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II. B.2.C.

Principles Governing Partnership- Delectus Personae


Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION

G.R. No. 109248 July 3, 1995


GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN
T.
BACORRO, petitioners,
vs.
HON.
COURT
OF
APPEALS,
SECURITIES
AND
EXCHANGE
COMMISSION and JOAQUIN L. MISA,respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in
SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its decision, are
hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO,

BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano
M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondentsappellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the
proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved soon
because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
"The partnership has ceased to be mutually satisfactory
because of the working conditions of our employees
including the assistant attorneys. All my efforts to ameliorate
the below subsistence level of the pay scale of our
employees have been thwarted by the other partners. Not
only have they refused to give meaningful increases to the
employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their selfrespect. The result of such policies is the formation of the
union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution

and liquidation of partnership, docketed as SEC Case No. 3384 praying


that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's
share in the partnership assets plus the profits, rent or
interest attributable to the use of his right in the assets of
the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito,
Misa & Lozada in any of their correspondence, checks and
pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at
least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as
maybe proven during the trial and which the Commission
may deem just and equitable under the premises but in no
case less than ten (10%) per cent of the value of the shares
of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages
with the amount of P500,000.00 and exemplary damages in
the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs
that the Commission may deem just and equitable under the
premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.

Accordingly, the petitioner and respondents are hereby


enjoined to abide by the provisions of the Agreement relative
to the matter governing the liquidation of the shares of any
retiring or withdrawing partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and
held that the withdrawal of Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at
anytime, such as by his withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March
1989 is hereby REVERSED insofar as it concludes that the partnership
of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective
rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of
the dissolved partnership and to take charge of the winding up of its affairs.
On 4 April 1991, respondent SEC issued an order denying reconsideration,
as well as rejecting the petition for receivership, and reiterating the remand
of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CAG.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus
Bito and Attorney Mariano Lozada both died on, respectively, 05 September
1991 and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to renew
his application for receivership (in CA G.R. SP No. 24648). He expressed
concern over the need to preserve and care for the partnership assets. The
other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26 February 1993, (a) that

Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that
such withdrawal was not in bad faith; (c) that the liquidation should be to
the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the
partnership agreement; (d) that the case should be remanded to the SEC
Hearing Officer for the corresponding determination of the value of Attorney
Misa's share in the partnership assets; and (e) that the appointment of a
receiver was unnecessary as no sufficient proof had been shown to indicate
that the partnership assets were in any such danger of being lost, removed
or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners
confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless
of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he
can get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law
firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is
indeed such a partnership need not be unduly belabored. We quote, with
approval, like did the appellate court, the findings and disquisition of
respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does
not provide for a specified period or undertaking. The "DURATION"
clause simply states:

"5. DURATION. The partnership shall continue so long as


mutually satisfactory and upon the death or legal incapacity
of one of the partners, shall be continued by the surviving
partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to
counsel and advise such persons and entities with respect to
their legal and other affairs; and to appear for and represent
their principals and client in all courts of justice and
government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for
articles on partnership at will as none would so exist. Apparently what
the law contemplates, is a specific undertaking or "project" which has a
definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with whom a person wishes
to associate himself is the very foundation and essence of that partnership.
Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself. Verily, any one
of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership 4 but
that it can result in a liability for damages. 5

In passing, neither would the presence of a period for its specific duration or
the statement of a particular purpose for its creation prevent the dissolution
of any partnership by an act or will of a partner. 6 Among partners, 7 mutual
agency arises and the doctrine of delectus personae allows them to have
the power, although not necessarily the right, to dissolve the partnership.
An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might
be distinguished from the winding up of, the business. 8 Upon its dissolution,
the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; 10 however, an agreement
of the partners, like any other contract, is binding among them and normally
takes precedence to the extent applicable over the Code's general
provisions. We here take note of paragraph 8 of the "Amendment to Articles
of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest
in the partnership shall be liquidated and paid in accordance with the
existing agreements and his partnership participation shall revert to
the Senior Partners for allocation as the Senior Partners may
determine; provided, however, that with respect to the two (2) floors of
office condominium which the partnership is now acquiring, consisting
of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street,
Salcedo Village, Makati, Metro Manila, their true value at the time of
such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by
the) retiring partner or the heirs of a deceased partner, as the case
may be. In the event of any disagreement between the said appraisers
a third appraiser will be appointed by them whose decision shall be
final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined
upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of
not less than P20,000.00 for the Senior Partners, P10,000.00 in the

case of two (2) existing Junior Partners and P5,000.00 in the case of the
new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in
a generic sense to mean the dissociation by a partner, inclusive of
resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court
and respondent Commission on their common factual finding, i.e., that
Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain in
the partnership under such an atmosphere of animosity; certainly, not
against their will. 12Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here
used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement
on costs.

II. B. 3.A. Joint Ventures


Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.


LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN,
DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO
E.
SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V.
CRUZ and the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:


These consolidated petitions seek the review of the amended decision of the
Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the
earlier decision dated June 5, 1986, of the then Intermediate Appellate Court
and directed that in all subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot
nominate more than three (3) directors; that the Filipino stockholders shall
not interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates and in
the event they cannot agree on the six (6) nominees, they shall vote only
among themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the


primary purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
European or American who could help in its expansion plans. On August 15,
1962, ASI, a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china
and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the
name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."
The Agreement has the following provisions relevant to the issues in these
cases on the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit A and, insofar
as permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board
of Directors, which shall consist of nine individuals. As long as
American-Standard shall own at least 30% of the outstanding
stock of the Corporation, three of the nine directors shall be
designated by American-Standard, and the other six shall be
designated by the other stockholders of the Corporation. (pp. 51
& 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to
protect it as a minority group, including the grant of veto powers over a
number of corporate acts and the right to designate certain officers, such as

a member of the Executive Committee whose vote was required for


important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation
was also registered with the Board of Investments for availment of
incentives with the condition that at least 60% of the capital stock of the
corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic
disagreement was due to their desire to expand the export operations of the
company to which ASI objected as it apparently had other subsidiaries of
joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was
held. The meeting was presided by Baldwin Young. The minutes were taken
by the Secretary, Avelino Cruz. After disposing of the preliminary items in
the agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A.
Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn
nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual stockholders'
meetings to nominate only nine persons as nominees for the nine-member
board of directors, and the legal advice of Saniwares' legal counsel. The
following events then, transpired:
... There were protests against the action of the Chairman and
heated arguments ensued. An appeal was made by the ASI
representative to the body of stockholders present that a vote be
taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling
was taken. The Chairman then instructed the Corporate Secretary
to cast all the votes present and represented by proxy equally for
the 6 nominees of the Philippine Investors and the 3 nominees of

ASI, thus effectively excluding the 2 additional persons


nominated, namely, Luciano E. Salazar and Charles Chamsay. The
ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that all the votes
owned by and or represented by them 467,197 shares (p. 27,
Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative
of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, ACG.R. SP No. 05617). This motion to adjourn was accepted by the
Chairman, Baldwin Young, who announced that the motion was
carried and declared the meeting adjourned. Protests against the
adjournment were registered and having been ignored, Mr. Jaqua
the ASI representative, stated that the meeting was not adjourned
but only recessed and that the meeting would be reconvened in
the next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the Chairman
on the casting of votes bodily thrown out. The ASI Group, Luciano
E. Salazar and other stockholders, allegedly representing 53 or
54% of the shares of Saniwares, decided to continue the meeting
at the elevator lobby of the American Standard Building. The
continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the
cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin,

