the 2evised enal Code against &ercado before
the rovincial rosecution "ffice. &ercado is the brother'in'law of the
+ngeles spouses, being married to Dmerita +ngelesY sister Laura.
)n their affidavits, the +ngeles spouses claimed that in -ovember 4668,
&ercado convinced them to enter into a contract of antichresis,
L>M
collo;uially
known as sanglaang8perde, covering eight parcels of land #Wsubject landX$
planted with fruit'bearing lan.ones trees located in -agcarlan, Laguna and
owned by 3uana !ua.o. The contract of antichresis was to last for five years
72 | P a g e
with 84@,@@@ as consideration. +s the +ngeles spouses stay in &anila
during weekdays and go to Laguna only on weekends, the parties agreed
that &ercado would administer the lands and complete the necessary
paperwork.
L5M
+fter three years, the +ngeles spouses asked for an accounting from
&ercado. &ercado explained that the subject land earned 75,84@ in 4669,
which he used to buy more lan.ones trees. &ercado also reported that the
trees bore no fruit in 4667. &ercado gave no accounting for 466>. The
+ngeles spouses claim that only after this demand for an accounting did they
discover that &ercado had put the contract ofsanglaang8perde over the
subject land under &ercado and his spouseYs names.
L?M
The relevant portions
of the contract of sanglaang8perde, signed by 3uana !ua.o alone, read<
xxx
-a alang'alang sa halagang :+L+0+-% :++- +T !+&C-% L)*"-% )!"
#84@,@@@$, salaping gastahin, na aking tinanggap sa magL'Masawa nila %.
+T %-%. /DL)-" &D2C+:", mga nasa hustong gulang, /ilipino, tumitira at
may pahatirang sulat sa *gy. &aravilla, bayan ng -agcarlan, lalawigan ng
Laguna, ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa
nabanggit na magL'M asawa nila %. +T %-%. /DL)-" &D2C+:"L,M sa kanila
ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang karapatan,
ang lahat na ibubunga ng lahat na puno ng lan.ones, hindi kasama ang
ibang halaman na napapalooban nito, ng nabanggit na 0+L"-% #B$ Lagay
na Lupang Cocal'Lan.onal, sa takdang L)&+ #>$ -+ LsicM T+"-,
magpapasimula sa taong 4669, at magtatapos sa taong 466?, kayaYt
pagkatapos ng lansonesan sa taong 466?, ang pamomosision at
pakikinabang sa lahat na puno ng lan.ones sa nabanggit na 0+L"-% #B$
Lagay na Lupang Cocal'Lan.onal ay manunumbalik sa akin, sa akin ay
magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan na ako
ay walang ibabalik na ano pa mang halaga, sa magL'M asawa nila %. +T
%-%. /DL)-" &D2C+:".
-a ako at ang magL'Masawa nila %. +T %-%. /DL)-" &D2C+:" ay
nagkasundo na ako ay bibigyan nila ng L)&+ #>$ na LsicM kaing na lan.ones
taon'taon sa loob ng L)&+ #>$ na LsicM taon ng aming kasunduang ito.
-a ako at ang magL'Masawa nila %. +T %-%. /DL)-" &D2C+:" ay
nagkasundo na silang magL'Masawa nila %. +T %-%. /DL)-" &D2C+:" ang
73 | P a g e
magpapaalis ng dapo sa puno ng lansones taon'taon LsicM sa loob ng L)&+
#>$ LsicM taonng LsicM aming kasunduang ito.
LBM
)n his counter'affidavit, &ercado denied the +ngeles spousesY allegations.
&ercado claimed that there exists an industrial partnership, collo;uially
known as sosyo industrial, between him and his spouse as industrial
partners and the +ngeles spouses as the financiers. This industrial
partnership had existed since 4664, before the contract of antichresis over
the subject land. +s the years passed, &ercado used his and his spouseYs
earnings as part of the capital in the business transactions which he entered
into in behalf of the +ngeles spouses. )t was their practice to enter into
business transactions with other people under the name of &ercado because
the +ngeles spouses did not want to be identified as the financiers.
&ercado attached bank receipts showing deposits in behalf of Dmerita
+ngeles and contracts under his name for the +ngeles spouses. &ercado
also attached the minutes of the barangay conciliation proceedings held on ?
!eptember 4665. :uring the barangay conciliation proceedings, "scar
+ngeles stated that there was a written sosyo industrial agreement< capital
would come from the +ngeles spouses while the profit would be divided
evenly between &ercado and the +ngeles spouses.
L6M
T-3 R4:,*@ o7 1-3 P6o5,*/,a: P6o.3/41,o* O77,/3
"n 9 3anuary 466?, the rovincial rosecution "ffice issued a resolution
recommending the filing of criminal information for estafa against &ercado.
This resolution, however, was issued without &ercadoYs counter'affidavit.
&eanwhile, &ercado filed his counter'affidavit on 8 3anuary 466?. "n
receiving the 9 3anuary 466? resolution, &ercado moved for its
reconsideration. Fence, on 85 /ebruary 466?, the rovincial rosecution
"ffice issued an amended resolution dismissing the +ngeles spousesY
complaint for estafa against &ercado.
The rovincial rosecution "ffice stated thus<
The subject of the complaint hinges on a partnership gone sour. The
partnership was initially unsaddled LwithM problems. &anagement became
the source of misunderstanding including the accounting of profits, which led
to further misunderstanding until it was revealed that the contract with the
orchard owner was only with the name of the respondent, without the
names of the complainants.
74 | P a g e
The accusation of WestafaX here lacks enough credible evidentiary support to
sustain a prima facie finding.
remises considered, it is respectfully recommended that the complaint for
estafa be dismissed.
2D!DCT/CLL, !C*&)TTD:.
L4@M
The +ngeles spouses filed a motion for reconsideration, which the rovincial
rosecution "ffice denied in a resolution dated 7 +ugust 466?.
T-3 R4:,*@ o7 1-3 S3/631a6y o7 $4.1,/3
"n appeal to the !ecretary of 3ustice, the +ngeles spouses emphasi.ed that
the document evidencing the contract of sanglaang8perde with 3uana !ua.o
was executed in the name of the &ercado spouses, instead of the +ngeles
spouses. The +ngeles spouses allege that this document alone proves
&ercadoYs misappropriation of their 84@,@@@.
The !ecretary of 3ustice found otherwise. Thus<
2eviewing the records of the case, we are of the opinion that the indictment
of L&ercadoM for the crime of estafa cannot be sustained. LThe +ngeles
spousesM failed to show sufficient proof that L&ercadoM deliberately deceived
them in the Wsanglaang perdeX transaction. The document alone, which was
in the name of L&ercado and his spouseM, failed to convince us that there
was deceit or false representation on the part of L&ercadoM that induced the
L+ngeles spousesM to part with their money. L&ercadoM satisfactorily
explained that the L+ngeles spousesM do not want to be revealed as the
financiers. )ndeed, it is difficult to believe that the L+ngeles spousesM would
readily part with their money without holding on to some document to
evidence the receipt of money, or at least to inspect the document involved
in the said transaction. Cnder the circumstances, we are inclined to believe
that Lthe +ngeles spousesM knew from the very start that the ;uestioned
document was not really in their names.
)n addition, we are convinced that a partnership truly existed between the
L+ngeles spousesM and L&ercadoM. The formation of a partnership was clear
from the fact that they contributed money to a common fund and divided
the profits among themselves. 2ecords would show that L&ercadoM was able
to make deposits for the account of the L+ngeles spousesM. These deposits
represented their share in the profits of their business venture. +lthough
the L+ngeles spousesM deny the existence of a partnership, they, however,
75 | P a g e
never disputed that the deposits made by L&ercadoM were indeed for their
account.
The transcript of notes on the dialogue between the L+ngeles spousesM and
L&ercadoM during the hearing of their barangay conciliation case reveals that
the L+ngeles spousesM acknowledged their joint business ventures with
L&ercadoM although they assailed the manner by which L&ercadoM conducted
the business and handled and distributed the funds. The veracity of this
transcript was not raised in issued LsicM by Lthe +ngeles spousesM. +lthough
the legal formalities for the formation of a partnership were not adhered to,
the partnership relationship of the L+ngeles spousesM and L&ercadoM is
evident in this case. Conse;uently, there is no estafa where money is
delivered by a partner to his co'partner on the latterYs representation that
the amount shall be applied to the business of their partnership. )n case of
misapplication or conversion of the money received, the co'partnerYs liability
is civil in nature #eople v. Clarin, ? hil. >@7$
0FD2D/"2D, the appeal is hereby :)!&)!!D:.
L44M
Fence, this petition.
I..43.
The +ngeles spouses ask us to consider the following issues<
4. 0hether the !ecretary of 3ustice committed grave abuse of discretion
amounting to lack of jurisdiction in dismissing the appeal of the +ngeles
spousesG
8. 0hether a partnership existed between the +ngeles spouses and &ercado
even without any documentary proof to sustain its existenceG
9. +ssuming that there was a partnership, whether there was
misappropriation by &ercado of the proceeds of the lan.ones after the
+ngeles spouses demanded an accounting from him of the income at the
office of the barangay authorities on ? !eptember 4665, and &ercado failed
to do so and also failed to deliver the proceeds to the +ngeles spousesG
7. 0hether the !ecretary of 3ustice should order the filing of the
information for estafa against &ercado.
L48M
T-3 R4:,*@ o7 1-3 Co461
The petition has no merit.
'(et(er t(e !ecretar of Justice Co))itted
Grave A"use of %iscretion
76 | P a g e
+n act of a court or tribunal may constitute grave a.use of dis!retion when
the same is performed in a capricious or whimsical exercise of judgment
amounting to lack of jurisdiction. The abuse of discretion must be so patent
and gross as to amount to an evasion of positive duty, or to a virtual refusal
to perform a duty enjoined by law, as where the power is exercised in an
arbitrary and despotic manner because of passion or personal hostility.
