Agency (Full Text)

Cases : Articles 1767-1783

1. Lyons v. Rosentock, 56 Phil 632 (1932)

G.R. No. L-35469

March 17, 1932

E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance of the City of Manila, by E. S.
Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased,
consequent upon the taking of an appeal by the executor from the allowance of the
claim sued upon by the committee on claims in said estate. The purpose of the
action is to recover four hundred forty-six and two thirds shares of the stock of J. K.
Pickering & Co., Ltd., together with the sum of about P125,000, representing the
dividends which accrued on said stock prior to October 21, 1926, with lawful
interest. Upon hearing the cause the trial court absolved the defendant executor
from the complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of
Manila where he was engaged during the years with which we are here concerned in
buying, selling, and administering real estate. In several ventures which he had
made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined
with him, the profits being shared by the two in equal parts. In April, 1919, Lyons,
whose regular vocation was that of a missionary, or missionary agent, of the
Methodist Episcopal Church, went on leave to the United States and was gone for
nearly a year and a half, returning on September 21, 1920. On the eve of his
departure Elser made a written statements showing that Lyons was, at that time,
half owner with Elser of three particular pieces of real property. Concurrently with
this act Lyons execute in favor of Elser a general power of attorney empowering him
to manage and dispose of said properties at will and to represent Lyons fully and
amply, to the mutual advantage of both. During the absence of Lyons two of the
pieces of property above referred to were sold by Elser, leaving in his hands a single
piece of property located at 616-618 Carried Street, in the City of Manila, containing
about 282 square meters of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing
about 1,500,000 square meters, near the City of Manila, and he discerned therein a
fine opportunity for the promotion and development of a suburban improvement.

This property, which will be herein referred to as the San Juan Estate, was offered by
its owners for P570,000. To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and when this option was about to
expire without his having been able to raise the necessary funds, he paid P15,000
more for an extension of the option, with the understanding in both cases that, in
case the option should be exercised, the amounts thus paid should be credited as
part of the first payment. The amounts paid for this option and its extension were
supplied by Elser entirely from his own funds. In the end he was able from his own
means, and with the assistance which he obtained from others, to acquire said
estate. The amount required for the first payment was P150,000, and as Elser had
available only about P120,000, including the P20,000 advanced upon the option, it
was necessary to raise the remainder by obtaining a loan for P50,000. This amount
was finally obtained from a Chinese merchant of the city named Uy Siuliong. This
loan was secured through Uy Cho Yee, a son of the lender; and in order to get the
money it was necessary for Elser not only to give a personal note signed by himself
and his two associates in the projected enterprise, but also by the Fidelity & Surety
Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24,
1920. With this money and what he already had in bank Elser purchased the San
Juan Estate on or about June 28, 1920. For the purpose of the further development
of the property a limited partnership had, about this time, been organized by Elser
and three associates, under the name of J. K. Pickering & Company; and when the
transfer of the property was effected the deed was made directly to this company.
As Elser was the principal capitalist in the enterprise he received by far the greater
number of the shares issued, his portion amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped that
Lyons might be induced to come in with him and supply part of the means necessary
to carry the enterprise through. In this connection it appears that on May 20, 1920,
Elser wrote Lyons a letter, informing him that he had made an offer for a big
subdivision and that, if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option
expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it
advisable for Lyons to resign (Exhibit M-13), meaning that he should resign his
position with the mission board in New York. On the same date he wrote Lyons a
letter explaining some details of the purchase, and added "have advised in my cable
that you resign and I hope you can do so immediately and will come and join me on
the lines we have so often spoken about. . . . There is plenty of business for us all
now and I believe we have started something that will keep us going for some time."
In one or more communications prior to this, Elser had sought to impress Lyons with
the idea that he should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons,
and found him averse from joining in the purchase of the San Juan Estate. In fact
upon this visit of Lyons to the United States a grave doubt had arisen as to whether
he would ever return to Manila, and it was only in the summer of 1920 that the
board of missions of his church prevailed upon him to return to Manila and resume
his position as managing treasurer and one of its trustees. Accordingly, on June 21,
1920, Lyons wrote a letter from New York thanking Elser for his offer to take Lyons

into his new project and adding that from the standpoint of making money, he had
passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to the
resolution to stay out of this venture, was that the board of mission was averse to
his engaging in business activities other than those in which the church was
concerned; and some of Lyons' missionary associates had apparently been criticizing
his independent commercial activities. This fact was dwelt upon in the letter abovementioned. Upon receipt of this letter Elser was of course informed that it would be
out of the question to expect assistance from Lyons in carrying out the San Juan
project. No further efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate,
his book showed that he was indebted to Lyons to the extent of, possibly,
P11,669.72, which had accrued to Lyons from profits and earnings derived from
other properties; and when the J. K. Pickering & Company was organized and stock
issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then
believed that Lyons would be one of his associates in the deal. It will be noted that
the par value of these 200 shares was more than P8,000 in excess of the amount
which Elser in fact owed to Lyons; and when the latter returned to the Philippine
Islands, he accepted these shares and sold them for his own benefit. It seems to be
supposed in the appellant's brief that the transfer of these shares to Lyons by Elser
supplies some sort of basis for the present action, or at least strengthens the
considerations involved in a feature of the case to be presently explained. This view
is manifestly untenable, since the ratification of the transaction by Lyons and the
appropriation by him of the shares which were issued to him leaves no ground
whatever for treating the transaction as a source of further equitable rights in Lyons.
We should perhaps add that after Lyons' return to the Philippine Islands he acted for
a time as one of the members of the board of directors of the J. K. Pickering &
Company, his qualification for this office being derived precisely from the ownership
of these shares.
We now turn to the incident which supplies the main basis of this action. It will be
remembered that, when Elser obtained the loan of P50,000 to complete the amount
needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted
that he should procure the signature of the Fidelity & Surety Co. on the note to be
given for said loan. But before signing the note with Elser and his associates, the
Fidelity & Surety Co. insisted upon having security for the liability thus assumed by
it. To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity
of redemption in the property owned by himself and Lyons on Carriedo Street. This
mortgage was executed on June 30, 1920, at which time Elser expected that Lyons
would come in on the purchase of the San Juan Estate. But when he learned from the
letter from Lyons of July 21, 1920, that the latter had determined not to come into
this deal, Elser began to cast around for means to relieve the Carriedo property of
the encumbrance which he had placed upon it. For this purpose, on September 9,
1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to
substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and
1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as
security. The Fidelity & Surety Co. agreed to the proposition; and on September 15,