David Whittingham and Charles Chamsay. Luciano E. Salazar


voted for himself, thus the said five directors were certified as
elected directors by the Acting Secretary, Andres Gatmaitan, with
the explanation that there was a tie among the other six (6)
nominees for the four (4) remaining positions of directors and that
the body decided not to break the tie. (pp. 37-39, Rollo of 7597576)
These incidents triggered off the filing of separate petitions by the parties
with the Securities and Exchange Commission (SEC). The first petition filed
was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin
Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
George F. Lee against Luciano Salazar and Charles Chamsay. The case was
denominated as SEC Case No. 2417. The second petition was for quo
warranto and application for receivership by Wolfgang Aurbach, John Griffin,
David Whittingham, Luciano E. Salazar and Charles Chamsay against the
group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of
parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer
who rendered a decision upholding the election of the Lagdameo Group and
dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group
and Salazar appealed the decision to the SEC en banc which affirmed the
hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and
by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions
were consolidated and the appellate court in its decision ordered the
remand of the case to the Securities and Exchange Commission with the
directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group)
the appellate court (Court of Appeals) rendered the questioned amended

decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham


and Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED
ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS
NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS
PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE
NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended
decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by stockholders and
the replacement of the conditions of such agreements with terms
never contemplated by the stockholders but merely dictated by
the CA .
11.2. The Amended decision would likewise sanction the
deprivation of the property rights of stockholders without due
process of law in order that a favored group of stockholders may
be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE

DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC


INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT
PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed
jointly.
The main issue hinges on who were the duly elected directors of Saniwares
for the year 1983 during its annual stockholders' meeting held on March 8,
1983. To answer this question the following factors should be determined:
(1) the nature of the business established by the parties whether it was a
joint venture or a corporation and (2) whether or not the ASI Group may
vote their additional 10% equity during elections of Saniwares' board of
directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with
the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd
668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the
actual intention of the parties should be viewed strictly on the "Agreement"
dated August 15,1962 wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which
states:
xxx xxx xxx

c) nothing herein contained shall be construed to constitute any


of the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the
Lagdameo and Young Group on the ground that it contravenes the parol
evidence rule under section 7, Rule 130 of the Revised Rules of Court.
According to them, the Lagdameo and Young Group never pleaded in their
pleading that the "Agreement" failed to express the true intent of the
parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement
have been reduced to writing, it is to be considered as containing
all such terms, and therefore, there can be, between the parties
and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties or the
validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in
their Reply and Answer to Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it
appear that the parties thereto disclaim being partners or joint
venturers such disclaimer is directed at third parties and is not
inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the
Philippine Investors) shall constitute the majority, and the other
ASI shall constitute the minority stockholder. In any event, the

evident intention of the Philippine Investors and ASI in entering


into the Agreement is to enter into ajoint venture enterprise, and
if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various stipulations of a
contract shall be interpreted together attributing to the doubtful
ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the
intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Art. 1371, New
Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that
the parties joined their efforts in furtherance of an enterprise for
their joint profit, the question whether they intended by their
agreement to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v. Kessler v 200
App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238
SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to establish a joint venture
and not a corporation. The history of the organization of Saniwares and the
unusual arrangements which govern its policy making body are all
consistent with a joint venture and not with an ordinary corporation. As
stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine
nationals. He testified that ASI agreed to accept the role of
minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to
protect ASI as the minority.
An examination of the Agreement shows that certain provisions
were included to protect the interests of ASI as the minority. For

example, the vote of 7 out of 9 directors is required in certain


enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member of the
Executive Committee and the vote of this member is required for
certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a)
(iv) and (b) (iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is
normally followed by ASI [Sec. 13 (a)] and that Saniwares should
not export "Standard" products otherwise than through ASI's
Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI
agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement
requiring a 7 out of 9 votes of the board of directors for certain
actions, in effect gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore, the grant to ASI
of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the
articles and by-laws; and most significantly to the issues of tms
case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares,
namely ASI, which owns 40% of the capital stock and the
Philippine National stockholders who own the balance of 60%, and
that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there
are two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the
parties, i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six to
three ratio. Each group is assured of a fixed number of directors in the
board.
Moreover, ASI in its communications referred to the enterprise as joint
venture. Baldwin Young also testified that Section 16(c) of the Agreement
that "Nothing herein contained shall be construed to constitute any of the
parties hereto partners or joint venturers in respect of any transaction
hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial
and manufacturing capacities of a local firm are constrained to seek the
technology and marketing assistance of huge multinational corporations of
the developed world. Arrangements are formalized where a foreign group
becomes a minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance. However,
there is always a danger from such arrangements. The foreign group may,
from the start, intend to establish its own sole or monopolistic operations
and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say the
least. To the extent that such subversive actions can be lawfully prevented,
the courts should extend protection especially in industries where
constitutional and legal requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right
of stockholders to enter into agreements regarding the exercise of
their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx

2. An agreement between two or more stockholders, if in writing


and signed by the parties thereto, may provide that in exercising
any voting rights, the shares held by them shall be voted as
therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the
Corporation Code's chapter on close corporations and Saniwares
cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the
disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups
representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9
stockholders, the Dy family for 7 stockholders, etc. If the
members of one family and/or business or interest group are
considered as one (which, it is respectfully submitted, they should
be for purposes of determining how closely held Saniwares is
there were as of 8 March 1983, practically only 17 stockholders of
Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and Annex "A"
thereof).
Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the
undeniable fact is that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares is a public issue
or a widely held corporation.
In the United States, many courts have taken a realistic approach
to joint venture corporations and have not rigidly applied
principles of corporation law designed primarily for public issue
corporations. These courts have indicated that express
arrangements between corporate joint ventures should be
construed with less emphasis on the ordinary rules of law usually
applied to corporate entities and with more consideration given to
the nature of the agreement between the joint venturers (Please

see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;


Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US.
490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903;
Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of
Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958).
These American cases dealt with legal questions as to the extent
to which the requirements arising from the corporate form of joint
venture corporations should control, and the courts ruled that
substantial justice lay with those litigants who relied on the joint
venture agreement rather than the litigants who relied on the
orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint
venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in
close corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder
and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3)
give to the shareholders control over the selection and retention
of employees; and (4) set up a procedure for the settlement of
disputes by arbitration (See I O' Neal, Close Corporations, 1971
ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P.
16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
necessarily imply that agreements regarding the exercise of
voting rights are allowed only in close corporations. As Campos
and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular.
Does this provision necessarily imply that these agreements can
be valid only in close corporations as defined by the Code?
Suppose that a corporation has twenty five stockholders, and

therefore cannot qualify as a close corporation under section 96,


can some of them enter into an agreement to vote as a unit in the
election of directors? It is submitted that there is no reason for
denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect
their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the
agreement. Of course, voting or pooling agreements are perhaps
more useful and more often resorted to in close corporations. But
they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the requisites laid
down by section 96, it is entirely possible that a corporation which
is in fact a close corporation will not come within the definition. In
such case, its stockholders should not be precluded from entering
into contracts like voting agreements if these are otherwise valid.
(Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating
to the designation or nomination of directors restricts the right of
the Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon
the signatories thereto, which include appellants. (Rollo No.
75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court
of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is spelled out
in the Agreement. Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. This allocation of
board seats is obviously in consonance with the minority position
of ASI.
Having entered into a well-defined contractual relationship, it is
imperative that the parties should honor and adhere to their

respective rights and obligations thereunder. Appellants seem to


contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may
interfere with the stockholder's rights to cumulative voting as
provided in Section 24 of the Corporation Code. This Court should
not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties
thereto. It may well be that it would be more cogent to hold, as
the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special relationships with
each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so
long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to
make a general rule on this question. Rather, all that needs to be
done is to give life and effect to the particular contractual rights
and obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI
and the contractual allocation of board seats Cannot be
disregarded. On the other hand, the rights of the stockholders to
cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the
second over the first. Upon further reflection, we feel that the
proper and just solution to give due consideration to both factors
suggests itself quite clearly. This Court should recognize and
uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group
to cumulative voting in the process of determining who the
group's nominees would be. In practical terms, as suggested by
appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his

votes. ASI, however, should not be allowed to interfere in the


voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the
contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board
seats and the stockholder's right to cumulative voting. Moreover,
this ruling will also give due consideration to the issue raised by
the appellees on possible violation or circumvention of the AntiDummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if
ASI is allowed to nominate more than three directors. (Rollo75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI
Group has the right to vote their additional equity pursuant to Section 24 of
the Corporation Code which gives the stockholders of a corporation the right
to cumulate their votes in electing directors. Petitioner Salazar adds that
this right if granted to the ASI Group would not necessarily mean a violation
of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or
associations engaging in partially nationalized activities shall be
allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that
provision is applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose.
(Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly

distinguishable from the partnership, since their elements are


similar community of interest in the business, sharing of profits
and losses, and a mutual right of control. Blackner v. Mc Dermott,
176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P.
2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is
thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation
is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a
joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of
contracts generally apply to a contract of joint venture. (O' Hara v. Harman
14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote their
additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of
the parties as regards the allocation of director seats under Section 5 (a) of
the "Agreement," and the right of each group of stockholders to cumulative
voting in the process of determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5
(a) of the Agreement relates to the manner of nominating the members of

the board of directors while Section 3 (a) (1) relates to the manner of voting
for these nominees.
This is the proper interpretation of the Agreement of the parties as regards
the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a
Filipino director who would be beholden to them would obliterate their
minority status as agreed upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the
contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board
seats and the stockholder's right to cumulative voting. Moreover,
this ruling will also give due consideration to the issue raised by
the appellees on possible violation or circumvention of the AntiDummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if
ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the AntiDummy Act. In this regard, petitioner Salazar's position is that the AntiDummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the
same law also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors.
This is the allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always be

maintained as long as the joint venture agreement exists considering that in


limiting 3 board seats in the 9-man board of directors there are provisions
already agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC
which were impliedly affirmed by the appellate court declaring Messrs.
Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo,
Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No.
75951) object to a cumulative voting during the election of the board of
directors of the enterprise as ruled by the appellate court and submits that
the six (6) directors allotted the Filipino stockholders should be selected by
consensus pursuant to section 5 (a) of the Agreement which uses the word
"designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their
group.
Section 5 (a) of the Agreement which uses the word designates in the
allocation of board directors should not be interpreted in isolation. This
should be construed in relation to section 3 (a) (1) of the Agreement. As we
stated earlier, section 3(a) (1) relates to the manner of voting for these
nominees which is cumulative voting while section 5(a) relates to the
manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot
now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise
under the cumulative voting procedure cannot, however, be ignored. The
validity of the cumulative voting procedure is dependent on the directors
thus elected being genuine members of the Filipino group, not voters whose
interest is to increase the ASI share in the management of Saniwares. The
joint venture character of the enterprise must always be taken into account,

so long as the company exists under its original agreement. Cumulative


voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The
amended decision of the Court of Appeals is MODIFIED in that Messrs.
Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo,
Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs against the petitioners
in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

Republic
SUPREME COURT

of

the

Philippines

SECOND DIVISION
G.R. No. 126881

October 3, 2000

HEIRS
OF
TAN
ENG
KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented
by its President TAN ENG LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of
the Decision1 dated March 13, 1996 of the former Fifth Division 2 of the Court
of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set
aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo,
the common-law spouse of the decedent, joined by their children Teresita,
Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother
TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership formed after World
War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint 4 impleading private respondent
herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The
amended complaint was admitted by the trial court in its Order dated May
3, 1991.5
The amended complaint principally alleged that after the second World War,
Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together,
entered into a partnership engaged in the business of selling lumber and

hardware and construction supplies. They named their enterprise "Benguet


Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners
herein averred that the business prospered due to the hard work and thrift
of the alleged partners. However, they claimed that in 1981, Tan Eng Lay
and his children caused the conversion of the partnership "Benguet Lumber"
into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business. Petitioners prayed for accounting
of the partnership assets, and the dissolution, winding up and liquidation
thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered
judgment6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets
turned over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to
share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have
descended to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or
General Manager of Benguet Lumber Company Inc. to render an
accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer
the assets of Benguet Lumber Company, Inc. until such time that said

corporation is finally liquidated are directed to submit the name of any


person they want to be appointed as receiver failing in which this Court
will appoint the Branch Clerk of Court or another one who is qualified
to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof
except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment of
the trial court. Petitioners' motion for reconsideration 7 was denied by the
Court of Appeals in a Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856
against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified
documents in a judicial proceeding. Petitioners complained that Exhibits "4"
to "4-U" offered by the defendants before the trial court, consisting of
payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng
Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia,
Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20,
1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment9 dismissing the cases for
insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT;
(B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C)

THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO


AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO
TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13,
DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON
THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT
BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG
KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF
BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP
JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY
RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND
SUPERVISING THE EMPLOYEES THEREIN;

TAN ENG

LAY

WERE

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN
ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR

WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW


WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF
BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH
THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP
SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the
Court of Appeals will not be disturbed on appeal if such are supported by
the evidence.10 Our jurisdiction, it must be emphasized, does not include
review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.11 [emphasis
supplied]
Admitted exceptions have been recognized, though, and when present, may
compel us to analyze the evidentiary basis on which the lower court
rendered judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court
are contradictory;
(2) when the findings are grounded entirely on speculation, surmises,
or conjectures;
(3) when the inference made by the Court of Appeals from its findings
of fact is manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;


(5) when the appellate court, in making its findings, goes beyond the
issues of the case, and such findings are contrary to the admissions of
both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts
which, if properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on
the absence of evidence but such findings are contradicted by the
evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while
the plaintiffs mentioned only the existence of a partnership, the Court
in turn went beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of
standing between the parties, equal proprietary interest and the
exercise by the parties equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a
partner of the Benguet Lumber before the war. The appellees however
argued that (Rollo, p. 104; Brief, p. 6) this is because during the war,
the entire stocks of the pre-war Benguet Lumber were confiscated if
not burned by the Japanese. After the war, because of the absence of
capital to start a lumber and hardware business, Lay and Kee pooled
the proceeds of their individual businesses earned from buying and
selling military supplies, so that the common fund would be enough to

form a partnership, both in the lumber and hardware business. That


Lay and Kee actually established the Benguet Lumber in Baguio City,
was even testified to by witnesses. Because of the pooling of
resources, the post-war Benguet Lumber was eventually established.
That the father of the plaintiffs and Lay were partners, is obvious from
the fact that: (1) they conducted the affairs of the business during
Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers,
(4) their families stayed together at the Benguet Lumber compound,
and (5) all their children were employed in the business in different
capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a


firm name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period
after the war until Kee's death in 1984. It had no business book, no
written account nor any memorandum for that matter and no license
mentioning the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship.
The certification dated March 4, 1971, Exhibit "2", mentioned codefendant Lay as the only registered owner of the Benguet Lumber and
Hardware. His application for registration, effective 1954, in fact
mentioned that his business started in 1945 until 1985 (thereafter, the
incorporation). The deceased, Kee, on the other hand, was merely an
employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4U", inclusive, for the years 1982 to 1983, Kee was similarly listed only
as an employee; precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was mentioned also as the
proprietor.
xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic]
may be constituted in any form, but when an immovable is constituted,
the execution of a public instrument becomes necessary. This is
equally true if the capitalization exceeds P3,000.00, in which case a
public instrument is also necessary, and which is to be recorded with
the Securities and Exchange Commission. In this case at bar, we can
easily assume that the business establishment, which from the
language of the appellees, prospered (pars. 5 & 9, Complaint),
definitely exceeded P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution of
a public instrument, on the other hand, was never established by the
appellees.
And then in 1981, the business was incorporated and the incorporators
were only Lay and the members of his family. There is no proof either
that the capital assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred by Lay, supposedly
to the corporation and since then have been treated as a part of the
latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of
the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store,
and then in a room in the bunk house in Trinidad, but within the
compound of the lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both were
supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds of
the 80 pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or
where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to divide the

profits, being the true test of the partnership. The intention to join in
the business venture for the purpose of obtaining profits thereafter to
be divided, must be established. We cannot see these elements from
the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial
court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly
entered into a joint venture. In this connection, we have held that whether a
partnership exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a
quo.13 Inasmuch as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the record to determine
if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. A contract of partnership is defined by law as
one where:
. . . two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the exercise of a
profession.14
Thus, in order to constitute a partnership, it must be established that
(1) two or more persons bound themselves to contribute money,
property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.15 The agreement need not be formally
reduced into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable property or
real rights are contributed,16 and (2) when the partnership has a capital
of three thousand pesos or more.17 In both cases, a public instrument is
required.18 An inventory to be signed by the parties and attached to
the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to the
partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a particular partnership. 20 A
particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating merchants can
transact business under their own name, and can be individually liable
therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a
certain kind.21
A joint venture "presupposes generally a parity of standing between the
joint co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business." 22 Nonetheless, in
Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., 23 we
expressed the view that a joint venture may be likened to a particular
partnership, thus:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean
an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the
partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdiction is that the partnership
contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel 266 Fed. 811 [1920]). This observation is not