L49M
The +ngeles spouses fail to convince us that the !ecretary of 3ustice
committed grave abuse of discretion when he dismissed their appeal.
&oreover, the +ngeles spouses committed an error in procedure when they
failed to file a motion for reconsideration of the !ecretary of 3usticeYs
resolution. + previous motion for reconsideration before the filing of a
petition for !ertiorari is necessary unless< #4$ the issue raised is one purely
of lawG #8$ public interest is involvedG #9$ there is urgencyG #7$ a ;uestion of
jurisdiction is s;uarely raised before and decided by the lower courtG and #>$
the order is a patent nullity.
L47M
The +ngeles spouses failed to show that their
case falls under any of the exceptions. )n fact, this present petition
for !ertiorari is dismissible for this reason alone.
'(et(er a Partners(ip *+isted
,etween -ercado and t(e Ange#es !pouses
The +ngeles spouses allege that they had no partnership with &ercado. The
+ngeles spouses rely on +rticles 4??4 to 4??9 of the Civil Code, which state
that<
+rt. 4??4. + 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.
+rt. 4??8. Dvery contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the "ffice of the !ecurities and Dxchange
Commission.
/ailure to comply with the re;uirements of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.
+rt. 4??9. + 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.
77 | P a g e
The +ngeles spousesY position that there is no partnership because of the
lack of a public instrument indicating the same and a lack of registration with
the !ecurities and Dxchange Commission #W!DCX$ holds no water. /irst, the
+ngeles spouses contributed money to the partnership and not immovable
property. !econd, mere failure to register the contract of partnership with
the !DC does not invalidate a contract that has the essential re;uisites of a
partnership. The purpose of registration of the contract of partnership is to
give notice to third parties. /ailure to register the contract of partnership
does not affect the liability of the partnership and of the partners to third
persons. -either does such failure to register affect the partnershipYs
juridical personality. + partnership may exist even if the partners do not use
the words WpartnerX or Wpartnership.X
)ndeed, the +ngeles spouses admit to facts that prove the existence of a
partnership< a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of profits
between the +ngeles spouses and &ercado.
'(et(er t(ere was
-isappropriation " -ercado
The !ecretary of 3ustice ade;uately explained the alleged misappropriation
by &ercado< WThe document alone, which was in the name of L&ercado and
his spouseM, failed to convince us that there was deceit or false
representation on the part of L&ercadoM that induced the L+ngeles spousesM
to part with their money. L&ercadoM satisfactorily explained that the
L+ngeles spousesM do not want to be revealed as the financiers.X
L4>M
Dven *ranch 85 of the 2egional Trial Court of !anta Cru., Laguna which
decided the civil case for damages, injunction and restraining order filed by
the +ngeles spouses against &ercado and Leo Cerayban, stated<
xxx L)Mt was the practice to have all the contracts of antichresis of their
partnership secured in L&ercadoYsM name as Lthe +ngeles spousesM are
apprehensive that, if they come out into the open as financiers of said
contracts, they might be kidnapped by the -ew eopleYs +rmy or their
business deals be ;uestioned by the *ureau of )nternal 2evenue or worse,
their assets and unexplained income be se;uestered, as xxx "scar +ngeles
was then working with the government.
L45M
/urthermore, accounting of the proceeds is not a proper subject for the
present case.
78 | P a g e
/or these reasons, we hold that the !ecretary of 3ustice did not abuse his
discretion in dismissing the appeal of the +ngeles spouses.
(HEREFORE, we +//)2& the decision of the !ecretary of 3ustice. The
present petition for !ertiorari is :)!&)!!D:.
SO ORDERED.
PPPPPPPPPPPP
G.R. No. 13!55. D3/39E36 , 1H
ANTONIA TORRES, a..,.13+ Ey -36 -4.Ea*+, ANGELO TORRES8 a*+
EMETERIA BARING, petitioners, vs. COURT OF APPEALS a*+ MANUEL
TORRES, respondents.
D E C I S I O N
PANGANIBAN, J.:
Courts may not extricate parties from the necessary conse;uences 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 fa!to release the contracting partners
from their respective obligations to ea!$ ot$er arising from acts executed in
accordance with their agreement.
T-3 Ca.3
The etition for 2eview on Certiorari before us assails the &arch >, 466B
:ecision
L4M
!econd :ivision of the Court of +ppeals
L8M
#C+$ in C+'%2 CE -o.
789?B and its 3une 8>, 466B 2esolution denying reconsideration. The
assailed :ecision affirmed the ruling of the 2egional Trial Court #2TC$ of
Cebu City in Civil Case -o. 2'848@B, which disposed as follows<
W0FD2D/"2D, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffYs
complaint. The counterclaims of the defendant are likewise ordered
dismissed. -o pronouncement as to costs.X
L9M
T-3 Fa/1.
!isters +ntonia Torres and Dmeteria *aring, herein petitioners, entered into
a "joint venture agreement" with 2espondent &anuel Torres for the
development of a parcel of land into a subdivision. ursuant to the contract,
they executed a :eed of !ale covering the said parcel of land in favor of
respondent, who then had it registered in his name. *y mortgaging the
property, respondent obtained from D;uitable *ank a loan of 7@,@@@ which,
under the 3oint Eenture +greement, was to be used for the development of
79 | P a g e
the subdivision.
L7M
+ll 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 subse;uently foreclosed
by the bank.
+ccording to petitioners, the project failed because of WrespondentYs lack of
funds or means and skills.X They add that respondent used the loan not for
the development of the subdivision, but in furtherance of his own company,
Cniversal Cmbrella Company.
"n the other hand, respondent alleged that he used the loan to implement
the +greement. 0ith the said amount, he was able to effect the survey and
the subdivision of the lots. Fe secured the Lapu Lapu City CouncilYs approval
of the subdivision project which he advertised in a local newspaper. Fe 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. Fe did all of these for a total expense of B>,@@@.
2espondent 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. :espite his re;uests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project.
L>M
!ubse;uently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however ac;uitted. Thereafter, they filed the
present civil case which, upon respondent=s motion, was later dismissed by
the trial court in an "rder dated !eptember 5, 46B8. "n appeal, however,
the appellate court remanded the case for further proceedings. Thereafter,
the 2TC issued its assailed :ecision, which, as earlier stated, was affirmed
by the C+.
Fence, this etition.
L5M
R4:,*@ o7 1-3 Co461 o7 A003a:.
)n affirming the trial court, the Court of +ppeals 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. :isagreeing with the trial courtYs pronouncement that losses as
80 | P a g e
well as profits in a joint venture should be distributed e;ually,
L?M
the C+
invoked +rticle 4?6? of the Civil Code which provides<
W+rticle 4?6? ' The losses and profits shall be distributed in conformity with
the agreement. )f 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.X
The C+ elucidated further<
W)n 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. +s for the profits, the
industrial partner shall receive such share as may be just and e;uitable
under the circumstances. )f besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.X
T-3 I..43
etitioners impute to the Court of +ppeals the following error<
Wx x x LTheM Court of +ppeals erred in concluding that the transaction x x x
between the petitioners and respondent was that of a joint
ventureJpartnership, ignoring outright the provision of +rticle 4?56, and
other related provisions of the Civil Code of the hilippines.X
LBM
T-3 Co461I. R4:,*@
The etition is bereft of merit.
Ma,* I..43: *+istence of a Partners(ip
etitioners deny having formed a partnership with respondent. They
contend that the 3oint Eenture +greement and the earlier :eed of !ale, both
of which were the bases of the appellate courtYs finding of a partnership,
were void.
)n the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the
project. *ecause the agreement entitled them to receive 5@ percent of the
proceeds from the sale of the subdivision lots, they pray that respondent pay
them damages e;uivalent to 5@ percent of the value of the property.
L6M
The pertinent portions of the 3oint Eenture +greement read as follows<
W(-"0 +LL &D- *, TFD!D 2D!D-T!<
WThis +%2DD&D-T, is made and entered into at Cebu City, hilippines, this
>th day of &arch, 4656, by and between &2. &+-CDL 2. T"22D!, x x x the
81 | P a g e
/)2!T +2T,, likewise, &2!. +-T"-)+ *. T"22D!, and &)!! D&DTD2)+
*+2)-%, x x x the !DC"-: +2T,<
0 ) T - D ! ! D T F<
WThat, whereas, the !DC"-: +2T,, voluntarily offered the /)2!T +2T,,
this property located at Lapu'Lapu City, )sland of &actan, under Lot -o.
495B covering TCT -o. T'@4B7 with a total area of 4?,@@6 s;uare meters, to
be sub'divided by the /)2!T +2T,G
W0hereas, the /)2!T +2T, had given the !DC"-: +2T,, the sum
of< T0D-T, TF"C!+-: #8@,@@@.@@$ esos, hilippine Currency, upon the
execution of this contract for the property entrusted by the !DC"-: +2T,,
for sub'division projects and development purposesG
W-"0 TFD2D/"2D, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate
and agree as follows<
W"-D< That the !DC"-: +2T, signed an absolute :eed of !ale x x x dated
&arch >, 4656, in the amount of T0D-T, /)ED TF"C!+-: /)ED FC-:2D:
TF)2TDD- Q /)/T, CTE!. #8>,>49.>@$ hilippine Currency, for 4,?@@ s;uare
meters at "-D LD!"M Q /)/T, CTE!. #4.>@$ hilippine Currency, in favor of
the /)2!T +2T,, but the !DC"-: +2T, did not actually receive the
payment.
W!DC"-:< That the !DC"-: +2T,, had received from the /)2!T +2T,,
the necessary amount of T0D-T, TF"C!+-: #8@,@@@.@@$ pesos, hilippine
currency, for their personal obligations and this particular amount will serve
as an advance payment from the /)2!T +2T, for the property mentioned to
be sub'divided and to be deducted from the sales.