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

property acquired partly by that money; and it is insisted for him that, in
consideration of this fact, he is entitled to the four hundred forty-six and two-thirds
shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his
complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained
from Uy Siuliong in the manner already explained had been used to held finance the
purchase of the San Juan Estate. He seems to have supposed that the Carried
property had been mortgaged to aid in putting through another deal, namely, the
purchase of a property referred to in the correspondence as the "Ronquillo property";
and in this connection a letter of Elser of the latter part of May, 1920, can be quoted
in which he uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo
property. Will use part of the money for Ronquillo buy (P60,000) if the
owner comes through.
Other correspondence shows that Elser had apparently been trying to buy the
Ronquillo property, and Lyons leads us to infer that he thought that the money
obtained by mortgaging the Carriedo property had been used in the purchase of this
property. It doubtedless appeared so to him in the retrospect, but certain
consideration show that he was inattentive to the contents of the quotation from the
letter above given. He had already been informed that, although Elser was angling
for the Ronquillo property, its price had gone up, thus introducing a doubt as to
whether he could get it; and the quotation above given shows that the intended use
of the money obtained by mortgaging the Carriedo property was that only part of
the P50,000 thus obtained would be used in this way, if the deal went through.
Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries
would have been, if he did not know before, what was the status of the proposed
trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled
Lyons something to this effect;: "I have mortgaged the property on Carriedo Street,
secured by my personal note. You are amply protected. I wish you to join me in the
San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram
was received by him, and we consider this point of fact of little moment, since the
proof shows that Lyons knew that the Carriedo mortgage had been executed, and
after his arrival in Manila he consented for the mortgage to remain on the property
until it was paid off, as shortly occurred. It may well be that Lyons did not at first
clearly understand all the ramifications of the situation, but he knew enough, we
think, to apprise him of the material factors in the situation, and we concur in the
conclusion of the trial court that Elser did not act in bad faith and was guilty of no
fraud.
In the purely legal aspect of the case, the position of the appellant is, in our opinion,
untenable. If Elser had used any money actually belonging to Lyons in this deal, he
would under article 1724 of the Civil Code and article 264 of the Code of Commerce,
be obligated to pay interest upon the money so applied to his own use. Under the

law prevailing in this jurisdiction a trust does not ordinarily attach with respect to
property acquired by a person who uses money belonging to another
(Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if
an actual relation of partnership had existed in the money used, the case might be
difference; and much emphasis is laid in the appellant's brief upon the relation of
partnership which, it is claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the
San Juan Estate, was not acting for any partnership composed of himself and Lyons,
and the law cannot be distorted into a proposition which would make Lyons a
participant in this deal contrary to his express determination.
It seems to be supposed that the doctrines of equity worked out in the jurisprudence
of England and the United States with reference to trust supply a basis for this
action. The doctrines referred to operate, however, only where money belonging to
one person is used by another for the acquisition of property which should belong to
both; and it takes but little discernment to see that the situation here involved is not
one for the application of that doctrine, for no money belonging to Lyons or any
partnership composed of Elser and Lyons was in fact used by Elser in the purchase
of the San Juan Estate. Of course, if any damage had been caused to Lyons by the
placing of the mortgage upon the equity of redemption in the Carriedo property,
Elser's estate would be liable for such damage. But it is evident that Lyons was not
prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of
Lyons upon matters that passed between him and Elser while the latter was still
alive. While the admission of this testimony was of questionable propriety, any error
made by the trial court on this point was error without injury, and the determination
of the question is not necessary to this decision. We therefore pass the point without
further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against
the appellant.
Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.

2. Tuazon v. Bolanos, 95 Phil 106 (1954)

G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.

REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon
City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its allegations
conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the
case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and
lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the
plaintiff the amount of P132.62 monthly from January, 1940, until he
vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be brought in the name of, but
not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice
is for an attorney-at-law to bring the action, that is to file the complaint, in the name
of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff"
and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in
the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by
the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon

motion of any party at my time, even of the trial of these issues. If evidence
is objected to at the trial on the ground that it is not within the issues made
by the pleadings, the court may allow the pleadings to be amended and
shall be so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action
or defense upon the merits. The court may grant a continuance to enable
the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief
other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery
is based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually
amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant
later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is
against defendant, for it clearly establishes that plaintiff is the registered owner of
lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer
certificate of title No. 37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under original certificate of title No.
735. The identity of the lots was established by the testimony of Antonio Manahan
and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof
claimed by defendant was established by the testimony of his own witness, Quirico
Feria. The combined testimony of these three witnesses clearly shows that the
portion claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in
defendant's answer to the third amended complaint.

be collaterally attacked by any person claiming title to, or interest in, the land prior
to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed
by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribed. (Francisco vs. Cruz,
43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the
hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should
therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and
witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already
been filed against defendant. And it cannot be supposed that defendant has been
paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and
notorious possession and under claim of ownership adverse to the entire world by
defendant and his predecessors in interest.' This assignment of error is thus clearly
without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has
filed a motion to dismiss alleging that there is pending before the Court of First
Instance of Rizal another action between the same parties and for the same cause
and seeking to sustain that allegation with a copy of the complaint filed in said
action. But an examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action in the two suits
does not appear. That other case is one for recovery of ownership, while the present
one is for recovery of possession. And while appellant claims that he is also involved
in that order action because it is a class suit, the complaint does not show that such
is really the case. On the contrary, it appears that the action seeks relief for each
individual plaintiff and not relief for and on behalf of others. The motion for dismissal
is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and
Concepcion, JJ., concur.

3. Lim Tong Lim vs. Phil. Fishing. 317 SCRA 728 (1999)
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,
INC., respondent.
DECISION

b. 12% interest per annum counted from date of plaintiffs invoices and computed on
their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;

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

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November
26, 1998 Decision of the Court of Appeals in CA-GR CV 41477, [1] which disposed as
follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the
nets counted from September 20, 1990 (date of attachment) to September 12, 1991
(date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public auction for
not less than P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect,
the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff until full payment [was] made as stipulated
in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for
this reason also that this Court earlier ordered the attachment bond filed by plaintiff
to guaranty damages to defendants to be cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats.Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are hereby relieved

from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.
SO ORDERED. [3]
The Facts

nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of

ownership of fishing boats; (d) an injunction and (e) damages. [10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold
in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall
be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The
total price of the nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.[4]

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong
Lim with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that Ocean Quest
Fishing Corporation was a nonexistent corporation as shown by a Certification from
the Securities and Exchange Commission.[5]On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.

The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss.[12]

Instead of answering the Complaint, Chua filed a Manifestation admitting his

liability and requesting a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.
[6]
The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds
of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. [8]

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed
the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua
and Yao in a fishing business and may thus be held liable as a such for the fishing
nets and floats purchased by and for the use of the partnership. The appellate court
ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing
x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code). [13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues

The trial court ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three [9] in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of

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

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE

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

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;

This Courts Ruling

The Petition is devoid of merit.