entirely accurate in this jurisdiction, since under the Civil Code, a


partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code).
It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The
alleged partnership, though, was never formally organized. In addition,
petitioners point out that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945, although the contrary
may well be argued that nothing prevented the parties from complying with
the provisions of the New Civil Code when it took effect on August 30, 1950.
But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial
evidence. A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside
from Tan Eng Lay, could have expounded on the precise nature of the
business relationship between them. In the absence of evidence, we cannot
accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership.
The testimonies to that effect of petitioners' witnesses is directly
controverted by Tan Eng Lay. It should be noted that it is not with the
number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners' witnesses could
suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the
latter asked the former to accompany him to get 80 pieces of G.I. sheets

supposedly owned by both brothers.26Tan Eng Lay, however, denied


knowledge of this meeting or of the conversation between Peralta and his
brother.27 Tan Eng Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said brother, Tan Eng Kee,
came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a
partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in the
profits and losses.29 Each has the right to demand an accounting as long as
the partnership exists.30 We have allowed a scenario wherein "[i]f excellent
relations exist among the partners at the start of the business and all the
partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible."31 But in the situation in the case at bar, the deferment, if any,
had gone on too long to be plausible. A person is presumed to take ordinary
care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00
capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third place, it
does not appear that she has even demanded from defendant any
accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have done; all that she
did was to receive her share of P3,000.00 a month, which cannot be
interpreted in any manner than a payment for the use of the premises
which she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer as
the real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his
lifetime, Tan Eng Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of
these documents was questioned by petitioners, to the extent that they
filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence.
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages
of an employee. In connection therewith, Article 1769 of the Civil Code
provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is
a prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee
was only an employee, not a partner. Even if the payrolls as evidence were
discarded, petitioners would still be back to square one, so to speak, since
they did not present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share in the profits of
the enterprise. Petitioners failed to show how much their father, Tan Eng
Kee, received, if any, as his share in the profits of Benguet Lumber Company
for any particular period. Hence, they failed to prove that Tan Eng Kee and
Tan Eng Lay intended to divide the profits of the business between
themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay
and Tan Eng Kee were commanding the employees; that both were
supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to the
suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet
Lumber Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee,
were indicative of his being a partner in Benguet Lumber for the
following reasons:
(i) even a mere supervisor in a company, factory or store gives orders
and directions to his subordinates. So long, therefore, that an
employee's position is higher in rank, it is not unusual that he orders
around those lower in rank.
(ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials from suppliers
for and in behalf of Benguet Lumber. Furthermore, even a partner does
not necessarily have to perform this particular task. It is, thus, not an
indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng
Lay. Naturally, close personal relations existed between them.
Whatever privileges Tan Eng Lay gave his brother, and which were not
given the other employees, only proves the kindness and generosity of
Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan
Eng Lay in connection with the pricing of stocks, this does not
adequately prove the existence of a partnership relation between
them. Even highly confidential employees and the owners of a
company sometimes argue with respect to certain matters which, in no
way indicates that they are partners as to each other. 35
In the instant case, we find private respondent's arguments to be welltaken. Where circumstances taken singly may be inadequate to prove the
intent to form a partnership, nevertheless, the collective effect of these
circumstances may be such as to support a finding of the existence of the
parties' intent.36 Yet, in the case at bench, even the aforesaid circumstances
when taken together are not persuasive indicia of a partnership. They only
tend to show that Tan Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot discount the likelihood
that as a member of the family, he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties otherwise unavailable were he
not kin, such as his residence in the Benguet Lumber Company compound.
He would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the conclusion
desired; these are not inconsistent with the powers and duties of a
manager, even in a business organized and run as informally as Benguet
Lumber Company.
There being no partnership, it follows that there is no dissolution, winding
up or liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of


the Court of Appeals is herebyAFFIRMED in toto. No pronouncement as to
costs.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.

II.B. 3.C. Employment


Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION

G.R. No. L-72654-61 January 22, 1990


ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE
BAUTU, JAIME BARBIN, NICANOR FRANCISCO, PHILIP CERVANTES
and
ELEUTERIO
BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN
FISHING ENTERPRISES and/or ARSENIO DE GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.

FERNAN, C.J.:

The issue to be resolved in the instant case is whether or not the fishermencrew members of the trawl fishing vessel 7/B Sandyman II are employees of
its owner-operator, De Guzman Fishing Enterprises, and if so, whether or not
they were illegally dismissed from their employment.
Records show that the petitioners were the fishermen-crew members of 7/B
Sandyman II, one of several fishing vessels owned and operated by private
respondent De Guzman Fishing Enterprises which is primarily engaged in
the fishing business with port and office at Camaligan, Camarines Sur.
Petitioners rendered service aboard said fishing vessel in various capacities,
as follows: Alipio Ruga and Jose Parma patron/pilot; Eladio Calderon, chief
engineer; Laurente Bautu, second engineer; Jaime Barbin, master
fisherman; Nicanor Francisco, second fisherman; Philip Cervantes and
Eleuterio Barbin, fishermen.
For services rendered in the conduct of private respondent's regular
business of "trawl" fishing, petitioners were paid on percentage commission
basis in cash by one Mrs. Pilar de Guzman, cashier of private respondent. As
agreed upon, they received thirteen percent (13%) of the proceeds of the
sale of the fish-catch if the total proceeds exceeded the cost of crude oil
consumed during the fishing trip, otherwise, they received ten percent
(10%) of the total proceeds of the sale. The patron/pilot, chief engineer and
master fisherman received a minimum income of P350.00 per week while
the assistant engineer, second fisherman, and fisherman-winchman
received a minimum income of P260.00 per week. 1
On September 11, 1983 upon arrival at the fishing port, petitioners were
told by Jorge de Guzman, president of private respondent, to proceed to the
police station at Camaligan, Camarines Sur, for investigation on the report
that they sold some of their fish-catch at midsea to the prejudice of private
respondent. Petitioners denied the charge claiming that the same was a
countermove to their having formed a labor union and becoming members
of Defender of Industrial Agricultural Labor Organizations and General
Workers Union (DIALOGWU) on September 3, 1983.
During the investigation, no witnesses were presented to prove the charge
against petitioners, and no criminal charges were formally filed against
them. Notwithstanding, private respondent refused to allow petitioners to

return to the fishing vessel to resume their work on the same day,
September 11, 1983.
On September 22, 1983, petitioners individually filed their complaints for
illegal dismissal and non-payment of 13th month pay, emergency cost of
living allowance and service incentive pay, with the then Ministry (now
Department) of Labor and Employment, Regional Arbitration Branch No. V,
Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They
uniformly contended that they were arbitrarily dismissed without being
given ample time to look for a new job.
On October 24, 1983, private respondent, thru its operations manager,
Conrado S. de Guzman, submitted its position paper denying the employeremployee relationship between private respondent and petitioners on the
theory that private respondent and petitioners were engaged in a joint
venture. 3
After the parties failed to reach an amicable settlement, the Labor Arbiter
scheduled the case for joint hearing furnishing the parties with notice and
summons. On December 27, 1983, after two (2) previously scheduled joint
hearings were postponed due to the absence of private respondent, one of
the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II,
testified, among others, on the manner the fishing operations were
conducted, mode of payment of compensation for services rendered by the
fishermen-crew members, and the circumstances leading to their
dismissal. 4
On March 31, 1984, after the case was submitted for resolution, Labor
Arbiter Asisclo S. Coralde rendered a joint decision 5 dismissing all the
complaints of petitioners on a finding that a "joint fishing venture" and not
one of employer-employee relationship existed between private respondent
and petitioners.
From the adverse decision against them, petitioners appealed to the
National Labor Relations Commission.
On May 30, 1985, the National Labor Relations Commission promulgated its
resolution 6 affirming the decision of the labor arbiter that a "joint fishing
venture" relationship existed between private respondent and petitioners.

Hence, the instant petition.