WTF)2:< That the /)2!T +2T,, will not collect from the !DC"-: +2T,,
the interest and the principal amount involving the amount of T0D-T,
TF"C!+-: #8@,@@@.@@$ esos, hilippine Currency, until the sub'division
project is terminated and ready for sale to any interested parties, and the
amount of T0D-T, TF"C!+-: #8@,@@@.@@$ pesos, hilippine currency, will
be deducted accordingly.
W/"C2TF< That all general expenseLsM and all costLsM involved in the sub'
division project should be paid by the /)2!T +2T,, exclusively and all the
expenses will not be deducted from the sales after the development of the
sub'division project.
82 | P a g e
W/)/TF< That the sales of the sub'divided lots will be divided into !)KT,
D2CD-TC& 5@A for the !DC"-: +2T, and /"2T, D2CD-TC& 7@A for
the /)2!T +2T,, and additional profits or whatever income deriving from
the sales will be divided e;ually according to the x x x percentage Lagreed
uponM by both parties.
W!)KTF< 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 partiesL=M favor and all sales shall LbeM decided by both
parties.
W!DED-TF< That the !DC"-: +2T)D!, should be given an option to get
back the property mentioned provided the amount of T0D-T, TF"C!+-:
#8@,@@@.@@$ esos, hilippine Currency, borrowed by the !DC"-: +2T,,
will be paid in full to the /)2!T +2T,, including all necessary improvements
spent by the /)2!T +2T,, and the /)2!T +2T, will be given a grace period
to turnover the property mentioned above.
WThat this +%2DD&D-T shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
stated.X
L4@M
+ reading of the terms embodied in the +greement indubitably shows the
existence of a partnership pursuant to +rticle 4?5? of the Civil Code, which
provides<
W+2T. 4?5?. *y 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.X
Cnder the above';uoted +greement, petitioners would contribute property to
the partnership in the form of land which was to be developed into a
subdivisionG while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. /urthermore, 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.
L44M
)t 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. "n 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. +s noted earlier, he developed the
83 | P a g e
roads, the curbs and the gutters of the subdivision and entered into a
contract to construct low'cost housing units on the property.
2espondentYs actions clearly belie petitionersY contention that he made no
contribution to the partnership. Cnder +rticle 4?5? of the Civil Code, a
partner may contribute not only money or property, but also industry.
Petitioners ,ound " .er)s of Contract
Cnder +rticle 494> of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary conse;uences
thereof, as follows<
W+2T. 494>. 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 conse;uences which, according to
their nature, may be in keeping with good faith, usage and law.X
)t is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. )f it was
not in consonance with their expectations, they should have objected to it
and insisted on the provisions they wanted.
Courts are not authori.ed to extricate parties from the necessary
conse;uences 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.
A##eged $u##it of t(e Partners(ip Agree)ent
etitioners argue that the 3oint Eenture +greement is void under +rticle
4??9 of the Civil Code, which provides<
W+2T. 4??9. + 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.X
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.
0e clarify. First, +rticle 4??9 was intended primarily to protect third
persons. Thus, the eminent +rturo &. Tolentino states that under the
aforecited provision which is a complement of +rticle 4??4,
L48M
Wthe execution
of a public instrument would be useless if there is no inventory of the
84 | P a g e
property contributed, because without its designation and description, they
cannot be subject to inscription in the 2egistry of roperty, and their
contribution cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief LinM 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.X The case at bar
does not involve third parties who may be prejudiced.
Se!ond, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 5@ percent of the value of
the property.
L49M
They cannot in one breath deny the contract and in another
recogni.e it, depending on what momentarily suits their purpose. arties
cannot adopt inconsistent positions in regard to a contract and courts will
not tolerate, much less approve, such practice.
)n short, the alleged nullity of the partnership will not prevent courts from
considering the 3oint Eenture +greement an ordinary contract from which
the partiesY rights and obligations to each other may be inferred and
enforced.
Partners(ip Agree)ent $ot t(e /esu#t of an *ar#ier 0##ega# Contract
etitioners also contend that the 3oint Eenture +greement is void under
+rticle 4788
L47M
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 3oint Eenture +greement clearly states that
the consideration for the sale was the expectation of profits from the
subdivision project. )ts first stipulation states that petitioners did not
actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as !ause, can take
different forms, such as the prestation or promise of a thing or service by
another.
L4>M
)n 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. +s explained by the
trial court, Wthe land was in effect given to the partnership as LpetitionerYsM
participation therein. x x x There was therefore a consideration for the sale,
the LpetitionersM acting in the expectation that, should the venture come
into fruition, they LwouldM get sixty percent of the net profits.X
85 | P a g e
Lia"i#it of t(e Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages e;uivalent to 5@ percent of the value of the property, which was
their share in the profits under the 3oint Eenture +greement.
0e are not persuaded. True, the Court of +ppeals held that petitionersY acts
were not the cause of the failure of the project.
L45M
*ut it also ruled that
neither was respondent responsible therefor.
L4?M
)n 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. Eerily, factual
issues cannot be resolved in a petition for review under 2ule 7>, as in this
case. etitioners have not alleged, not to say shown, that their etition
constitutes one of the exceptions to this doctrine.
L4BM
+ccordingly, we find no
reversible error in the C+=s ruling that petitioners are not entitled to
damages.
(HEREFORE, the etition is hereby -E,(E- and the challenged
:ecision *FF(RE-. Costs against petitioners.
SO ORDERED.
PPPPPPPPPPP
OBLIGATIONS OF PARTNERS TO ONE ANOTHER
FIDUCIAR# DUT#:
G.R. No. L?31<=! $4*3 2=, 173
E%ANGELISTA J CO., DOMINGO C. E%ANGELISTA, $R., CONCHITA B.
NA%ARRO a*+ LEONARDA ATIEN&A ABAD SABTOS, 031,1,o*36.,
5..
ESTRELLA ABAD SANTOS, 63.0o*+3*1.
Leonardo A"o#a for petitioners.
,aisas, A#"erto & Associates for respondent.

&+(+L)-T+L, J.9
"n "ctober 6, 46>7 a co'partnership was formed under the name of
"Dvangelista Q Co." "n 3une ?, 46>> the +rticles of Co'partnership was
amended as to include herein respondent, Dstrella +bad !antos, as industrial
partner, with herein petitioners :omingo C. Dvangelista, 3r., Leonardo
86 | P a g e
+tien.a +bad !antos and Conchita . -avarro, the original capitalist
partners, remaining in that capacity, with a contribution of 4?,>@@ each.
The amended +rticles provided, inter alia, that "the contribution of Dstrella
+bad !antos consists of her industry being an industrial partner", and that
the profits and losses "shall be divided and distributed among the
partners ... in the proportion of ?@A for the first three partners, :omingo C.
Dvangelista, 3r., Conchita . -avarro and Leonardo +tien.a +bad !antos to
be divided among them e;uallyG and 9@A for the fourth partner Dstrella
+bad !antos."
"n :ecember 4?, 4659 herein respondent filed suit against the three other
partners in the Court of /irst )nstance of &anila, alleging that the
partnership, which was also made a party'defendant, had been paying
dividends to the partners except to herG and that notwithstanding her
demands the defendants had refused and continued to refuse and let her
examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the
partnership. !he therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding
share in the partnership profits after such accounting, plus attorney=s fees
and costs.
The defendants, in their answer, denied ever having declared dividends or
distributed profits of the partnershipG denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership booksG and
byway of affirmative defense alleged that the amended +rticles of Co'
partnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partnerG that she did not in fact
contribute industry to the partnershipG and that her share of 9@A was to be
based on the profits which might be reali.ed by the partnership only until full
payment of the loan which it had obtained in :ecember, 46>> from the
2ehabilitation /inance Corporation in the sum of 9@,@@@, for which the
plaintiff had signed a promisory note as co'maker and mortgaged her
property as security.
The parties are in agreement that the main issue in this case is "whether the
plaintiff'appellee #respondent here$ is an industrial partner as claimed by her
or merely a profit sharer entitled to 9@A of the net profits that may be
reali.ed by the partnership from 3une ?, 46>> until the mortgage loan from
87 | P a g e
the 2ehabilitation /inance Corporation shall be fully paid, as claimed by
appellants #herein petitioners$." "n that issue the Court of /irst )nstance
found for the plaintiff and rendered judgement "declaring her an industrial
partner of Dvangelista Q Co.G ordering the defendants to render an
accounting of the business operations of the #said$ partnership ... from 3une
?, 46>>G to pay the plaintiff such amounts as may be due as her share in the
partnership profits andJor dividends after such an accounting has been
properly madeG to pay plaintiff attorney=s fees in the sum of 8,@@@.@@ and
the costs of this suit."
The defendants appealed to the Court of +ppeals, which thereafter affirmed
judgments of the court a 1uo.
)n the petition before Cs the petitioners have assigned the following errors<
). The Court of +ppeals erred in the finding that the respondent is an
industrial partner of Dvangelista Q Co., notwithstanding the admitted fact
that since 46>7 and until after promulgation of the decision of the appellate
court the said respondent was one of the judges of the City Court of &anila,
and despite its findings that respondent had been paid for services allegedly
contributed by her to the partnership. )n this connection the Court of
+ppeals erred<
#+$ )n finding that the "amended +rticles of Co'partnership," Dxhibit "+" is
conclusive evidence that respondent was in fact made an industrial partner
of Dvangelista Q Co.
#*$ )n not finding that a portion of respondent=s testimony ;uoted in the
decision proves that said respondent did not bind herself to contribute her
industry, and she could not, and in fact did not, because she was one of the
judges of the City Court of &anila since 46>7.
#C$ )n finding that respondent did not in fact contribute her industry, despite
the appellate court=s own finding that she has been paid for the services
allegedly rendered by her, as well as for the loans of money made by her to
the partnership.