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

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady
Anne Mel and Yaos FB Tracy to Lim Tong Lim.

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

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.

We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners
brother. In their Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.

Article 1767 - By the contract of partnership, two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:[15]

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch
72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity
of commercial documents; (b) reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

Moreover, it is clear that the partnership extended not only to the purchase of
the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua
and Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and the
CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. [16] In assailing the factual findings of
the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.

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

Compromise Agreement Not the Sole Basis of Partnership

Corporation by Estoppel

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

We are not convinced by petitioners argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B Lourdes where the nets were
found.

Petitioner argues that under the doctrine of corporation by estoppel, liability

can be imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate existence. The
reason behind this doctrine is obvious - an unincorporated association has no
personality and would be incompetent to act and appropriate for itself the power
and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting or purporting to act on

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

is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot and
academic. As previously discussed, F/B Lourdes was an asset of the partnership and
that it was placed in the name of petitioner, only to assure payment of the debt he
and his partners owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used in the fishing
venture they agreed upon. Hence, the issuance of the Writ to assure the payment of
the price stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE,
the
Petition
Decision AFFIRMED. Costs against petitioner.

is DENIED and

the

assailed

SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., Pls. see concurring opinion.

4. Litonjua v. LitonjuaG.R. Nos. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR.,
Petitioner,

G.R. NOS. 166299-300

- versus
EDUARDO K. LITONJUA, SR., ROBERT T. YANG,
ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM
GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO.,
INC., LITONJUA SECURITIES, INC. (formerly E. K.
Litonjua Sec), LUNETA THEATER, INC., E & L REALTY,
(formerly E & L INTL SHIPPING CORP.), FNP CO.,
INC., HOME ENTERPRISES, INC., BEAUMONT DEV.
REALTY CO., INC., GLOED LAND CORP., EQUITY
TRADING CO., INC., 3D CORP., L DEV. CORP, LCM

Present:
PANGANIBAN, J., Chairman
SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES and
GARCIA, JJ.
Promulgated:

10

THEATRICAL ENTERPRISES, INC., LITONJUA

SHIPPING CO. INC., MACOIL INC., ODEON REALTY
CORP., SARATOGA REALTY, INC., ACT THEATER INC.
December 13, 2005
(formerly General Theatrical & Film Exchange, INC.),
AVENUE REALTY, INC., AVENUE THEATER, INC. and
LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),
Respondents.
x-------------------------------------------------x
DECISION
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.

made an integral part as Annex A and the portion referring to

[Aurelio] submarked as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that
in consideration of [Aurelios] retaining his share in the remaining
family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.

dated March 31, 2004[1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R.

4.02 In addition . . . the joint venture/partnership had also acquired

[various other assets], but Eduardo caused to be registered in the
names of other parties.

SP. No 78774 and its Resolution dated December 07, 2004, [2] denying petitioners

xxx xxx xxx

Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA)

motion for reconsideration.

4.04 The substantial assets of most of the corporate defendants

consist of real properties . A list of some of these real properties is
attached hereto and made an integral part as Annex B.
xxx xxx xxx

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on
December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit
against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his complaint,

[3]

as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,

docketed
[4]

Aurelio

alleged that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of

5.02 Sometime in 1992, the relations between [Aurelio] and

Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang],
are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud
of [Aurelio]. In consequence, [Aurelio] is therefore causing at this
time the annotation on the titles of these real properties a notice
of lis pendens . (Emphasis in the original; underscoring and words
in bracket added.)

Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioners and Eduardos
partner in their Odeon Theater investment. [5] The same complaint also contained the
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into
a joint venture/partnership for the continuation of their family
business and common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in
a memorandum addressed by Eduardo to his siblings, parents and
other relatives. Copy of this memorandum is attached hereto and

For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have
been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow
the pattern . You will be the only one left with the company,
among us brothers and I will ask you to stay as I want you to run

11

this office every time I am away. I want you to run it the way I am
trying to run it because I will be all alone and I will depend entirely
to you (sic). My sons will not be ready to help me yet until about
maybe 15/20 years from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION PESOS (P1,000,000.00)
or ten percent (10%) equity, whichever is greater. We two will
gamble the whole thing of what I have and what you are entitled
to. . It will be you and me alone on this. If ever I pass away, I want
you to take care of all of this. You keep my share for my two sons
are ready take over but give them the chance to run the company
which I have built.

Acting on the separate motions immediately adverted to above, the trial

court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses
and, except for Yang, set the case for pre-trial on April 10, 2003. [11]

In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration[12] and Yangs motion to dismiss. The

xxx xxx xxx

following then transpired insofar as Yang is concerned:

Because you will need a place to stay, I will arrange to give you
first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or
asset, like Lt. Artiaga so you can live better there. The rest I will
give you in form of stocks which you can keep. This stock I assure
you is good and saleable. I will also gladly give you the share of
Wack-Wack and Valley Golf because you have been good. The rest
will be in stocks from all the corporations which I repeat, ten
percent (10%) equity. [6]

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the
right to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his
failed motion to dismiss[13] to its full resolution.

On December 20, 2002, Eduardo and the corporate respondents, as defendants a

quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of

April 2, 2003, but his motion was denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
78774,[15] to nullify the separate orders of the trial court, the first denying his
motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.

material allegations of the complaint, more particularly that portion thereof

depicting petitioner and Eduardo as having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter,
alleged that the complaint states no cause of action, since no cause of action may
be derived from the actionable document, i.e., Annex A-1, being void under the
terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further

Earlier, Eduardo and the corporate defendants, on the contention that

grave abuse of discretion and injudicious haste attended the issuance of the trial
courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought
relief from the CA via similar recourse. Their petition for certiorari was docketed
as CA G.R. SP No. 76987.

alleged that whatever undertaking Eduardo agreed to do, if any, under Annex A1, are unenforceable under the provisions of the Statute of Frauds.[7]

Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered
the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.

For his part, Yang - who was served with summons long after the other defendants
submitted their answer moved to dismiss on the ground, inter alia, that, as to him,
petitioner has no cause of action and the complaint does not state any. [8] Petitioner
opposed this motion to dismiss.

Following the submission by the parties of their respective Memoranda of

Authorities, the appellate court came out with the herein assailed Decision dated
March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein,
disposing as follows:

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.
[9]

To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the

Case for Pre-trial.[10]

WHEREFORE, judgment is hereby rendered granting the

issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the
court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003
and the complaint filed by private respondent [now petitioner

12

Aurelio] against all the petitioners [now herein respondents

Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket
added.)

common fund with the intention of dividing the profits among themselves. [21] A
joint venture, on the other hand, is hardly distinguishable from, and may be
likened to, a partnership since their elements are similar, i.e., community of

Explaining its case disposition, the appellate court stated, inter alia, that the alleged

interests in the business and sharing of profits and losses. Being a form of

partnership, as evidenced by the actionable documents, Annex A and A-1 attached

partnership, a joint venture is generally governed by the law on partnership. [22]

to the complaint, and upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is void or legally
inexistent.
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004.