Petitioners assail the ruling of the public respondent NLRC that what exists
between private respondent and petitioners is a joint venture arrangement
and not an employer-employee relationship. To stress that there is an
employer-employee relationship between them and private respondent,
petitioners invite attention to the following: that they were directly hired by
private respondent through its general manager, Arsenio de Guzman, and
its operations manager, Conrado de Guzman; that, except for Laurente
Bautu, they had been employed by private respondent from 8 to 15 years in
various capacities; that private respondent, through its operations manager,
supervised and controlled the conduct of their fishing operations as to the
fixing of the schedule of the fishing trips, the direction of the fishing vessel,
the volume or number of tubes of the fish-catch the time to return to the
fishing port, which were communicated to the patron/pilot by radio (single
side band); that they were not allowed to join other outfits even the other
vessels owned by private respondent without the permission of the
operations manager; that they were compensated on percentage
commission basis of the gross sales of the fish-catch which were delivered
to them in cash by private respondent's cashier, Mrs. Pilar de Guzman; and
that they have to follow company policies, rules and regulations imposed on
them by private respondent.
Disputing the finding of public respondent that a "joint fishing venture"
exists between private respondent and petitioners, petitioners claim that
public respondent exceeded its jurisdiction and/or abused its discretion
when it added facts not contained in the records when it stated that the
pilot-crew members do not receive compensation from the boat-owners
except their share in the catch produced by their own efforts; that public
respondent ignored the evidence of petitioners that private respondent
controlled the fishing operations; that public respondent did not take into
account established jurisprudence that the relationship between the fishing
boat operators and their crew is one of direct employer and employee.
Aside from seeking the dismissal of the petition on the ground that the
decision of the labor arbiter is now final and executory for failure of
petitioners to file their appeal with the NLRC within 10 calendar days from
receipt of said decision pursuant to the doctrine laid down in Vir-Jen
Shipping and Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the

Solicitor General claims that the ruling of public respondent that a "joint
fishing venture" exists between private respondent and petitioners rests on
the resolution of the Social Security System (SSS) in a 1968 case, Case No.
708 (De Guzman Fishing Enterprises vs. SSS), exempting De Guzman Fishing
Enterprises, private respondent herein, from compulsory coverage of the
SSS on the ground that there is no employer-employee relations between
the boat-owner and the fishermen-crew members following the doctrine laid
down inPajarillo vs. SSS, 17 SCRA 1014 (1966). In applying to the case at
bar the doctrine in Pajarillo vs. SSS, supra, that there is no employeremployee relationship between the boat-owner and the pilot and crew
members when the boat-owner supplies the boat and equipment while the
pilot and crew members contribute the corresponding labor and the parties
get specific shares in the catch for their respective contribution to the
venture, the Solicitor General pointed out that the boat-owners in
the Pajarillo case, as in the case at bar, did not control the conduct of the
fishing operations and the pilot and crew members shared in the catch.
We rule in favor of petitioners.
Fundamental considerations of substantial justice persuade Us to decide the
instant case on the merits rather than to dismiss it on a mere technicality. In
so doing, we exercise the prerogative accorded to this Court enunciated
in Firestone Filipinas Employees Association, et al. vs. Firestone Tire and
Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the wellsettled doctrine is that in labor cases before this Tribunal, no undue
sympathy is to be accorded to any claim of a procedural misstep, the idea
being that its power be exercised according to justice and equity and
substantial merits of the controversy."
Circumstances peculiar to some extent to fishermen-crew members of a
fishing vessel regularly engaged in trawl fishing, as in the case of petitioners
herein, who spend one (1) whole week or more 7 in the open sea performing
their job to earn a living to support their families, convince Us to adopt a
more liberal attitude in applying to petitioners the 10-calendar day rule in
the filing of appeals with the NLRC from the decision of the labor arbiter.
Records reveal that petitioners were informed of the labor arbiter's decision
of March 31, 1984 only on July 3,1984 by their non-lawyer representative
during the arbitration proceedings, Jose Dialogo who received the decision

eight (8) days earlier, or on June 25, 1984. As adverted to earlier, the
circumstances peculiar to petitioners' occupation as fishermen-crew
members, who during the pendency of the case understandably have to
earn a living by seeking employment elsewhere, impress upon Us that in the
ordinary course of events, the information as to the adverse decision
against them would not reach them within such time frame as would allow
them to faithfully abide by the 10-calendar day appeal period. This peculiar
circumstance and the fact that their representative is a non-lawyer provide
equitable justification to conclude that there is substantial compliance with
the ten-calendar day rule of filing of appeals with the NLRC when petitioners
filed on July 10, 1984, or seven (7) days after receipt of the decision, their
appeal with the NLRC through registered mail.
We have consistently ruled that in determining the existence of an
employer-employee relationship, the elements that are generally considered
are the following (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee with respect to the means and methods by which
the work is to be accomplished. 8 The employment relation arises from
contract of hire, express or implied. 9 In the absence of hiring, no actual
employer-employee relation could exist.
From the four (4) elements mentioned, We have generally relied on the socalled right-of-control test 10 where the person for whom the services are
performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end. The test calls merely for
the existence of the right to control the manner of doing the work, not the
actual exercise of the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public respondent as
authority for the ruling that a "joint fishing venture" existed between private
respondent and petitioners is not applicable in the instant case. There is
neither light of control nor actual exercise of such right on the part of the
boat-owners in the Pajarillo case, where the Court found that the pilots
therein are not under the order of the boat-owners as regards their
employment; that they go out to sea not upon directions of the boatowners, but upon their own volition as to when, how long and where to go
fishing; that the boat-owners do not in any way control the crew-members
with whom the former have no relationship whatsoever; that they simply

join every trip for which the pilots allow them, without any reference to the
owners of the vessel; and that they only share in their own catch produced
by their own efforts.
The aforementioned circumstances obtaining in Pajarillo case do not exist in
the instant case. The conduct of the fishing operations was undisputably
shown by the testimony of Alipio Ruga, the patron/pilot of 7/B Sandyman II,
to be under the control and supervision of private respondent's operations
manager. Matters dealing on the fixing of the schedule of the fishing trip
and the time to return to the fishing port were shown to be the prerogative
of private respondent. 12 While performing the fishing operations, petitioners
received instructions via a single-side band radio from private respondent's
operations manager who called the patron/pilot in the morning. They are
told to report their activities, their position, and the number of tubes of fishcatch in one day. 13 Clearly thus, the conduct of the fishing operations was
monitored by private respondent thru the patron/pilot of 7/B Sandyman II
who is responsible for disseminating the instructions to the crew members.
The conclusion of public respondent that there had been no change in the
situation of the parties since 1968 when De Guzman Fishing Enterprises,
private respondent herein, obtained a favorable judgment in Case No. 708
exempting it from compulsory coverage of the SSS law is not supported by
evidence on record. It was erroneous for public respondent to apply the
factual situation of the parties in the 1968 case to the instant case in the
light of the changes in the conditions of employment agreed upon by the
private respondent and petitioners as discussed earlier.
Records show that in the instant case, as distinguished from
the Pajarillo case where the crew members are under no obligation to
remain in the outfit for any definite period as one can be the crew member
of an outfit for one day and be the member of the crew of another vessel
the next day, the herein petitioners, on the other hand, were directly hired
by private respondent, through its general manager, Arsenio de Guzman,
and its operations manager, Conrado de Guzman and have been under the
employ of private respondent for a period of 8-15 years in various
capacities, except for Laurente Bautu who was hired on August 3, 1983 as
assistant engineer. Petitioner Alipio Ruga was hired on September 29, 1974
as patron/captain of the fishing vessel; Eladio Calderon started as a
mechanic on April 16, 1968 until he was promoted as chief engineer of the