)). The lower court erred in not finding that in any event the respondent was
lawfully excluded from, and deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the partnership Dvangelista
Q Co., and its profits or net income.
))). The Court of +ppeals erred in affirming in toto the decision of the trial
court whereby respondent was declared an industrial partner of the
88 | P a g e
petitioner, and petitioners were ordered to render an accounting of the
business operation of the partnership from 3une ?, 46>>, and to pay the
respondent her alleged share in the net profits of the partnership plus the
sum of 8,@@@.@@ as attorney=s fees and the costs of the suit, instead of
dismissing respondent=s complaint, with costs, against the respondent.
)t is ;uite obvious that the ;uestions raised in the first assigned errors refer
to the facts as found by the Court of +ppeals. The evidence presented by the
parties as the trial in support of their respective positions on the issue of
whether or not the respondent was an industrial partner was thoroughly
analy.ed by the Court of +ppeals on its decision, to the extent of
reproducing ver.atim therein the lengthy testimony of the witnesses.
)t is not the function of the !upreme Court to analy.e or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been commited by the lower court. )t should be
observed, in this regard, that the Court of +ppeals did not hold that the
+rticles of Co'partnership, identified in the record as Dxhibit "+", was
conclusive evidence that the respondent was an industrial partner of the said
company, but considered it together with other factors, consisting of both
testimonial and documentary evidences, in arriving at the factual conclusion
expressed in the decision.
The findings of the Court of +ppeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that
the same were made after a through analysis of then evidence, and hence
are beyond this Court=s power of review.
The afore;uoted findings of the lower Court are assailed under +ppellants=
first assigned error, wherein it is pointed out that "+ppellee=s documentary
evidence does not conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Dvangelista Q Co." and that "The grounds
relied upon by the lower Court are untenable" #ages 84 and 85, +ppellant=s
*rief$.
The first point refers to Dxhibit +, *, C, (, ('4, 3, - and !, appellants=
complaint being that ")n finding that the appellee is an industrial partner of
appellant Dvangelista Q Co., herein referred to as the partnership I the
lower court relied mainly on the appellee=s documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence
which contradict the said finding= #age 84, +ppellants= *rief$. The lower
89 | P a g e
court could not have done otherwise but rely on the exhibits just mentioned,
first, because appellants have admitted their genuineness and due
execution, hence they were admitted without objection by the lower court
when appellee rested her case and, secondly the said exhibits indubitably
show the appellee is an industrial partner of appellant company. +ppellants
are virtually estopped from attempting to detract from the probative force of
the said exhibits because they all bear the imprint of their knowledge and
consent, and there is no credible showing that they ever protested against or
opposed their contents prior of the filing of their answer to appellee=s
complaint. +s a matter of fact, all the appellant Dvangelista, 3r., would have
us believe I as against the cumulative force of appellee=s aforesaid
documentary evidence I is the appellee=s Dxhibit "+", as confirmed and
corroborated by the other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer entitled to
9@A of the net profits that may be reali.ed between the partners from 3une
?, 46>>, until the mortgage loan of 9@,@@@.@@ to be obtained from the 2/C
shall have been fully paid. This version, however, is discredited not only by
the aforesaid documentary evidence brought forward by the appellee, but
also by the fact that from 3une ?, 46>> up to the filing of their answer to the
complaint on /ebruary B, 4657 I or a period of over eight #B$ years I
appellants did nothing to correct the alleged false agreement of the parties
contained in Dxhibit "+". )t is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have advanced this
obvious afterthought that Dxhibit "+" does not express the true intent and
agreement of the parties thereto.
+t pages 98'99 of appellants= brief, they also make much of the argument
that =there is an overriding fact which proves that the parties to the
+mended +rticles of artnership, Dxhibit "+", did not contemplate to make
the appellee Dstrella +bad !antos, an industrial partner of Dvangelista Q Co.
)t is an admitted fact that since before the execution of the amended articles
of partnership, Dxhibit "+", the appellee Dstrella +bad !antos has been, and
up to the present time still is, one of the judges of the City Court of &anila,
devoting all her time to the performance of the duties of her public office.
This fact proves beyond peradventure that it was never contemplated
between the parties, for she could not lawfully contribute her full time and
90 | P a g e
industry which is the obligation of an industrial partner pursuant to +rt. 4?B6
of the Civil Code.
The Court of +ppeals then proceeded to consider appellee=s testimony on
this point, ;uoting it in the decision, and then concluded as follows<
"ne cannot read appellee=s testimony just ;uoted without gaining the very
definite impression that, even as she was and still is a 3udge of the City
Court of &anila, she has rendered services for appellants without which they
would not have had the wherewithal to operate the business for which
appellant company was organi.ed. +rticle 4?5? of the -ew Civil Code which
provides that "*y 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, =does not specify
the kind of industry that a partner may thus contribute, hence the said
services may legitimately be considered as appellee=s contribution to the
common fund. +nother article of the same Code relied upon appellants
reads<
=+2T. 4?B6. +n industrial partner cannot engage in business for himself,
unless the partnership expressly permits him to do soG and if he should do
so, the capitalist partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in violation of this
provision, with a right to damages in either case.=
)t is not disputed that the provision against the industrial partner engaging
in business for himself seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure faithful compliance by
said partner with this prestation. There is no pretense, however, even on the
part of the appellee is engaged in any business antagonistic to that of
appellant company, since being a 3udge of one of the branches of the City
Court of &anila can hardly be characteri.ed as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly
shown by the fact that it was only after filing of the complaint in this case
and the answer thereto appellants exercised their right of exclusion under
the codal art just mentioned by alleging in their !upplemental +nswer dated
3une 86, 4657 I or after around nine #6$ years from 3une ?, 46>> I
subse;uent to the filing of defendants= answer to the complaint, defendants
reached an agreement whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as an alleged
91 | P a g e
industrial partner, in the defendant partnership andJor in its net profits or
income, on the ground plaintiff has never contributed her industry to the
partnership, instead she has been and still is a judge of the City Court
#formerly &unicipal Court$ of the City of &anila, devoting her time to
performance of her duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from teaching in law
school in &anila, without the express consent of the herein defendants=
#2ecord "n +ppeal, pp. 87'8>$. Faving always knows as a appellee as a City
judge even before she joined appellant company on 3une ?, 46>> as an
industrial partner, why did it take appellants many yearn before excluding
her from said company as afore;uoted allegationsO +nd how can they
reconcile such exclusive with their main theory that appellee has never been
such a partner because "The real agreement evidenced by Dxhibit "+" was to
grant the appellee a share of 9@A of the net profits which the appellant
partnership may reali.e from 3une ?, 46>>, until the mortgage of
9@,@@@.@@ obtained from the 2ehabilitation /inance Corporal shall have
been fully paid." #+ppellants *rief, p. 9B$.
0hat has gone before persuades us to hold with the lower Court that
appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit
that may result from such an accounting, which right appellants take
exception under their second assigned error. "ur said holding is based on
the following article of the -ew Civil Code<
=+2T. 4B66. +ny partner shall have the right to a formal account as to
partnership affairs<
#4$ )f he is wrongfully excluded from the partnership business or possession
of its property by his co'partnersG
#8$ )f the right exists under the terms of any agreementG
#9$ +s provided by article 4B@?G
#7$ 0henever other circumstance render it just and reasonable.
0e find no reason in this case to depart from the rule which limits this
Court=s appellate jurisdiction to reviewing only errors of law, accepting as
conclusive the factual findings of the lower court upon its own assessment of
the evidence.
The judgment appealed from is affirmed, with costs.
PPPPPPPPPPPPPPPPPPPPPPPPP
92 | P a g e
PROPERT# RIGHTS OF A PARTNER AART. 1=1>B
RIGHTS IN SPECIFIC PARTNERSHIP PROPERT# AART. 1=11B
CANIT FIND FULLTEXT FOR CATALAN %S GATCHALIAN, GR L?11<!=
APRIL 22, 15
CCCCCCCCCCCCCCCCCC
G.R. No. 5=!> S30139E36 17, 11>
THE UNITED STATES, 0:a,*1,77?a003::33,
5..
EUSEBIO CLARIN, +373*+a*1?a003::a*1.
Francisco %o)ingue&, for appe##ant.
Attorne1Genera# Vi##a)or, for appe##ee.
ARELLANO, C.J.:
edro Larin delivered to edro Tarug 4?8, in order that the latter, in
company with Dusebio Clarin and Carlos de %u.man, might buy and sell
mangoes, and, believing that he could make some money in this business,
the said Larin made an agreement with the three men by which the profits
were to be divided e;ually between him and them.
edro Tarug, Dusebio Clarin, and Carlos de %u.man did in fact trade in
mangoes and obtained 8@9 from the business, but did not comply with the
terms of the contract by delivering to Larin his half of the profitsG neither did
they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an
information only against Dusebio Clarin in which he accused him of
appropriating to himself not only the 4?8 but also the share of the profits
that belonged to Larin, amounting to 4>.>@.
edro Tarug and Carlos de %u.man appeared in the case as witnesses and
assumed that the facts presented concerned the defendant and themselves
together.
The trial court, that of /irst )nstance of ampanga, sentenced the defendant,
Dusebio Clarin, to six months=arresto mayor, to suffer the accessory
penalties, and to return to edro Larin 4?8, besides 9@.>@ as his share of
the profits, or to subsidiary imprisonment in case of insolvency, and to pay
93 | P a g e
the costs. The defendant appealed, and in deciding his appeal we arrive at
the following conclusions<
0hen 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, a contract is formed which is called partnership. #+rt.
455>, Civil Code.$
0hen Larin put the 4?8 into the partnership which he formed with Tarug,
Clarin, and %u.man, he invested his capital in the risks or benefits of the
business of the purchase and sale of mangoes, and, even though he had
reserved the capital and conveyed only the usufruct of his money, it would
not devolve upon of his three partners to return his capital to him, but upon
the partnership of which he himself formed part, or if it were to be done by
one of the three specifically, it would be Tarug, who, according to the
evidence, was the person who received the money directly from Larin.