The underlying issue that necessarily comes to mind in this proceedings is

whether or not petitioner and respondent Eduardo are partners in the theatre,

[18]

shipping and realty business, as one claims but which the other denies. And the
issue bearing on the first assigned error relates to the question of what legal
provision is applicable under the premises, petitioner seeking, as it were, to enforce

Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument and
immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action
against [respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded cause
of action by another legal perspective/argument.

The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his complaint in

the trial court, is for delivery or payment to him, as Eduardos and Yangs partner,
of his partnership/joint venture share, after an accounting has been duly

the actionable document - Annex A-1 - which he depicts in his complaint to be the
contract of partnership/joint venture between himself and Eduardo. Clearly, then, a
look at the legal provisions determinative of the existence, or defining the formal
requisites, of a partnership is indicated. Foremost of these are the following
provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is
not made, signed by the parties, and attached to the public
instrument.

conducted of what he deems to be partnership/joint venture property. [19]

Annex A-1, on its face, contains typewritten entries, personal in tone, but is
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding
that there shall be a proportionate sharing of the profits and losses between them.
[20]

A contract of partnership is defined by the Civil Code as one where two or more

persons bound themselves to contribute money, property, or industry to a

unsigned and undated. As an unsigned document, there can be no quibbling that

Annex A-1does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property, Annex A-1 cannot
be presented for notarization, let alone registered with the Securities and Exchange

13

Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch

formation of the supposed partnership. Needless to stress, the Court cannot accord

as the inventory requirement under the succeeding Article 1773 goes into the

cogency to this specious argument. For, as earlier stated, petitioner himself

matter of validity when immovable property is contributed to the partnership, the

admitted contributing his share in the supposed shipping, movie theatres and realty

next logical point of inquiry turns on the nature of petitioners contribution, if any, to

development family businesses which already owned immovables even before

the supposed partnership.

Annex A-1 was allegedly executed.

The CA, addressing the foregoing query, correctly stated that petitioners
contribution consisted of immovables and real rights. Wrote that court:

Annex A-1 the legal effects that petitioner so desires and pleads to be given.

A further examination of the allegations in the complaint

would show that [petitioners] contribution to the so-called
partnership/joint venture was his supposed share in the family
business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other
words, his contribution as a partner in the alleged partnership/joint
venture consisted of immovable properties and real rights. .[23]
Significantly

enough,

petitioner

matter-of-factly

concurred

Considering thus the value and nature of petitioners alleged contribution to

the purported partnership, the Court, even if so disposed, cannot plausibly extend

with

Annex A-1, in fine, cannot support the existence of the partnership sued upon and
sought to be enforced. The legal and factual milieu of the case calls for this
disposition. A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership has a capital
the

appellate courts observation that, prescinding from what he himself alleged in his
basic complaint, his contribution to the partnership consisted of his share in the
Litonjua family businesses which owned variable immovable properties. Petitioners

of at least P3,000.00, in which case a public instrument shall be necessary. [25] And if
only to stress what has repeatedly been articulated, 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 it.

assertion in his motion for reconsideration [24] of the CAs decision, that what was to
be contributed to the business [of the partnership] was [petitioners] industry and his
share in the family [theatre and land development] business leaves no room for
speculation as to what petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under

Article 1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership. In short, it is really of no moment which of the
partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that real
property was contributed, in which case an inventory of the contributed property
duly signed by the parties should be attached to the public instrument, else there is
legally no partnership to speak of.

Given the foregoing perspective, what the appellate court wrote in its
assailed Decision[26] about the probative value and legal effect of Annex A1 commends itself for concurrence:
Considering that the allegations in the complaint showed that
[petitioner] contributed immovable properties to the alleged partnership,
the Memorandum (Annex A of the complaint) which purports to establish
the said partnership/joint venture is NOT a public instrument and there was
NO inventory of the immovable property duly signed by the parties. As
such, the said Memorandum is null and void for purposes of establishing
the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the
purported partnership/joint venture is legally inexistent and it produces no
effect whatsoever. Necessarily, a void or legally inexistent contract cannot
be the source of any contractual or legal right. Accordingly, the allegations
in the complaint, including the actionable document attached thereto,
clearly demonstrates that [petitioner] has NO valid contractual or legal
right which could be violated by the [individual respondents] herein. As a
consequence, [petitioners] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)

Petitioner, in an obvious bid to evade the application of Article 1773, argues

that the immovables in question were not contributed, but were acquired after the

14

Likewise well-taken are the following complementary excerpts from the CAs equally
assailed

Resolution

of December

7, 2004

[27]

denying

petitioners

motion

for

reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto
(Rollo, p. 191), the [trial] court did not appreciate and apply the
legal provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of
[petitioners] complaint, the latter alleged inter alia to have
contributed immovable properties to the alleged partnership but
the actionable document is not a public document and there was
no inventory of immovable properties signed by the parties. Both
the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal
right which could be violated by [respondents]. (Words in bracket
added.)

changing his original theory is an impermissible practice and constitutes, as the CA

aptly declared, an admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of
stance, he has now contended that the actionable instrument may
be considered an innominate contract. xxx Verily, this now
changes [petitioners] theory of the case which is not only
prohibited by the Rules but also is an implied admission that the
very theory he himself has adopted, filed and prosecuted before
the respondent court is erroneous.
Be that as it may . . We hold that this new theory contravenes [petitioners]
theory of the actionable document being a partnership document.
If anything, it is so obvious we do have to test the sufficiency of
the cause of action on the basis of partnership law xxx.
[29]
(Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex A-1 partakes of a perfected
Under the second assigned error, it is petitioners posture that Annex A-1, assuming

innominate contract, petitioners complaint would still be dismissible as against

its inefficacy or nullity as a partnership document, nevertheless created

Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner

demandable rights in his favor. As petitioner succinctly puts it in this

points to Eduardo as the author of Annex A-1. Withal, even on this consideration

petition:

alone, petitioners claim against Yang is doomed from the very start.