fishing vessel; Jose Parma was employed on September 29, 1974 as


assistant engineer; Jaime Barbin started as a pilot of the motor boat until he
was transferred as a master fisherman to the fishing vessel 7/B Sandyman
II; Philip Cervantes was hired as winchman on August 1, 1972 while
Eleuterio Barbin was hired as winchman on April 15, 1976.
While tenure or length of employment is not considered as the test of
employment, nevertheless the hiring of petitioners to perform work which is
necessary or desirable in the usual business or trade of private respondent
for a period of 8-15 years since 1968 qualify them as regular employees
within the meaning of Article 281 of the Labor Code as they were indeed
engaged to perform activities usually necessary or desirable in the usual
fishing business or occupation of private respondent. 14
Aside from performing activities usually necessary and desirable in the
business of private respondent, it must be noted that petitioners received
compensation on a percentage commission based on the gross sale of the
fish-catch i.e. 13% of the proceeds of the sale if the total proceeds exceeded
the cost of the crude oil consumed during the fishing trip, otherwise only
10% of the proceeds of the sale. Such compensation falls within the scope
and meaning of the term "wage" as defined under Article 97(f) of the Labor
Code, thus:
(f) "Wage" paid to any employee shall mean the remuneration or
earnings, however designated, capable of being expressed in
terms of money, whether fixed or ascertained on a time, task,
piece or commission basis, or other method of calculating the
same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to
be done, or for services rendered or to be rendered, and included
the fair and reasonable value, as determined by the Secretary of
Labor, of board, lodging, or other facilities customarily furnished
by the employer to the employee. . . .
The claim of private respondent, which was given credence by public
respondent, that petitioners get paid in the form of share in the fish-catch
which the patron/pilot as head of the team distributes to his crew members
in accordance with their own understanding 15 is not supported by recorded
evidence. Except that such claim appears as an allegation in private

respondent's position paper, there is nothing in the records showing such a


sharing scheme as preferred by private respondent.
Furthermore, the fact that on mere suspicion based on the reports that
petitioners allegedly sold their fish-catch at midsea without the knowledge
and consent of private respondent, petitioners were unjustifiably not
allowed to board the fishing vessel on September 11, 1983 to resume their
activities without giving them the opportunity to air their side on the
accusation against them unmistakably reveals the disciplinary power
exercised by private respondent over them and the corresponding sanction
imposed in case of violation of any of its rules and regulations. The virtual
dismissal of petitioners from their employment was characterized by undue
haste when less extreme measures consistent with the requirements of due
process should have been first exhausted. In that sense, the dismissal of
petitioners was tainted with illegality.
Even on the assumption that petitioners indeed sold the fish-catch at
midsea the act of private respondent virtually resulting in their dismissal
evidently contradicts private respondent's theory of "joint fishing venture"
between the parties herein. A joint venture, including partnership,
presupposes generally a parity of standingbetween the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital
or property contributed 16 and where each party exercises equal lights in the
conduct of the business. 17 It would be inconsistent with the principle of
parity of standing between the joint co-venturers as regards the conduct of
business, if private respondent would outrightly exclude petitioners from the
conduct of the business without first resorting to other measures consistent
with the nature of a joint venture undertaking, Instead of arbitrary unilateral
action, private respondent should have discussed with an open mind the
advantages and disadvantages of petitioners' action with its joint coventurers if indeed there is a "joint fishing venture" between the parties. But
this was not done in the instant case. Petitioners were arbitrarily dismissed
notwithstanding that no criminal complaints were filed against them. The
lame excuse of private respondent that the non-filing of the criminal
complaints against petitioners was for humanitarian reasons will not help its
cause either.
We have examined the jurisprudence on the matter and find the same to be
supportive of petitioners' stand. InNegre vs. WCC 135 SCRA 653 (1985), we

held that fishermen crew members who were recruited by one master
fisherman locally known as "maestro" in charge of recruiting others to
complete the crew members are considered employees, not industrial
partners, of the boat-owners. In an earlier case of Abong vs. WCC, 54 SCRA
379 (1973) where petitioner therein, Dr. Agustin Abong, owner of the fishing
boat, claimed that he was not the employer of the fishermen crew members
because of an alleged partnership agreement between him, as financier,
and Simplicio Panganiban, as his team leader in charge of recruiting said
fishermen to work for him, we affirmed the finding of the WCC that there
existed an employer-employee relationship between the boat-owner and the
fishermen crew members not only because they worked for and in the
interest of the business of the boat-owner but also because they were
subject to the control, supervision and dismissal of the boat-owner, thru its
agent, Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while
these fishermen crew members were paid in kind, or by "pakiao basis" still
that fact did not alter the character of their relationship with Dr. Abong as
employees of the latter.
In Philippine Fishing Boat Officers and Engineers Union vs. Court of
Industrial Relations, 112 SCRA 159 (1982), we held that the employeremployee relationship between the crew members and the owners of the
fishing vessels engaged in deep sea fishing is merely suspended during the
time the vessels are drydocked or undergoing repairs or being loaded with
the necessary provisions for the next fishing trip. The said ruling is premised
on the principle that all these activities i.e., drydock, repairs, loading of
necessary provisions, form part of the regular operation of the company
fishing business.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The
questioned resolution of the National Labor Relations Commission dated
May 30,1985 is hereby REVERSED and SET ASIDE. Private respondent is
ordered to reinstate petitioners to their former positions or any equivalent
positions with 3-year backwages and other monetary benefits under the law.
No pronouncement as to costs.
SO ORDERED.
Gutierrez, Jr., Bidin and Corts, JJ., concur.

Feliciano, J., concurs in the result.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 159333

July 31, 2006

ARSENIO
T.
MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION,
PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK
AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision 1 and Resolution2 of the Court of Appeals, dated
January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028,
affirming the ruling3 of the National Labor Relations Commission (NLRC),
which in turn set aside the July 30, 2001 Decision 4 of the labor arbiter. The

labor arbiter declared illegal the dismissal of petitioner from employment


and awarded separation pay, moral and exemplary damages, and attorney's
fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA. It is a
subsidiary of Cellulose Marketing International, a corporation duly organized
under the laws of Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative
Office known as Pacific Forest Resources (Phils.), Inc." 5 with petitioner
Arsenio T. Mendiola (ATM), effective May 1, 1995, "assuming that PacforPhils. is already approved by the Securities and Exchange Commission [SEC]
on the said date."6 The Side Agreement outlines the business relationship of
the parties with regard to the Philippine operations of Pacfor. Private
respondent will establish a Pacfor representative office in the Philippines, to
be known as Pacfor Phils, and petitioner ATM will be its President.
Petitioner's base salary and the overhead expenditures of the company shall
be borne by the representative office and funded by Pacfor/ATM, since
Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent
Pacfor for a license to transact business in the Philippines under the name of
Pacfor or Pacfor Phils.7 In its application, private respondent Pacfor proposed
to establish its representative office in the Philippines with the purpose of
monitoring and coordinating the market activities for paper products. It also
designated petitioner as its resident agent in the Philippines, authorized to
accept summons and processes in all legal proceedings, and all notices
affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised
Operating and Profit Sharing Agreement for the Representative Office
Known as Pacific Forest Resources (Philippines)," 9 where the salary of
petitioner was increased to $78,000 per annum. Both agreements show that
the operational expenses will be borne by the representative office and
funded by all parties "as equal partners," while the profits and commissions
will be shared among them.

In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor,
seeking confirmation of his 50% equity of Pacfor Phils. 10 Private respondent
Pacfor, through William Gleason, its President, replied that petitioner is not a
part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct from PacforUSA. "It's simply a 'theoretical company' with the purpose of dividing the
income 50-50."11 Petitioner presumably knew of this arrangement from the
start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a
joint venture with them. He alleged he would have been better off remaining
as an independent agent or representative of Pacfor-USA as ATM Marketing
Corp.13 Had he known that no joint venture existed, he would not have
allowed Pacfor to take the profitable business of his own company, ATM
Marketing Corp.14 Petitioner raised other issues, such as the rentals of office
furniture, salary of the employees, company car, as well as commissions
allegedly due him. The issues were not resolved, hence, in October 2000,
petitioner wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals, amounting to more than one million
dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other
materials in his or ATM Marketing Corporation's possession that belong to
Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor
also required petitioner to remit more than three hundred thousand-peso
Christmas giveaway fund for clients of Pacfor Phils. 17 Lastly, private
respondent Pacfor withdrew all its offers of settlement and ordered
petitioner to transfer title and turn over to it possession of the service car. 18
Private respondent Pacfor likewise sent letters to its clients in the
Philippines, advising them not to deal with Pacfor Phils. In its letter to
Intercontinental Paper Industries, Inc., dated November 21, 2000, private
respondent Pacfor stated:
Until further notice, please course all inquiries and communications for
Pacific Forest Resources (Philippines) to:

Pacific
200
Tamal
Corte
Madera,
(415)
927
(415) 381 4358 fax

Forest
Plaza,
CA,

Suite
USA
1700

Resources
200
94925
phone

Please do not send any communication to Mr. Arsenio "Boy" T.