The 4?8 having been received by the partnership, the business commenced
and profits accrued, the action that lies with the partner who furnished the
capital for the recovery of his money is not a criminal action for estafa, but a
civil one arising from the partnership contract for a li;uidation of the
partnership and a levy on its assets if there should be any.
-o. > of article >9> of the enal Code, according to which those are guilty
of estafa "who, to the prejudice of another, shall appropriate or misapply
any money, goods, or any kind of personal property which they may have
received as a deposit on commission for administration or in any other
character producing the obligation to deliver or return the same," #as, for
example, in !ommodatum, pre!arium, and other unilateral contracts which
re;uire the return of the same thing received$ does not include money
received for a partnershipG otherwise the result would be that, if the
partnership, instead of obtaining profits, suffered losses, as it could not be
held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the
charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under o.ligation to return it.
0e therefore freely ac;uit Dusebio Clarin, with the costs de ofi!io. The
complaint for estafa is dismissed without prejudice to the institution of a civil
action.
'orres, Jo$nson, oreland and 'rent, JJ., concur.
94 | P a g e
PPPPPPPPPPPPPP
PARTICIPATION IN MANAGEMENT
G.R. No. L?!5<2! A06,: 25, 13
GEORGE LITTON, 031,1,o*36?a003::a*1,
5..
HILL J CERON, ET AL., 63.0o*+3*1.?a003::33..
George *. /eic( for appe##ant.
/o and %e Gu&)an for appe##ees.
*spe#eta, 2ui3ano and Liwag for appe##ee Hi##.
CONCEPCION, J.:
This is a petition to review on !ertiorari the decision of the Court of +ppeals
in a case originating from the Court of /irst )nstance of &anila wherein the
herein petitioner %eorge Litton was the plaintiff and the respondents Fill Q
Ceron, 2obert Fill, Carlos Ceron and Eisayan !urety Q )nsurance Corporation
were defendants.
The facts are as follows< "n /ebruary 47, 4697, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Fill Q
Ceron, a certain number of mining claims, and by virtue of said transaction,
the defendant Carlos Ceron delivered to the plaintiff a document reading as
follows<
Fe.. <>, <IJ>
2eceived from &r. %eorge Litton share certificates -os. 778B, 7786 and
5566 for >,@@@, >,@@@ and ?,@@@ shares respectively I total 4?,@@@ shares
of *ig 0edge &ining Company, which we have sold at @.44 #eleven
centavos$ per share or 4,B?@.@@ less 4J8 per cent brokerage.
F)LL Q CD2"-
By: AS@+.B CARLOS CERON
Ceron paid to the plaintiff the sum or 4,4>@ leaving an unpaid balance of
?8@, and unable to collect this sum either from Fill Q Ceron or from its
surety Eisayan !urety Q )nsurance Corporation, Litton filed a complaint in
the Court of /irst )nstance of &anila against the said defendants for the
95 | P a g e
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Fill Q
Ceron, 2obert Fill and the Eisayan !urety Q )nsurance Corporation. "n
appeal to the Court of +ppeals, the latter affirmed the decision of the court
on &ay 86, 469?, having reached the conclusion that Ceron did not intend to
represent and did not act for the firm Fill Q Ceron in the transaction involved
in this litigation.
+ccepting, as we cannot but accept, the conclusion arrived at by the Court of
+ppeals as to the ;uestion of fact just mentioned, namely, that Ceron
individually entered into the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law as
effected by Fill Q Ceron and binding upon it.
)n the first place, it is an admitted fact by 2obert Fill when he testified at the
trial that he and Ceron, during the partnership, had the same power to buy
and sellG that in said partnership Fill as well as Ceron made the transaction
as partners in e;ual partsG that on the date of the transaction, /ebruary 47,
4697, the partnership between Fill and Ceron was in existence. +fter this
date, or on /ebruary 46th, Fill Q Ceron sold shares of the *ig 0edgeG and
when the transaction was entered into with Litton, it was neither published
in the newspapers nor stated in the commercial registry that the partnership
Fill Q Ceron had been dissolved.
Fill testified that a few days before /ebruary 47th he had a conversation
with the plaintiff in the course of which he advised the latter not to deliver
shares for sale or on commission to Ceron because the partnership was
about to be dissolvedG but what importance can be attached to said advice if
the partnership was not in fact dissolved on /ebruary 47th, the date when
the transaction with Ceron took placeO
Cnder article 885 of the Code of Commerce, the dissolution of a commercial
association shall not cause any prejudice to third parties until it has been
recorded in the commercial registry. #!ee also Cardell vs. &a1eru, 47 hil.,
95B.$ The !upreme Court of !pain held that the dissolution of a partnership
by the will of the partners which is not registered in the commercial registry,
does not prejudice third persons. #"pinion of &arch 89, 4BB>.$
96 | P a g e
+side from the aforecited legal provisions, the order of the *ureau of
Commerce of :ecember ?, 4699, prohibits brokers from buying and selling
shares on their own account. !aid order reads<
The stock andJor bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed. . . .
#!$ To buy or to sell shares of stock or bonds on his own account for
purposes of speculation andJor for manipulating the market, irrespective of
whether the purchase or sale is made from or to a private individual, broker
or brokerage firm.
)n its decision the Court of +ppeals states<
*ut there is a stronger objection to the plaintiff=s attempt to make the firm
responsible to him. +ccording to the articles of copartnership of =Fill Q
Ceron,= filed in the *ureau of Commerce.
!ixth. That the management of the business affairs of the copartnership
shall be entrusted to both copartners who shall jointly administer the
business affairs, transactions and activities of the copartnership, shall jointly
open a current account or any other kind of account in any bank or banks,
shall jointly sign all checks for the withdrawal of funds and shall jointly or
singly sign, in the latter case, with the consent of the other partner. . . .
Cnder this stipulation, a written contract of the firm can only be signed by
one of the partners if the other partner consented. 0ithout the consent of
one partner, the other cannot bind the firm by a written contract. -ow,
assuming for the moment that Ceron attempted to represent the firm in this
contract with the plaintiff #the plaintiff conceded that the firm name was not
mentioned at that time$, the latter has failed to prove that Fill had
consented to such contract.
)t follows from the sixth paragraph of the articles of partnership of Fill Qn
Ceron above ;uoted that the management of the business of the partnership
has been entrusted to both partners thereof, but we dissent from the view of
the Court of +ppeals that for one of the partners to bind the partnership the
consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain
whether or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make in;uires as to the
agreements had between the partners. )ts knowledge, is enough that it is
97 | P a g e
contracting with the partnership which is represented by one of the
managing partners.
There is a general presumption that each individual partner is an authori.ed
agent for the firm and that he has authority to bind the firm in carrying on
the partnership transactions. #&ills vs. 2iggle, 448 ac., 54?.$
The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority. #Le
2oy vs.3ohnson, ? C. !. LLaw. ed.M, 964.$
The second paragraph of the articles of partnership of Fill Q Ceron reads in
part<
!econd< That the purpose or object for which this copartnership is organi.ed
is to engage in the business of brokerage in general, such as stock and bond
brokers, real brokers, investment security brokers, shipping brokers, and
other activities pertaining to the business of brokers in general.
The kind of business in which the partnership Fill Q Ceron is to engage being
thus determined, none of the two partners, under article 49@ of the Code of
Commerce, may legally engage in the business of brokerage in general as
stock brokers, security brokers and other activities pertaining to the
business of the partnership. Ceron, therefore, could not have entered into
the contract of sale of shares with Litton as a private individual, but as a
managing partner of Fill Q Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction similar
to that in which the partnership is engaged without binding the latter,
nevertheless there is no law which prohibits a partner in the stock brokerage
business for engaging in other transactions different from those of the
partnership, as it happens in the present case, because the transaction
made by Ceron is a mere personal loan, and this argument, so it is said, is
corroborated by the Court of +ppeals. 0e do not find this alleged
corroboration because the only finding of fact made by the Court of +ppeals
is to the effect that the transaction made by Ceron with the plaintiff was in
his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay to
the plaintiff, jointly and severally, the sum of ?8@, with legal interest, from
the date of the filing of the complaint, minus the commission of one'half per
98 | P a g e
cent #RA$ from the original price of 4,B?@, with the costs to the
respondents. !o ordered.
*van!eDa, C. J., )illa8Real, (mperial, -iaz, Laurel, and oran, JJ., !on!ur.
2D!"LCT)"-
July <J, <IJI
C"-CDC)"-, 3.<
+ motion has been presented in this case by 2obert Fill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. )t is asked that we reconsider our decision, the said
defendant insisting that the appellant had not established that Carlos Ceron,
another of the defendants, had the consent of his copartner, the movant, to
enter with the appellant into the contract whose breach gave rise to the
complaint. )t is argued that, it being stipulated in the articles of partnership
that Fill and Ceron, only partners of the firm Fill Q Ceron, would, as
managers, have the management of the business of the partnership, and
that either may contract and sign for the partnership with the consent of the
otherG the parties of partnership having been, so it is said, recorded in the
commercial registry, the appellant could not ignore the fact that the consent
of the movant was necessary for the validity of the contract which he had
with the other partner and defendant, Ceron, and there being no evidence
that said consent had been obtained, the complaint to compel compliance
with the said contract had to be, as it must be in fact, a procedural failure.
+lthough this ;uestion has already been considered and settled in our
decision, we nevertheless take cogni.ance of the motion in order to enlarge
upon our views on the matter.