43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may
not be a partnership. This actionable contract is what is known as
an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and
which rights and obligations may be enforceable and demandable.
Just because the relationship created by the agreement cannot be
specifically labeled or pigeonholed into a category of nominate
contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and
earlier on the CA after he experienced a reversal of fortune thereat - as an

As it were, the only portion of Annex A-1 which could perhaps be remotely regarded
as vesting petitioner with a right to demand from respondent Eduardo the
observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office everytime I am
away. I want you to run it the way I am trying to run it because I
will be alone and I will depend entirely to you, My sons will not be
ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. (Underscoring added)

afterthought. The appellate court, however, cannot really be faulted for not yielding
to petitioners dubious stratagem of altering his theory of joint venture/partnership to

It is at once apparent that what respondent Eduardo imposed upon himself under

an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction

the above passage, if he indeed wrote Annex A-1, is a promise which is not

was circumscribed by what was alleged to have been the order/s issued by the trial

to be performed within one year from contract execution on June 22, 1973.

court in grave abuse of discretion. As respondent Yang pointedly observed, [28] since

Accordingly, the agreement embodied in Annex A-1 is covered by the

the parties basic position had been well-defined, that of petitioner being that the

Statute of Frauds and ergo unenforceable for non-compliance therewith.

actionable document established a partnership/joint venture, it is on those positions

that the appellate court exercised its certiorari jurisdiction. Petitioners act of

[30]

By force of the statute of frauds, an agreement that by its terms is not to

be performed within a year from the making thereof shall be unenforceable

15

by action, unless the same, or some note or memorandum thereof, be in

writing and subscribed by the party charged. Corollarily, no action can be

document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.

proved unless the requirement exacted by the statute of frauds is complied

with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly promised by Eduardo to give in
the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be
to read something not written in Annex A-1. Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money,

3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are
business partners in the [respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six]
corporate respondents This simply means that the Odeon Theatre business
came before the corporate respondents. Significantly enough, petitioner
refers to the corporate respondents as progeny of the Odeon Theatre
business.[34]

property or industry to a common fund with the intention of dividing the

profits between or among themselves.[32]

Needless to stress, petitioner has not sufficiently established in his complaint the

In sum then, the Court rules, as did the CA, that petitioners complaint for specific

legal vinculum whence he sourced his right to drag Yang into the fray. The Court of

performance anchored on an actionable document of partnership which is legally

Appeals, in its assailed decision, captured and formulated the legal situation in the

inexistent or void or, at best, unenforceable does not state a cause of action as

following wise:

against respondent Eduardo and the corporate defendants. And if no of action can
successfully

be

maintained

against

respondent

Eduardo

because

no

valid

partnership existed between him and petitioner, the Court cannot see its way clear
on how the same action could plausibly prosper against Yang. Surely, Yang could not
have become a partner in, or could not have had any form of business relationship
with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that
would tie Yang to him as his partner. In fact, attendant circumstances would indicate
the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable

[Respondent] Yang, is impleaded because, as alleged in the

complaint, he is a partner of [Eduardo] and the [petitioner] in the
Odeon Theater Investment which expanded through reinvestments
of profits and direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged
partnership with petitioner and the respondent. However, there
was NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner]
and Yang. More importantly, however, the foregoing ruling of this
Court that the purported partnership between [Eduardo] is void
and legally inexistent directly affects said claim against Yang.
Since [petitioner] is trying to establish his claim against Yang by
linking him to the legally inexistent partnership . . . such attempt
had become futile because there was NOTHING that would
contractually connect [petitioner] and Yang. To establish a valid
cause of action, the complaint should have a statement of fact
upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo],
including their alleged investment in the Odeon Theater. A
statement of facts on those matters is pivotal to the complaint as
they would constitute the ultimate facts necessary to establish the
elements of a cause of action against Yang. [35]

16

Pressing its point, the CA later stated in its resolution denying petitioners
motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable
document attached to the complaint that is controlling. Suffice it
to state, We have not ignored the actionable document As a
matter of fact, We emphasized in our decision that insofar as
[Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not
mentioned in a document purporting to establish a partnership
could be considered a partner.[36] (Words in bracket ours).

Petitioners protestation that his act of introducing the concept of innominate

contract was not a case of changing theories but of supporting his pleaded cause of
action

that

of

the

existence

of

partnership

by

another

legal

perspective/argument, strikes the Court as a strained attempt to rationalize an

untenable position. Paragraph 12 of his motion for reconsideration of the CAs
decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in
the same notion, petitioner faults the appellate court for reading, with myopic eyes,
the actionable document solely as establishing a partnership/joint venture. Verily,

The last issue raised by petitioner, referring to whether or not he changed

his theory of the case, as peremptorily determined by the CA, has been discussed at
length earlier and need not detain us long. Suffice it to say that after the CA has
ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus,

the cited paragraphs are a study of a party hedging on whether or not to pursue
the original cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx

from a joint venture/partnership theory which he adopted and consistently pursued

in his complaint, petitioner embraced the innominate contract theory. Illustrative of
this shift is petitioners statement in par. #8 of his motion for reconsideration of the
CAs decision combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a
partnership, joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainants
allegations, is whether the actionable document bears out an
actionable contract be it a partnership, a joint venture or whatever
or some innominate contract It may be noted that one kind of
innominate contract is what is known as du ut facias (I give that
you may do).[37]
43. Contrariwise, this actionable document, especially its
above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article
1307).[38]

14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish
a contractual relationship between [petitioner] and Eduardo, Sr.
and Roberto T Yang simply because his document does not create
a partnership or a joint venture. This is a myopic reading of the
actionable document.

Per the Courts own count, petitioner used in his complaint the mixed words joint
venture/partnership nineteen (19) times and the term partner four (4) times. He
made reference to the law of joint venture/partnership [being applicable] to the
business relationship between [him], Eduardo and Bobby [Yang] and to his rights in
all specific properties of their joint venture/partnership. Given this consideration,
petitioners right of action against respondents Eduardo and Yang doubtless pivots on
the existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an

Springing surprises on the opposing party is offensive to the sporting idea of fair
play, justice and due process; hence, the proscription against a party shifting from
one theory at the trial court to a new and different theory in the appellate court.
[39]

On the same rationale, an issue which was neither averred in the complaint

cannot be raised for the first time on appeal. [40] It is not difficult, therefore, to agree
with the CA when it made short shrift of petitioners innominate contract theory on

actionable document of partnership, would strip petitioner of a cause of action under

the premises. A complaint for delivery and accounting of partnership property based
on such void or legally non-existent actionable document is dismissible for failure to
state of action. So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of Appeals AFFIRMED.

the basis of the foregoing basic reasons.

17

Pursuant to reinsurance treaties, a number of local insurance firms formed

themselves into a pool in order to facilitate the handling of business contracted with
a nonresident foreign reinsurance company. May the clearing house or insurance
pool so formed be deemed a partnership or an association that is taxable as a
corporation under the National Internal Revenue Code (NIRC)? Should the pools
remittances to the member companies and to the said foreign firm be taxable as
dividends? Under the facts of this case, has the governments right to assess and
collect said tax prescribed?