Mendiola or to the offices of ATM Marketing Corporation at Room 504,
Concorde Building, Legaspi Village, Makati City, Philippines. 19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR),
dated December 2000, private respondent directed said client "to please
communicate directly with us on any further questions associated with
these payments or any future business. Do not communicate with [Pacfor]
and/or [ATM]."20
Petitioner construed these directives as a severance of the "unregistered
partnership" between him and Pacfor, and the termination of his
employment as resident manager of Pacfor Phils. 21 In a memorandum to the
employees of Pacfor Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the
turnover of all records to them effective December 19, 2000. The
company records were turned over only on January 26, 2001. This
means our jobs with Pacific Forest were terminated effective December
19, 2000. I am concerned about your welfare. I would like to help you
by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor
equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on
a 50/50 basis, Pacfor Phils.' office furniture and equipment and the service
car. He also reiterated his demand for unpaid commissions, and proposed to
offset these with the remaining Christmas giveaway fund in his
possession.23 Furthermore, he did not renew the lease contract with Pulp
and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he
was the signatory to the lease agreement. 24

On February 2, 2001, private respondent Pacfor placed petitioner on


preventive suspension and ordered him to show cause why no disciplinary
action should be taken against him. Private respondent Pacfor charged
petitioner with willful disobedience and serious misconduct for his refusal to
turn over the service car and the Christmas giveaway fund which he applied
to his alleged unpaid commissions. Private respondent also alleged loss of
confidence and gross neglect of duty on the part of petitioner for allegedly
allowing another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile numbers of
Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a competitor
of private respondent.25
Petitioner denied the charges. He reiterated that he considered the import
of Pacfor President William Gleason's letters as a "cessation of his position
and of the existence of Pacfor Phils." He likewise informed private
respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.'
office premises,26 and demanded payment of his separation pay. 27 On
February 15, 2001, petitioner filed his complaint for illegal dismissal,
recovery of separation pay, and payment of attorney's fees with the NLRC. 28
In the meantime, private respondent Pacfor lodged fresh charges against
petitioner. In a memorandum dated March 5, 2001, private respondent
directed petitioner to explain why he should not be disciplined for serious
misconduct and conflict of interest. Private respondent charged petitioner
anew with serious misconduct for the latter's alleged act of fraud and
misrepresentation in authorizing the release of an additional peso salary for
himself, besides the dollar salary agreed upon by the parties. Private
respondent also accused petitioner of disloyalty and representation of
conflicting interests for having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly solicited business for
HEPI from a competitor company of private respondent Pacfor. 29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was
constructive dismissal. By directing petitioner to turn over all office records
and materials, regardless of whether he may have retained copies, private
respondent Pacfor virtually deprived petitioner of his job by the gradual
diminution of his authority as resident manager. Petitioner's position as
resident manager whose duty, among others, was to maintain the security

of its business transactions and communications was rendered meaningless.


The dispositive portion of the decision of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering herein respondents Cellmark AB and Pacific Forest Resources,
Inc., jointly and severally to compensate complainant Arsenio T.
Mendiola separation pay equivalent to at least one month for every
year of service, whichever is higher(sic), as reinstatement is no longer
feasible by reason of the strained relations of the parties equivalent to
five (5) months in the amount of $32,000.00 plus the sum
of P250,000.00; pay complainant the sum ofP500,000.00 as moral and
exemplary damages and ten percent (10%) of the amounts awarded as
and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the
labor arbiter, for lack of jurisdiction and lack of merit. 31 It held there was no
employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an
employee of private respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration. 32
Petitioner was not successful on his appeal to the Court of Appeals. The
appellate court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration 33 of the decision of the Court of
Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and
abused its discretion in rendering judgment against petitioner since
jurisdiction has been acquired over the subject matter of the case as
there exists employer-employee relationship between the parties.

B. The Respondent Court of Appeals committed reversible error and


abused its discretion in ruling that jurisdiction over the subject matter
cannot be waived and may be alleged even for the first time on appeal
or considered by the court motu prop[r]io. 35
The first issue is whether an employer-employee relationship exists between
petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he
formed with private respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner may at the same
time be an employee of the partnership, provided there is such an
agreement, which, in this case, is the "Side Agreement" and the "Revised
Operating and Profit Sharing Agreement." The Court of Appeals denied the
appeal of petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent
contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and
that no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to
the firm capital and of all property that may be acquired thereby and
through the efforts of the members. 36 The property or stock of the
partnership forms a community of goods, a common fund, in which each
party has a proprietary interest.37 In fact, the New Civil Code regards a
partner as a co-owner of specific partnership property. 38 Each partner
possesses a joint interest in the whole of partnership property. If the relation
does not have this feature, it is not one of partnership. 39 This essential
element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and
private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils.
William Gleason, private respondent Pacfor's President established this fact
when he said that Pacfor Phils. is simply a "theoretical company" for the
purpose of dividing the income 50-50. He stressed that petitioner knew of
this arrangement from the very start, having been the one to propose to
private respondent Pacfor the setting up of a representative office, and "not
a branch office" in the Philippines to save on taxes. Thus, the parties in this
case, merely shared profits. This alone does not make a partnership. 40

Besides, a corporation cannot become a member of a partnership in the


absence of express authorization by statute or charter. 41 This doctrine is
based on the following considerations: (1) that the mutual agency between
the partners, whereby the corporation would be bound by the acts of
persons who are not its duly appointed and authorized agents and officers,
would be inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that such an
arrangement would improperly allow corporate property to become subject
to risks not contemplated by the stockholders when they originally invested
in the corporation.42 No such authorization has been proved in the case at
bar.
Be that as it may, we hold that on the basis of the evidence, an employeremployee relationship is present in the case at bar. The elements to
determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the
employee's conduct. The most important element is the employer's control
of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it. 43
In the instant case, all the foregoing elements are present. First, it was
private respondent Pacfor which selected and engaged the services of
petitioner as its resident agent in the Philippines. Second, as stipulated in
their Side Agreement, private respondent Pacfor pays petitioner his salary
amounting to $65,000 per annum which was later increased to $78,000.
Third, private respondent Pacfor holds the power of dismissal, as may be
gleaned through the various memoranda it issued against petitioner, placing
the latter on preventive suspension while charging him with various
offenses, including willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no disciplinary action
should be taken against him.
Lastly and most important, private respondent Pacfor has the power of
control over the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to
the actual exercise thereof. The principal consideration is whether the
employer has the right to control the manner of doing the work, and it is not

the actual exercise of the right by interfering with the work, but the right to
control, which constitutes the test of the existence of an employer-employee
relationship.44 In the case at bar, private respondent Pacfor, as employer,
clearly possesses such right of control. Petitioner, as private respondent
Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts business, and accepts
service on its behalf.
This right of control was exercised by private respondent Pacfor during the
period of November to December 2000, when it directed petitioner to turn
over to it all records of Pacfor Phils.; when it ordered petitioner to remit the
Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it
withdrew all its offers of settlement and ordered petitioner to transfer title
and turn over to it the possession of the service car. It was also during this
period when private respondent Pacfor sent letters to its clients in the
Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR,
advising them not to deal with petitioner and/or Pacfor Phils. In its letter to
DAVCOR, private respondent Pacfor replied to the client's request for an
invoice payment extension, and formulated a revised payment program for
DAVCOR. This is one unmistakable proof that private respondent Pacfor
exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed from
employment.
The evidence shows that when petitioner insisted on his 50% equity in
Pacfor Phils., and would not quit however, private respondent Pacfor began
to systematically deprive petitioner of his duties and benefits to make him
feel that his presence in the company was no longer wanted. First, private
respondent Pacfor directed petitioner to turn over to it all records of Pacfor
Phils. This would certainly make the work of petitioner very difficult, if not
impossible. Second, private respondent Pacfor ordered petitioner to remit
the Christmas giveaway fund intended for clients of Pacfor Phils. Then it
ordered petitioner to transfer title and turn over to it the possession of the
service car. It also advised its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with
petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a
new resident agent for Pacfor Phils.45