The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other=s consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. -either is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. + third person may and has a
right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartnerG for
otherwise he would not enter into the contract. The third person would
99 | P a g e
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. +nd this finds support in the legal
presumption that the ordinary course of business has been followed #-o. 4B,
section 997, Code of Civil rocedure$, and that the law has been obeyed
#-o. 94, section 997$. This last presumption is e;ually applicable to
contracts which have the force of law between the parties.
0herefore, unless the contrary is shown, namely, that one of the partners
did not consent to his copartner entering into a contract with a third person,
and that the latter with knowledge thereof entered into said contract, the
aforesaid presumption with all its force and legal effects should be taken into
account.
There is nothing in the case at bar which destroys this presumptionG the only
thing appearing in he findings of fact of the Court of +ppeals is that the
plaintiff "has failed to prove that Fill had consented to such contract".
+ccording to this, it seems that the Court of +ppeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is differentG
because it is possible that one of the partners may not see any prospect in a
transaction, but he may nevertheless consent to the reali.ation thereof by
his copartner in reliance upon his skill and ability or otherwise. +nd here we
have to hold once again that it is not the plaintiff who, under the articles of
partnership, should obtain and prove the consent of Fill, but the latter=s
partner, Ceron, should he file a complaint against the partnership for
compliance with the contractG but in the present case, it is a third person,
the plaintiff, who asks for it. 0hile the said presumption stands, the plaintiff
has nothing to prove.
assing now to another aspect of the case, had Ceron in any way stated to
the appellant at the time of the execution of the contract, or if it could be
inferred by his conduct, that he had the consent of Fill, and should it turn
out later that he did not have such consent, this alone would not annul the
contract judging from the provisions of article 49@ of the Code of Commerce
reading as follows<
100 | P a g e
-o new obligation shall be contracted against t$e /ill of one of the managing
partners, should he have expressly stated itG but if, however, it should be
contracted it shall not be annulled for this reason, and shall have its effects
without prejudice to the liability of the partner or partners who contracted it
to reimburse the firm for any loss occasioned by reason thereof. #Dmphasis
supplied.$
Cnder the afore;uoted provisions, when, not only without the consent but
against the will of any of the managing partners, a contract is entered into
with a third person who acts in good faith, and the transaction is of the kind
of business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty
partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall a
victim without this protection which the Code of Commerce wisely provides.
)f we are to interpret the articles of partnership in ;uestion by holding that it
is the obligation of the third person to in;uire whether the managing
copartner of the one with whom he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, operate to hinder
effectively the transactions, a thing not desirable and contrary to the nature
of business which re;uires promptness and dispatch one the basis of good
faith and honesty which are always presumed.
)n view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. !o ordered.
*van!eDa, C. J., )illa8Real, (mperial, -iaz, Laurel, and oran, JJ., !on!ur.
ACCESS TO PARTNERSHIP BOO"S
G.R. No. L?22!!2 A4@4.1 1, 12!
ANTONIO PARDO, 031,1,o*36,
5..
THE HERCULES LUMBER CO., INC., a*+ IGNACIO
FERRER, 63.0o*+3*1..
101 | P a g e
'.J. O4%onovan and -.H. de Joa for petitioner.
!u)u#ong and Lavides and /oss, Lawrence and !e#p( for
respondents.
STREET, J.:
The petitioner, +ntonio ardo, a stockholder in the Fercules Lumber
Company, )nc., one of the respondents herein, seeks by this original
proceeding in the !upreme Court to obtain a writ of mandamus to compel
the respondents to permit the plaintiff and his duly authori.ed agent and
representative to examine the records and business transactions of said
company. To this petition the respondents interposed an answer, in which,
after admitting certain allegations of the petition, the respondents set forth
the facts upon which they mainly rely as a defense to the petition. To this
answer the petitioner in turn interposed a demurrer, and the cause is now
before us for determination of the issue thus presented.
)t is inferentially, if not directly admitted that the petitioner is in fact a
stockholder in the Fercules Lumber Company, )nc., and that the respondent,
)gnacio /errer, as acting secretary of the said company, has refused to
permit the petitioner or his agent to inspect the records and business
transactions of the said Fercules Lumber Company, )nc., at times desired by
the petitioner. -o serious ;uestion is of course made as to the right of the
petitioner, by himself or proper representative, to exercise the right of
inspection conferred by section >4 of +ct -o. 47>6. !aid provision was under
the consideration of this court in the case of hilpotts vs. hilippine
&anufacturing Co., and *erry #7@ hil., 7?4$, where we held that the right of
examination there conceded to the stockholder may be exercised either by a
stockholder in person or by any duly authori.ed agent or representative.
The main ground upon which the defense appears to be rested has reference
to the time, or times, within which the right of inspection may be exercised.
)n this connection the answer asserts that in article 4@ of the *y'laws of the
respondent corporation it is declared that "Dvery shareholder may examine
the books of the company and other documents pertaining to the same upon
the days which the board of directors shall annually fix." )t is further averred
that at the directors= meeting of the respondent corporation held on
/ebruary 45, 4687, the board passed a resolution to the following effect<
The board also resolved to call the usual general #meeting of shareholders$
for &arch 9@ of the present year, with notice to the shareholders that the
102 | P a g e
books of the company are at their disposition from the 4>th to 8>th of the
same month for examination, in appropriate hours.
The contention for the respondent is that this resolution of the board
constitutes a lawful restriction on the right conferred by statuteG and it is
insisted that as the petitioner has not availed himself of the permission to
inspect the books and transactions of the company within the ten days thus
defined, his right to inspection and examination is lost, at least for this year.
0e are entirely unable to concur in this contention. The general right given
by the statute may not be lawfully abridged to the extent attempted in this
resolution. )t may be admitted that the officials in charge of a corporation
may deny inspection when sought at unusual hours or under other improper
conditionsG but neither the executive officers nor the board of directors have
the power to deprive a stockholder of the right altogether. + by'law unduly
restricting the right of inspection is undoubtedly invalid. +uthorities to this
effect are too numerous and direct to re;uire extended comment. #47 C.3.,
B>6G ? 2.C.L., 98>G 7 Thompson on Corporations, 8nd ed., sec. 7>4?G
Farkness vs. %uthrie, 8? Ctah, 87BG 4@? +m., !t. 2ep., 557. 5B4.$ Cnder a
statute similar to our own it has been held that the statutory right of
inspection is not affected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty days before an
election. #!tate vs. !t. Louis 2ailroad Co., 86 &o., +p., 9@4.$
)t will be noted that our statute declares that the right of inspection can be
exercised "at reasonable hours." This means at reasonable hours on
business days throughout the year, and not merely during some arbitrary
period of a few days chosen by the directors.
)n addition to relying upon the by'law, to which reference is above made,
the answer of the respondents calls in ;uestion the motive which is
supposed to prompt the petitioner to make inspectionG and in this connection
it is alleged that the information which the petitioner seeks is desired for
ulterior purposes in connection with a competitive firm with which the
petitioner is alleged to be connected. )t is also insisted that one of the
purposes of the petitioner is to obtain evidence preparatory to the institution
of an action which he means to bring against the corporation by reason of a
contract of employment which once existed between the corporation and
himself. These suggestions are entirely apart from the issue, as, generally
103 | P a g e
speaking, the motive of the shareholder exercising the right is immaterial. #?
2.C.L., 98?.$
0e are of the opinion that, upon the allegations of the petition and the
admissions of the answer, the petitioner is entitled to relief. The demurrer is,
therefore, sustainedG and the writ of mandamus will issue as prayed, with
the costs against the respondent. !o ordered.
PPPPPPPPPPPPPPPPP
RIGHT TO FORMAL ACCOUNT
G.R. No. 7>2< $a*4a6y 31, 1=
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT a*+ LEUNG
#IU, respondents.
Jo$n L. &y for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERRE&, J/., J.:
The petitioner asks for the reversal of the decision of the then )ntermediate
+ppellate Court in +C'%.2. -o. CE'@@BB4 which affirmed the decision of the
then Court of /irst )nstance of &anila, *ranch )) in Civil Case -o. 445?8>
declaring private respondent Leung ,iu a partner of petitioner :an /ue
Leung in the business of !un 0ah anciteria 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 ,iu with the
then Court of /irst )nstance of &anila, *ranch )) to recover the sum
e;uivalent to twenty'two percent #88A$ of the annual profits derived from
the operation of !un 0ah anciteria since "ctober, 46>> from petitioner :an
/ue Leung.
The !un 0ah anciteria, a restaurant, located at /lorentino Torres !treet,
!ta. Cru., &anila, was established sometime in "ctober, 46>>. )t was
registered as a single proprietorship and its licenses and permits were issued
to and in favor of petitioner :an /ue Leung as the sole proprietor.
2espondent Leung ,iu adduced evidence during the trial of the case to show
104 | P a g e
that !un 0ah anciteria was actually a partnership and that he was one of
the partners having contributed 7,@@@.@@ to its initial establishment.
The private respondents evidence is summari.ed as follows<
+bout the time the !un 0ah anciteria started to become operational, the
private respondent gave 7,@@@.@@ as his contribution to the partnership.