Cost against the petitioner.

SO ORDERED.

5. AFISCO v. CA G.R. No. 112675, January 25, 1999

[G.R. No. 112675. January 25, 1999]
AFISCO

INSURANCE CORPORATION; CCC INSURANCE CORPORATION;

CHARTER
INSURANCE
CO.,
INC.;
CIBELES
INSURANCE
CORPORATION;
COMMONWEALTH
INSURANCE
COMPANY;
CONSOLIDATED INSURANCE CO., INC.; DEVELOPMENT INSURANCE &
SURETY CORPORATION; DOMESTIC INSURANCE COMPANY OF THE
PHILIPPINES; EASTERN ASSURANCE COMPANY & SURETY CORP.;
EMPIRE
INSURANCE
COMPANY;
EQUITABLE
INSURANCE
CORPORATION; FEDERAL INSURANCE CORPORATION INC.; FGU
INSURANCE CORPORATION; FIDELITY & SURETY COMPANY OF THE
PHILS.,
INC.;FILIPINO
MERCHANTS
INSURANCE
CO.,
INC.;
GOVERNMENT SERVICE INSURANCE SYSTEM; MALAYAN INSURANCE
CO., INC.; MALAYAN ZURICH INSURANCE CO., INC.; MERCANTILE
INSURANCE CO., INC.; METROPOLITAN INSURANCE COMPANY;
METRO-TAISHO
INSURANCE
CORPORATION;
NEW
ZEALAND
INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE CORPORATION;
PARAMOUNT INSURANCE CORPORATION; PEOPLES TRANS-EAST
ASIA INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS,
INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST
INSURANCE CO., INC.; PIONEER INSURANCE & SURETY CORP.;
PIONEER
INTERCONTINENTAL
INSURANCE
CORPORATION;
PROVIDENT INSURANCE COMPANY OF THE PHILIPPINES; PYRAMID
INSURANCE CO., INC.; RELIANCE SURETY & INSURANCE COMPANY;
RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE
CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.; SOLID
GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO., INC.;
STATE BONDING & INSURANCE CO., INC.; SUMMA INSURANCE
CORPORATION; TABACALERA INSURANCE CO., INC.all assessed as
POOL OF MACHINERY INSURERS,petitioners, vs. COURT OF
APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
DECISION

PANGANIBAN, J.:

The Case

These are the main questions raised in the Petition for Review
on Certiorari before us, assailing the October 11, 1993 Decision [1] of the Court of
Appeals[2]in CA-GR SP 29502, which dismissed petitioners appeal of the October 19,
1992 Decision[3] of the Court of Tax Appeals [4] (CTA) which had previously sustained
petitioners liability for deficiency income tax, interest and withholding tax. The Court
of Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioners. [5]
The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution[6] denying reconsideration.
The Facts

The antecedent facts,[7] as found by the Court of Appeals, are as follows:

The petitioners are 41 non-life insurance corporations, organized and existing under
the laws of the Philippines. Upon issuance by them of Erection, Machinery
Breakdown, Boiler Explosion and Contractors All Risk insurance policies, the
petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft
(hereafter called Munich), a non-resident foreign insurance corporation. The
reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement
and filed an Information Return of Organization Exempt from Income Tax for the year
ending in 1975, on the basis of which it was assessed by the Commissioner of
Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and
withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid
to Munich and to the petitioners, respectively.These assessments were protested by
the petitioners through its auditors Sycip, Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency
income tax, interest, and with[h]olding tax, itemized as follows:

18

Net income per information

===========

return P3,737,370.00

10% withholding tax at

===========

source due thereon P 65,563.60

Income tax due thereon P1,298,080.00

Add: 25% surcharge 16,390.90

Add: 14% Int. fr. 4/15/76

14% interest from

to 4/15/79 545,193.60

1/25/76 to 1/25/79 6,884.18

TOTAL AMOUNT DUE & P1,843,273.60

Compromise penalty-

COLLECTIBLE ===========

non-filing of return 300.00

Dividend paid to Munich

late payment 300.00

Reinsurance Company P3,728,412.00

TOTAL AMOUNT DUE & P 89,438.68

===========

COLLECTIBLE ===========[8]

35% withholding tax at

The CA ruled in the main that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latters collection of premiums on behalf of its
members, the ceding companies, was taxable income. It added that prescription did
not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due, because
the taxpayer cannot be located at the address given in the information return
filed. Hence, this Petition for Review before us.[9]

source due thereon P1,304,944.20

Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penaltynon-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========

The Issues

Before this Court, petitioners raise the following issues:

1.Whether or not the Clearing House, acting as a mere agent and performing strictly
administrative functions, and which did not insure or assume any risk in its own
name, was a partnership or association subject to tax as a corporation;
2.Whether or not the remittances to petitioners and MUNICHRE of their respective
shares of reinsurance premiums, pertaining to their individual and separate
contracts of reinsurance, were dividends subject to tax; and
3.Whether or not the respondent Commissioners right to assess the Clearing House
had already prescribed.[10]

Dividend paid to Pool Members P 655,636.00

19

The Courts Ruling

The petition is devoid of merit. We sustain the ruling of the Court of Appeals
that the pool is taxable as a corporation, and that the governments right to assess
and collect the taxes had not prescribed.
First Issue:

Pool Taxable as a Corporation

Petitioners contend that the Court of Appeals erred in finding that the pool or
clearing house was an informal partnership, which was taxable as a corporation
under the NIRC. They point out that the reinsurance policies were written by them
individually and separately, and that their liability was limited to the extent of their
allocated share in the original risks thus reinsured. [11] Hence, the pool did not act or
earn income as a reinsurer. [12] Its role was limited to its principal function of
allocating and distributing the risk(s) arising from the original insurance among the
signatories to the treaty or the members of the pool based on their ability to absorb
the risk(s) ceded[;] as well as the performance of incidental functions, such as
records, maintenance, collection and custody of funds, etc. [13]
Petitioners belie the existence of a partnership in this case, because (1) they,
the reinsurers, did not share the same risk or solidary liability; [14] (2) there was no
common fund;[15] (3) the executive board of the pool did not exercise control and
management of its funds, unlike the board of directors of a corporation;
[16]
and (4) the pool or clearing house was not and could not possibly have engaged
in the business of reinsurance from which it could have derived income for itself. [17]
The Court is not persuaded. The opinion or ruling of the Commission of Internal
Revenue, the agency tasked with the enforcement of tax laws, is accorded much
weight and even finality, when there is no showing that it is patently wrong,
[18]
particularly in this case where the findings and conclusions of the internal
revenue commissioner were subsequently affirmed by the CTA, a specialized body
created for the exclusive purpose of reviewing tax cases, and the Court of Appeals.
[19]
Indeed,
[I]t has been the long standing policy and practice of this Court to respect the
conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by
the nature of its functions, is dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless
there has been an abuse or improvident exercise of its authority. [20]
This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no reversible
error. Section 24 of the NIRC, as worded in the year ending 1975, provides:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is
hereby imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or
organized, but not including duly registered general co-partnership (compaias
colectivas), general professional partnerships, private educational institutions, and
building and loan associations xxx.
Ineludibly, the Philippine legislature included in the concept of corporations
those entities that resembled them such as unregistered partnerships and
associations. Parenthetically, the NLRCs inclusion of such entities in the tax on
corporations was made even clearer by the Tax Reform Act of 1997, [21] which
amended the Tax Code. Pertinent provisions of the new law read as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of thirtyfive percent (35%) is hereby imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as
a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not
include general professional partnerships [or] a joint venture or
consortium formed for the purpose of undertaking construction projects
or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service
contract without the Government. General professional
partnerships are partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income of which is
derived from engaging in any trade or business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal Revenue [22] held that
Section 24 covered these unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their individual members.
[23]
The Court of Appeals astutely applied Evangelista:[24]