Although there is no reduction of the salary of petitioner, constructive


dismissal is still present because continued employment of petitioner is
rendered, at the very least, unreasonable. 46 There is an act of clear
discrimination, insensibility or disdain by the employer that continued
employment may become so unbearable on the part of the employee so as
to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They were
undertaken when petitioner sought clarification from the private respondent
about his supposed 50% equity on Pacfor Phils. Private respondent Pacfor
invokes its rights as an owner. Allegedly, its issuance of the foregoing
directives against petitioner was a valid exercise of management
prerogative. We remind private respondent Pacfor that the exercise of
management prerogative is not absolute. "By its very nature, encompassing
as it could be, management prerogative must be exercised in good faith and
with due regard to the rights of labor verily, with the principles of fair play
at heart and justice in mind." The exercise of management prerogative
cannot be utilized as an implement to circumvent our laws and oppress
employees.48
As resident agent of private respondent corporation, petitioner occupied a
position involving trust and confidence. In the light of the strained relations
between the parties, the full restoration of an employment relationship
based on trust and confidence is no longer possible. He should be awarded
separation pay, in lieu of reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals'
January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003
Resolution, affirming the December 20, 2001 Decision of the National Labor
Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001
Decision of the Labor Arbiter isREINSTATED with the MODIFICATION that
the amount of P250,000.00 representing an alleged increase in petitioner's
salary shall be deducted from the grant of separation pay for lack of
evidence.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.

II. B. 3. F. Lease1
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-12541

August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffsappellants,


vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan,
Yabut,
Eusebio
&
Tiburcio
Augusto Francisco and Julian T. Ocampo for appellee.

for

appellants.

LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon.
Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
defendant's counterclaim. The appeal is prosecuted by plaintiff.

The record discloses that on June 17, 1945, defendant Yang Chiao Seng
wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the formation of
a partnership between them to run and operate a theatre on the premises
occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a
monthly participation of P3,000 payable quarterly in advance within the first
15 days of each quarter, (2) that the partnership shall be for a period of two
years and six months, starting from July 1, 1945 to December 31, 1947, with
the condition that if the land is expropriated or rendered impracticable for
the business, or if the owner constructs a permanent building thereon, or
Mrs. Yulo's right of lease is terminated by the owner, then the partnership
shall be terminated even if the period for which the partnership was agreed
to be established has not yet expired; (3) that Mrs. Yulo is authorized
personally to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of patrons of the
theatre; (4) that after December 31, 1947, all improvements placed by the
partnership shall belong to Mrs. Yulo, but if the partnership agreement is
terminated before the lapse of one and a half years period under any of the
causes mentioned in paragraph (2), then Yang Chiao Seng shall have the
right to remove and take away all improvements that the partnership may
place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties
executed a partnership agreement establishing the "Yang & Company,
Limited," which was to exist from July 1, 1945 to December 31, 1947. It
states that it will conduct and carry on the business of operating a theatre
for the exhibition of motion and talking pictures. The capital is fixed at
P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the
partners in the same proportion as their capital contribution and the liability
of Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh.
"B").
In June , 1946, they executed a supplementary agreement, extending the
partnership for a period of three years beginning January 1, 1948 to
December 31, 1950. The benefits are to be divided between them at the
rate of 50-50 and after December 31, 1950, the showhouse building shall
belong exclusively to the second party, Mrs. Yulo.

The land on which the theatre was constructed was leased by plaintiff Mrs.
Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In
the contract of lease it was stipulated that the lease shall continue for an
indefinite period of time, but that after one year the lease may be cancelled
by either party by written notice to the other party at least 90 days before
the date of cancellation. The last contract was executed between the
owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney
for the owners notified Mrs. Yulo of the owner's desire to cancel the contract
of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her
husband brought a civil action to the Court of First Instance of Manila on July
3, 1949 to declare the lease of the premises. On February 9, 1950, the
Municipal Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First
Instance, the two cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her husband, and
declaring the contract of lease of the premises terminated as of July 31,
1949, and fixing the reasonable monthly rentals of said premises at P100.
Both parties appealed from said decision and the Court of Appeals, on April
30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share
in the profits of the business. Yang answered the letter saying that upon the
advice of his counsel he had to suspend the payment (of the rentals)
because of the pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals
from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has
refused to pay her share from December, 1949 to December, 1950; that
after December 31, 1950 the partnership between Mrs. Yulo and Yang
terminated, as a result of which, plaintiff became the absolute owner of the
building occupied by the Cine Astor; that the reasonable rental that the
defendant should pay therefor from January, 1951 is P5,000; that the
defendant has acted maliciously and refuses to pay the participation of the
plaintiff in the profits of the business amounting to P35,000 from November,

1949 to October, 1950, and that as a result of such bad faith and malice on
the part of the defendant, Mrs. Yulo has suffered damages in the amount of
P160,000 and exemplary damages to the extent of P5,000. The prayer
includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement
between the plaintiff and the defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get around
the prohibition contained in the contract of lease between the owners and
the plaintiff against the sublease of the said property. As to the other claims,
he denies the same and alleges that the fair rental value of the land is only
P1,100. By way of counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the
defendant and thereafter rendered judgment ordering the defendant to pay
to the plaintiff P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building
from January 1, 1951 until defendant vacates the same, and P3,000 for the
use and occupation of the lobby from July 1, 1945 until defendant vacates
the property. This decision, however, was set aside on a motion for
reconsideration. In said motion it is claimed that defendant failed to appear
at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the decision of the Court of
Appeals in two previous cases between the owners of the land and the
plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged
participation in the profit of the business, etc. The court, finding the above
motion, well-founded, set aside its decision and a new trial was held. After
trial the court rendered the decision making the following findings: that it is
not true that a partnership was created between the plaintiff and the
defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership
but one of the lease for the reason that under the agreement the plaintiff
did not share either in the profits or in the losses of the business as required

by Article 1769 of the Civil Code; and that the fact that plaintiff was granted
a "guaranteed participation" in the profits also belies the supposed
existence of a partnership between them. It. therefore, denied plaintiff's
claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use
of the supposed lobby of the theatre, the court after ocular inspection found
that the said lobby was very narrow space leading to the balcony of the
theatre which could not be used for business purposes under existing
ordinances of the City of Manila because it would constitute a hazard and
danger to the patrons of the theatre. The court, therefore, dismissed the
complaint; so did it dismiss the defendant's counterclaim, on the ground
that the defendant failed to present sufficient evidence to sustain the same.
It is against this decision that the appeal has been prosecuted by plaintiff to
this Court.
The first assignment of error imputed to the trial court is its order setting
aside its former decision and allowing a new trial. This assignment of error is
without merit. As that parties agreed to postpone the trial because of a
probable amicable settlement, the plaintiff could not take advantage of
defendant's absence at the time fixed for the hearing. The lower court,
therefore, did not err in setting aside its former judgment. The final result of
the hearing shown by the decision indicates that the setting aside of the
previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower
court erred in not striking out the evidence offered by the defendantappellee to prove that the relation between him and the plaintiff is one of
the sublease and not of partnership. The action of the lower court in
admitting evidence is justified by the express allegation in the defendant's
answer that the agreement set forth in the complaint was one of lease and
not of partnership, and that the partnership formed was adopted in view of
a prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that
the written contracts, Exhs. "A", "B", and "C, between plaintiff and
defendant, are one of lease and not of partnership. We have gone over the
evidence and we fully agree with the conclusion of the trial court that the

agreement was a sublease, not a partnership. The following are the


requisites of partnership: (1) two or more persons who bind themselves to
contribute money, property, or industry to a common fund; (2) intention on
the part of the partners to divide the profits among themselves. (Art. 1767,
Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In
the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has ever demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000 a month, which can
not be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had
always acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or
participation in the business from December, 1949. But the original letter of
the defendant, Exh. "A", expressly states that the agreement between the
plaintiff and the defendant was to end upon the termination of the right of
the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as
found by the Court of Appeals, the partnership agreement or the agreement
for her to receive a participation of P3,000 automatically ceased as of said
date.
We find no error in the judgment of the court below and we affirm it in toto,
with costs against plaintiff-appellant.
Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.