This is evidenced by a receipt identified as Dxhibit "+" wherein the petitioner
acknowledged his acceptance of the 7,@@@.@@ by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of &s. /lorence ,ap to translate
its contents into Dnglish. /lorence ,ap 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 #Dxhibit +'9$ because it was affixed by the latter in his #private
respondents=$ presence. 0itnesses !o !ia and +ntonio +h Feng corroborated
the private respondents testimony to the effect that they were both present
when the receipt #Dxhibit "+"$ was signed by the petitioner. !o !ia further
testified that he himself received from the petitioner a similar receipt
#Dxhibit :$ evidencing delivery of his own investment in another amount of
7,@@@.@@ +n examination was conducted by the C Crime Laboratory on
orders of the trial court granting the private respondents motion for
examination of certain documentary exhibits. The signatures in Dxhibits "+"
and =:= when compared to the signature of the petitioner appearing in the
pay envelopes of employees of the restaurant, namely +h Feng and &aria
0ong #Dxhibits F, F'4 to F'87$ showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
/urthermore, the private respondent received from the petitioner the
amount of 48,@@@.@@ covered by the latter=s D;uitable *anking Corporation
Check -o. 499B67?@'* from the profits of the operation of the restaurant for
the year 46?7. 0itness Teodulo :ia., Chief of the !avings :epartment of
the China *anking Corporation testified that said check #Dxhibit *$ was
deposited by and duly credited to the private respondents savings account
with the bank after it was cleared by the drawee bank, the D;uitable *anking
Corporation. +nother witness Dlvira 2ana of the D;uitable *anking
Corporation testified that the check in ;uestion 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
105 | P a g e
account after the check #Dxhibit *$ was duly cleared. 2ana 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 7,@@@.@@. Fe contested and impugned the genuineness of the
receipt #Dxhibit :$. Fis evidence is summari.ed as follows<
The petitioner did not receive any contribution at the time he started the
!un 0ah anciteria. Fe used his savings from his salaries as an employee at
Camp !totsenberg in Clark /ield and later as waiter at the Toho 2estaurant
amounting to a little more than 8,@@@.@@ as capital in establishing !un 0ah
anciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and
permits showing the !un 0ah anciteria was and still is a single
proprietorship solely owned and operated by himself alone. /ue Leung also
flatly denied having issued to the private respondent the receipt #Dxhibit %$
and the D;uitable *anking Corporation=s Check -o. 499B67?@ * in the
amount of 48,@@@.@@ #Dxhibit *$.
+s between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Fence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads<
0FD2D/"2D, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the former,
the sum e;uivalent to 88A of the annual profit derived from the operation of
!un 0ah anciteria from "ctober, 46>>, until fully paid, and attorney=s fees
in the amount of >,@@@.@@ and cost of suit. #p. 48>, 2ollo$
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
re;uested that the decision rendered should include the net profit of the !un
0ah anciteria which was not specified in the decision, and allow private
respondent to adduce evidence so that the said decision will be
comprehensively ade;uate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. +fter hearing
the trial court rendered an amended decision, the dispositive portion of
which reads<
/"2 +LL TFD /"2D%")-% C"-!):D2+T)"-!, the motion for reconsideration
filed by the plaintiff, which was granted earlier by the Court, is hereby
106 | P a g e
reiterated and the decision rendered by this Court on !eptember 9@, 46B@,
is hereby amended. The dispositive portion of said decision should read now
as follows<
0FD2D/"2D, judgment is hereby rendered, ordering the plaintiff #sic$ and
against the defendant, ordering the latter to pay the former the sum
e;uivalent to 88A of the net profit of B,@@@.@@ per day from the time of
judicial demand, until fully paid, plus the sum of >,@@@.@@ as and for
attorney=s fees and costs of suit. #p. 4>@, 2ollo$
The petitioner appealed the trial court=s amended decision to the then
)ntermediate +ppellate Court. The ;uestioned decision was further modified
by the appellate court. The dispositive portion of the appellate court=s
decision reads<
0FD2D/"2D, the decision appealed from is modified, the dispositive portion
thereof reading as follows<
4. "rdering the defendant to pay the plaintiff by way of temperate damages
88A of the net profit of 8,@@@.@@ a day from judicial demand to &ay 4>,
46?4G
8. !imilarly, the sum e;uivalent to 88A of the net profit of B,@@@.@@ a day
from &ay 45, 46?4 to +ugust 9@, 46?>G
9. +nd thereafter until fully paid the sum e;uivalent to 88A of the net profit
of B,@@@.@@ a day.
Dxcept as modified, the decision of the court a 1uo is affirmed in all other
respects. #p. 4@8, 2ollo$
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower court=s decision. The dispositive portion of the resolution reads<
0FD2D/"2D, the dispositive portion of the amended judgment of the
court a 1uo reading as follows<
0FD2D/"2D, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the former the sum e;uivalent to
88A of the net profit of B,@@@.@@ per day from the time of judicial demand,
until fully paid, plus the sum of >,@@@.@@ 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 3uly 49, 46?B. #pp. 4@>'4@5, 2ollo$.
)n the same resolution, the motion for reconsideration filed by petitioner was
denied.
107 | P a g e
*oth the trial court and the appellate court found that the private respondent
is a partner of the petitioner in the setting up and operations of the
panciteria. 0hile the dispositive portions merely ordered the payment of the
respondents share, there is no ;uestion from the factual findings that the
respondent invested in the business as a partner. Fence, the two courts
declared that the private petitioner is entitled to a share of the annual profits
of the restaurant. The petitioner, however, claims that this factual finding is
erroneous. Thus, the petitioner argues< "The complaint avers that private
respondent extended =financial assistance= to herein petitioner at the time of
the establishment of the !un 0ah anciteria, in return of which private
respondent allegedly will receive a share in the profits of the restaurant. The
same complaint did not claim that private respondent is a partner of the
business. )t was, therefore, a serious error for the lower court and the Fon.
)ntermediate +ppellate Court to grant a relief not called for by the complaint.
)t was also error for the Fon. )ntermediate +ppellate Court to interpret or
construe =financial assistance= to mean the contribution of capital by a
partner to a partnershipG" #p. ?>, 2ollo$
The pertinent portions of the complaint state<
xxx xxx xxx
8. That on or about the latter #sic$ of Septem.er, <I??, defendant sought
the finan!ial assistan!e of plaintiff in operating the defendant=s eatery known
as !un 0ah anciteria, located in the given address of defendantG as a
return for such finan!ial assistan!e. plaintiff would be entitled to twenty'two
percentum #88A$ of the annual profit derived from t$e operation of t$e said
pan!iteria4
9. That on "ctober 4, 46>>, plaintiff delivered to the defendant the sum of
four thousand pesos #7,@@@.@@$, hilippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the defendant is attached
hereto as *nne3 K*K, and form an integral part hereofG #p. 44, 2ollo$
)n essence, the private respondent alleged that when !un 0ah anciteria
was established, he gave 7,@@@.@@ to the petitioner with the understanding
that he would be entitled to twenty'two percent #88A$ 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 !un 0ah anciteria because +rticle 4?5? of the Civil Code
provides that "*y the contract of partnership two or more persons bind
108 | P a g e
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 !un 0ah anciteria, notwithstanding
the use of the term financial assistance therein. 0e 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=. )t connotes an e3 gratia dole out in
favor of someone driven into a state of destitution. *ut this circumstance
under which the 7,@@@.@@ was given to the petitioner does not obtain in
this case.= #p. 66, 2ollo$ The complaint explicitly stated that "as a return for
such finan!ial assistan!e, plaintiff #private respondent$ would be entitled to
twenty'two percentum #88A$ of the annual profit derived from the operation
of the said panciteria.= #p. 4@?, 2ollo$ 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." #:e Tavera v. hilippine
Tuberculosis !ociety, )nc., 449 !C2+ 879G +lger Dlectric, )nc. v. Court of
+ppeals, 49> !C2+ 9?$.
The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the petitioner
in the establishment of !un 0ah anciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the C Crime Laboratory 2eport #Dxhibit "3"$ on the
ground that the alleged standards or specimens used by the C Crime
Laboratory in arriving at the conclusion were never testified to .y any
/itness nor $as any /itness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or specimens
of handwriting were marked as Dxhibits "F" "F'4" to "F'87" and admitted as
evidence for the private respondent over the vigorous objection of the
petitioner=s counsel.
The records show that the C Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and !o !ia #Dxhibits "+" and ":"$ and
compared the signatures on them with the signatures of the petitioner on
the various pay envelopes #Dxhibits "F", "F'4" to =F'87"$ of +ntonio +h Feng
109 | P a g e
and &aria 0ong, employees of the restaurant. +fter the usual examination
conducted on the ;uestioned documents, the C Crime Laboratory submitted
its findings #Dxhibit 3$ attesting that the signatures appearing in both
receipts #Dxhibits "+" and ":"$ were the signatures of the petitioner.
The records also show that when the pay envelopes #Dxhibits "F", "F'4" to
"F'87"$ were presented by the private respondent for marking as exhibits,
the petitioner did not interpose any objection. -either 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 C 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.
Cnder these circumstances, we find no reason why Dxhibit "3" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. Fe argues< The Fon.
2espondent )ntermediate +ppellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The alleged receipt is dated
"ctober 4, 46>> and the complaint was filed only on 3uly 49, 46?B or after
the lapse of twenty'two #88$ years, nine #6$ months and twelve #48$ days.
/rom "ctober 4, 46>> to 3uly 49, 46?B, no /ritten demands were ever made
by private respondent.
The petitioner=s argument is based on +rticle 4477 of the Civil Code which
provides<
+rt. 4477. The following actions must be brought within ten years from the
time the right of action accrues<
#4$ Cpon a written contractG
#8$ Cpon an obligation created by lawG
#9$ Cpon a judgment.
in relation to +rticle 44>> thereof which provides<
+rt. 44>>. 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 !un 0ah anciteria.
The re;uisites of a partnership which are I 4$ two or more persons bind
110 | P a g e
themselves to contribute money, property, or industry to a common fundG
and 8$ intention on the part of the partners to divide the profits among
themselves #+rticle 4?5?, Civil CodeG ,ulo v. ,ang Chiao Cheng, 4@5 hil.
44@$'have been established. +s stated by the respondent, a partner shares
not only in profits but also in the losses of the firm. )f 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. )t 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 !un 0ah
anciteria. )n effect the private respondent was asking for an accounting of
his interests in the partnership.
)t is +rticle 4B78 of the Civil Code in conjunction with +rticles 4477 and 44>>
which is applicable. +rticle 4B78 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.
2egarding the prescriptive period within which the private respondent may
demand an accounting, +rticles 4B@5, 4B@?, and 4B@6 show that the right to
demand an accounting exists as long as the partnership exists. rescription
begins to run only upon the dissolution of the partnership when the final
accounting is done.