20

xxx Accordingly, a pool of individual real property owners dealing in real estate
business was considered a corporation for purposes of the tax in sec. 24 of the Tax
Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court said:
The term partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on. * * * (8 Mertens Law of Federal
Income Taxation, p. 562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits
among themselves.[25] Its requisites are: (1) mutual contribution to a common stock,
and (2) a joint interest in the profits.[26] In other words, a partnership is formed when
persons contract to devote to a common purpose either money, property, or labor
with the intention of dividing the profits between themselves. [27] Meanwhile, an
association implies associates who enter into a joint enterprise x x x for the
transaction of business.[28]
In the case before us, the ceding companies entered into a Pool
Agreement[29] or an association[30] that would handle all the insurance businesses
covered under their quota-share reinsurance treaty[31] and surplus reinsurance
treaty[32]with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables
that are deposited in the name and credit of the pool. [33] This common
fund pays for the administration and operation expenses of the pool.
[34]

(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one representative
for each of the ceding companies.[35]
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums. The ceding
companies share in the business ceded to the pool and in the
expenses according to a Rules of Distribution annexed to the Pool
Agreement.[36] Profit motive or business is, therefore, the primordial
reason for the pools formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the
transaction of business for profit. It is apparent, and petitioners admit,
that their association or coaction was indispensable [to] the transaction

of the business. x x x If together they have conducted business, profit

must have been the object as, indeed, profit was earned. Though the
profit was apportioned among the members, this is only a matter of
consequence, as it implies that profit actually resulted. [37]
The petitioners reliance on Pascual v. Commissioner[38] is misplaced, because
the facts obtaining therein are not on all fours with the present
case. In Pascual, there was no unregistered partnership, but merely a co-ownership
which took up only two isolated transactions. [39] The Court of Appeals did not err in
applying Evangelista, which involved a partnership that engaged in a series of
transactions spanning more than ten years, as in the case before us.
Second Issue:

Pools Remittances Are Taxable

Petitioners further contend that the remittances of the pool to the ceding
companies and Munich are not dividends subject to tax. They insist that taxing such
remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and would be
tantamount to an illegal double taxation, as it would result in taxing the same
premium income twice in the hands of the same taxpayer.[40] Moreover, petitioners
argue that since Munich was not a signatory to the Pool Agreement, the remittances
it received from the pool cannot be deemed dividends. [41] They add that even if such
remittances were treated as dividends, they would have been exempt under the
previously mentioned sections of the 1977 NIRC,[42] as well as Article 7 of paragraph
1[43] and Article 5 of paragraph 5[44] of the RP-West German Tax Treaty.[45]
Petitioners are clutching at straws. Double taxation means taxing the same
property twice when it should be taxed only once. That is, xxx taxing the same
person twice by the same jurisdiction for the same thing. [46] In the instant case, the
pool is a taxable entity distinct from the individual corporate entities of the ceding
companies. The tax on its income is obviously different from the tax on
the dividends received by the said companies. Clearly, there is no double taxation
here.
The tax exemptions claimed by petitioners cannot be granted, since their
entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the law
of taxation that taxes are the lifeblood of the nation. Hence, exemptions therefrom
are highly disfavored in law and he who claims tax exemption must be able to justify
his claim or right.[47] Petitioners have failed to discharge this burden of proof. The
sections of the 1977 NIRC which they cite are inapplicable, because these were not
yet in effect when the income was earned and when the subject information return
for the year ending 1975 was filed.
Referring to the 1975 version of the counterpart sections of the NIRC, the Court
still cannot justify the exemptions claimed. Section 255 provides that no tax shall
xxx be paid upon reinsurance by any company that has already paid the tax

21

xxx. This cannot be applied to the present case because, as previously discussed,
the pool is a taxable entity distinct from the ceding companies; therefore, the latter
cannot individually claim the income tax paid by the former as their own.
On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding companies which are domestic
corporations. Nor can Munich, a foreign corporation, be granted exemption based
solely on this provision of the Tax Code, because the same subsection specifically
taxes dividends, the type of remittances forwarded to it by the pool. Although not a
signatory to the Pool Agreement, Munich is patently an associate of the ceding
companies in the entity formed, pursuant to their reinsurance treaties which
required the creation of said pool.

Furthermore, petitioners admitted in their Motion for Reconsideration before

the Court of Appeals that the pool changed its address, for they stated that the
pools information return filed in 1980 indicated therein its present address. The
Court finds that this falls short of the requirement of Section 333 of the NIRC for the
suspension of the prescriptive period. The law clearly states that the said period will
be suspended only if the taxpayer informs the Commissioner of Internal Revenue of
any change in the address.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals
dated October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.

Under its pool arrangement with the ceding companies, Munich shared in their
income and loss. This is manifest from a reading of Articles 3 [49] and 10[50] of the
Quota Share Reinsurance Treaty and Articles 3 [51] and 10[52] of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is in line with
the doctrine that a tax exemption must be construed strictissimi juris, and the
statutory exemption claimed must be expressed in a language too plain to be
mistaken.[53]
Finally, the petitioners claim that Munich is tax-exempt based on the RP-West
German Tax Treaty is likewise unpersuasive, because the internal revenue
commissioner assessed the pool for corporate taxes on the basis of the information
return it had submitted for the year ending 1975, a taxable year when said treaty
was not yet in effect.[54] Although petitioners omitted in their pleadings the date of
effectivity of the treaty, the Court takes judicial notice that it took effect only later,
on December 14, 1984.[55]

Romero, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

6. Arbes vs. Polistico, G.R No. 31057, September 7, 1929

G.R. No. 31057

September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
Marcelino Lontok and Manuel dela Rosa for appellants.
Sumulong & Lavides for appellees.