/inally, 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.
+part from his own testimony and allegations, the private respondent
presented the cashier of !un 0ah anciteria, a certain &rs. !arah L. Licup,
to testify on the income of the restaurant.
&rs. Licup stated<
+TT,. F)"L)T" #direct examination to &rs. Licup$.
111 | P a g e
H &rs. 0itness, 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 correctO
+ ,es, sir.
H !o 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 correctO
+ ,es.
H -ow, after 44<9@ #.&.$ which is the closing time as you said, what do you
do with the moneyO
+ 0e balance it with the manager, &r. :an /ue Leung.
+TT,. F)"L)T"<
) see.
H !o, in other words, after your job, you huddle or confer togetherO
+ ,es, count it all. ) total it. 0e sum it up.
H -ow, &rs. 0itness, in an average day, more or less, will you please tell
us, how much is the gross income of the restaurantO
+ /or regular days, ) received around ?,@@@.@@ a day during my shift alone
and during pay days ) receive more than 4@,@@@.@@. That is excluding the
catering outside the place.
H 0hat about the catering service, will you please tell the Fonorable Court
how many times a week were there catering servicesO
+ !ometimes three times a monthG sometimes two times a month or more.
xxx xxx xxx
H -ow more or less, do you know the cost of the catering serviceO
+ ,es, because ) am the one who receives the payment also of the catering.
H Fow much is thatO
+ That ranges from two thousand to six thousand pesos, sir.
H er serviceO
+ er service, er catering.
H !o in other words, &rs. witness, for your shift alone in a single day from
9<9@ .&. to 44<9@ .&. in the evening the restaurant grosses an income of
?,@@@.@@ in a regular dayO
+ ,es.
H +nd ten thousand pesos during pay day.O
+ ,es.
#T!-, pp. >9 to >6, inclusive, -ovember 4>,46?B$
112 | P a g e
xxx xxx xxx
C"C2T<
+ny crossO
+TT,. C, #counsel for defendant$<
-o cross'examination, ,our Fonor. #T.!.-. p. 5>, -ovember 4>, 46?B$.
#2ollo, pp. 48?'48B$
The statements of the cashier were not rebutted. -ot 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. 0hen
a subpoenadu!es te!um was issued to the petitioner for the production of
their records of sale, his counsel voluntarily offered to bring them to court.
Fe asked for sufficient time prompting the court to cancel all hearings for
3anuary, 46B4 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 !un 0ah 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. !eemingly, that was the reason why this
case dragged for ;uite 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 2ules of Court #!ec. >#e$ 2ule 494$. "Dvidence willfully
suppressed would be adverse if produced." #2ollo, p. 47>$
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 /ebruary 8>, 46B4, however, after
presenting several witnesses, counsel for defendant promised that he will
present the defendant as his last witness. -otably there were several
113 | P a g e
postponement asked by counsel for the defendant and the last one was on
"ctober 4, 46B4 when he asked that this case be postponed for 7> days
because said defendant was then in Fongkong and he #defendant$ will be
back after said period. The Court acting with great concern and
understanding reset the hearing to -ovember 4?, 46B4. "n said date, the
counsel for the defendant who again failed to present the defendant asked
for another postponement, this time to -ovember 87, 46B4 in order to give
said defendant another judicial magnanimity and substantial due process. )t
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.
"n -ovember 87, 46B4, there being a typhoon prevailing in &anila said date
was declared a partial non'working holiday, so much so, the hearing was
reset to :ecember ? and 88, 46B4. "n :ecember ?, 46B4, on motion of
defendant=s counsel, the same was again reset to :ecember 88, 46B4 as
previously scheduled which hearing was understood as intransferable in
character. +gain on :ecember 88, 46B4, 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 9@ days from :ecember 89, 46B4, within which to file
their simultaneous memoranda. #2ollo, pp. 47B'4>@$
The restaurant is located at -o. ?7? /lorentino Torres, !ta. Cru., &anila in
front of the 2epublic !upermarket. )t is near the corner of Claro &. 2ecto
!treet. +ccording 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 patroni.e !un
0ah.
There is more than substantial evidence to support the factual findings of the
trial court and the appellate court. )f the respondent court awarded damages
only from judicial demand in 46?B and not from the opening of the
restaurant in 46>>, 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. Dven if the Court is minded to modify the
factual findings of both the trial court and the appellate court, it cannot refer
114 | P a g e
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 )ntermediate +ppellate Court ordering the payment of
the petitioner=s obligation shows that the same continues until fully paid. The
;uestion 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 +rticle 4B94 of the Civil Code which, in part, provides<
+rt. 4B94. "n application by or for a partner the court shall decree a
dissolution whenever<
xxx xxx xxx
#9$ + partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the businessG
#7$ + 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 himG
xxx xxx xxx
#5$ "ther circumstances render a dissolution e;uitable.
There shall be a li;uidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become ine;uitable.
0FD2D/"2D, the petition for review is hereby :)!&)!!D: for lack of merit.
The decision of the respondent court is +//)2&D: with a &":)/)C+T)"-
that as indicated above, the partnership of the parties is ordered dissolved.
!" "2:D2D:.
PPPPPPPPPPPP
RELATIONS AND DEALINGS (ITH THIRD PERSONS
INDI%IDUAL LIABILIT# OF PARTNERS FOR PARTNERSHIP ACTS
G.R. No. L?22!3 $4:y 31, 175
115 | P a g e
ISLAND SALES, INC., 0:a,*1,77?a003::33,
5..
UNITED PIONEERS GENERAL CONSTRUCTION COMPAN#, ET. AL
+373*+a*1.. BEN$AMIN C. DACO,+373*+a*1?a003::a*1.
Gre, ,uenaventura and !antiago for p#aintiff1appe##ee.
Anac#eto %. ,ado, Jr. for defendant1appe##ant.

CONCEPCION $R., J.:
This is an appeal interposed by the defendant *enjamin C. :aco from the
decision of the Court of /irst )nstance of &anila, *ranch KE), in Civil Case
-o. >@5B8, the dispositive portion of which reads<
0FD2D/"2D, the Court sentences defendant Cnited ioneer %eneral
Construction Company to pay plaintiff the sum of ?,446.@? with interest at
the rate of 48A per annum until it is fully paid, plus attorney=s fees which
the Court fixes in the sum of Dight Fundred esos #B@@.@@$ and costs.
The defendants *enjamin C. :aco, :aniel +. %ui.ona, -oel C. !im and
+ugusto alisoc are sentenced to pay the plaintiff in this case with the
understanding that the judgment against these individual defendants shall
be enforced only if the defendant company has no more leviable properties
with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
"n +pril 88, 4654, the defendant company, a general partnership duly
registered under the laws of the hilippines, purchased from the plaintiff a
motor vehicle on the installment basis and for this purpose executed a
promissory note for 6,77@.@@, payable in twelve #48$ e;ual monthly
installments of ?B5.59, the first installment payable on or before &ay 88,
4654 and the subse;uent installments on the 88nd day of every month
thereafter, until fully paid, with the condition that failure to pay any of said
installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Faving failed to receive the installment due on 3uly 88, 4654, the plaintiff
sued the defendant company for the unpaid balance amounting to
?,446.@?. *enjamin C. :aco, :aniel +. %ui.ona, -oel C. !im, 2omulo *.
Lumauig, and +ugusto alisoc were included as co'defendants in their
capacity as general partners of the defendant company.
116 | P a g e
:aniel +. %ui.ona failed to file an answer and was conse;uently declared in
default.
4
!ubse;uently, on motion of the plaintiff, the complaint was dismissed insofar
as the defendant 2omulo *. Lumauig is concerned.
8
0hen the case was called for hearing, the defendants and their counsels
failed to appear notwithstanding the notices sent to them. Conse;uently, the
trial court authori.ed the plaintiff to present its evidence e38parte
9
, after
which the trial court rendered the decision appealed from.
The defendants *enjamin C. :aco and -oel C. !im moved to reconsider the
decision claiming that since there are five #>$ general partners, the joint and
subsidiary liability of each partner should not exceed one'fifth #
4
J
>
$ of the
obligations of the defendant company. *ut the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of
the defendants :aco and !im to only one'fifth #
4
J
>
$ of the obligations of the
defendant company.
7
Fence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint
to favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of
the partnership.
+rticle 4B45 of the Civil Code provides<
+rt. 4B45. +ll partners including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted,
for the contracts which may be entered into in the name and for the account
of the partnership, under its signature and by a person authori.ed to act for
the partnership. Fowever, any partner may enter into a separate obligation
to perform a partnership contract.
)n the case of Co8Pit!o vs. +ulo #B hil. >77$ this Court held<
The partnership of ,ulo and alacios was engaged in the operation of a sugar
estate in -egros. )t was, therefore, a civil partnership as distinguished from
a mercantile partnership. *eing a civil partnership, by the express provisions
of articles l56B and 449? of the Civil Code, the partners are not liable each
for the whole debt of the partnership. The liability is pro rata and in this case
edro ,ulo is responsible to plaintiff for only one'half of the debt. The fact
that the other partner, 3aime alacios, had left the country cannot increase
the liability of edro ,ulo.
117 | P a g e
)n the instant case, there were five #>$ general partners when the
promissory note in ;uestion was executed for and in behalf of the
partnership. !ince the liability of the partners is pro rata, the liability of the
appellant *enjamin C. :aco shall be limited to only one'fifth #
4
J
>
$ of the
obligations of the defendant company. The fact that the complaint against
the defendant 2omulo *. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the
defendant company. )n so moving to dismiss the complaint, the plaintiff
merely condoned Lumauig=s individual liability to the plaintiff.
0FD2D/"2D, the appealed decision as thus clarified is hereby +//)2&D:,
without pronouncement as to costs.
!" "2:D2D:.
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