Third Issue: Prescription

VILLAMOR, J.:
Petitioners also argue that the governments right to assess and collect the
subject tax had prescribed. They claim that the subject information return was filed
by the pool on April 14, 1976. On the basis of this return, the BIR telephoned
petitioners on November 11, 1981, to give them notice of its letter of assessment
dated March 27, 1981. Thus, the petitioners contend that the five-year statute of
limitations then provided in the NIRC had already lapsed, and that the internal
revenue commissioner was already barred by prescription from making an
assessment.[56]
We cannot sustain the petitioners. The CA and the CTA categorically found that
the prescriptive period was tolled under then Section 333 of the NIRC,[57] because
the taxpayer cannot be located at the address given in the information return filed
and for which reason there was delay in sending the assessment. [58] Indeed, whether
the governments right to collect and assess the tax has prescribed involves facts
which have been ruled upon by the lower courts. It is axiomatic that in the absence
of a clear showing of palpable error or grave abuse of discretion, as in this case, this
Court must not overturn the factual findings of the CA and the CTA.

This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as president-treasurer, directors
and secretary of said association.
It is well to remember that this case is now brought before the consideration of this
court for the second time. The first one was when the same plaintiffs appeared from
the order of the court below sustaining the defendant's demurrer, and requiring the
former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held
then that in an action against the officers of a voluntary association to wind up its
affairs and enforce an accounting for money and property in their possessions, it is
not necessary that all members of the association be made parties to the action.
(Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of
origin, both parties amend, respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular
Auditor's Office, commissioner to examine all the books, documents, and accounts

22

of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might
desire to present.
The commissioner rendered his report, which is attached to the record, with the
following resume:
Salaries....................................

1,095.00

Miscellaneous...............................

1,686.10

Income:

Member's shares............................

97,263.70

85,0
Credits paid................................

6,196.55

Interest received...........................

4,569.45

Cash on hand........................................

Miscellaneous...............................

1,891.00

The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and
to the rest of the members of the said association represented by said plaintiffs, with
costs against the defendants.
P109,620.70
The defendants assigned several errors as grounds for their appeal, but we believe
they can all be reduced to two points, to wit: (1) That not all persons having an
interest in this association are included as plaintiffs or defendants; (2) that the
objection to the commissioner's report should have been admitted by the court
below.

Expenses:

Premiums to members.......................

24,6

68,146.25

Loans on real-estate.......................

9,827.00

Loans on promissory notes..............

4,258.55

As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be
followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of
the defendants, we are of opinion that, the trial court having examined all the
evidence touching the grounds for the objection and having found that they had
been explained away in the commissioner's report, the conclusion reached by the
court below, accepting and adopting the findings of fact contained in said report,
and especially those referring to the disposition of the association's money, should
not be disturbed.

23

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed under the provisions of section 135 of
the Code of Civil Procedure stand upon the same basis, when approved by the Court,
as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37
Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is
made the duty of the court to render judgment in accordance with the report of the
referee unless the court shall unless for cause shown set aside the report or
recommit it to the referee. This provision places upon the litigant parties of the duty
of discovering and exhibiting to the court any error that may be contained therein."
The appellants stated the grounds for their objection. The trial examined the
evidence and the commissioner's report, and accepted the findings of fact made in
the report. We find no convincing arguments on the appellant's brief to justify a
reversal of the trial court's conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S.
vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may be ordered to be turned
over, should be included, as a party defendant. The appellants refer to article 1666
of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the
common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall
be given to charitable institutions of the domicile of the partnership, or, in
default of such, to those of the province.
Appellant's contention on this point is untenable. According to said article, no
charitable institution is a necessary party in the present case of determination of the
rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member
from those in charge of the administration of said partnership, and it is not
necessary for the said parties to base their action to the existence of the
partnership, but on the fact that of having contributed some money to the
partnership capital. And hence, the charitable institution of the domicile of the
partnership, and in the default thereof, those of the province are not necessary
parties in this case. The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership, during its existence as
result of the business in which it was engaged, because for the purpose, as Manresa
remarks, the partner will have to base his action upon the partnership contract,
which is to annul and without legal existence by reason of its unlawful object; and it
is self evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of the unlawful
partnership is decreed, the profits cannot inure to the benefit of the partners, but
must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as
a clear explanation of the scope and spirit of the provision of the Civil Code which
we are concerned. Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in transactions
consistent with the purposes of the partnership may the former demand

the return of the reimbursement thereof from the manager or administrator

withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it
is considered juridically non-existent, the contract entered into can have no
legal effect; and in that case, how can it give rise to an action in favor of
the partners to judicially demand from the manager or the administrator of
the partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter
quite clearly, dispelling all doubts thereon. He holds that the partner who
limits himself to demanding only the amount contributed by him need not
resort to the partnership contract on which to base his action. And he adds
in explanation that the partner makes his contribution, which passes to the
managing partner for the purpose of carrying on the business or industry
which is the object of the partnership; or in other words, to breathe the
breath of life into a partnership contract with an objection forbidden by law.
And as said contrast does not exist in the eyes of the law, the purpose from
which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the
partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the
proportional part of the said profits, the partner would have to base his
action on the contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof. Wherefore
considering this contract asnon-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the law
to permit a profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this
Code, providing that the profits obtained by unlawful means shall not enrich
the partners, but shall upon the dissolution of the partnership, be given to
the charitable institutions of the domicile of the partnership, or, in default
of such, to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an
obvious deficiency of the former law, which did not describe the purpose to
which those profits denied the partners were to be applied, nor state what
to be done with them.
The profits are so applied, and not the contributions, because this would be
an excessive and unjust sanction for, as we have seen, there is no reason,
in such a case, for depriving the partner of the portion of the capital that he
contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned by the partners,

24

because it only deals with the disposition of the profits; but the fact that
said contributions are not included in the disposal prescribed profits, shows
that in consequences of said exclusion, the general law must be followed,
and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to
the latter remaining in the possession of the manager or administrator who
has refused to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI,
pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is
hereby, affirmed with costs against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of P24,607.80 from the date of
the decision of the court, and provided, further, that the defendants shall deposit
this sum of money and other documents evidencing uncollected credits in the office
of the clerk of the trial court, in order that said court may distribute them among the
members of said association, upon being duly identified in the manner that it may
deem proper. So ordered.

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00
which amount together with their personal monies was used by them for
the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot
with an area of 3,713.40 sq. m. including improvements thereon from the
sum of P100,000.00; this property has an assessed value of P57,517.00 as
of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels
of land with an aggregate area of 3,718.40 sq. m. including improvements
thereon for P130,000.00; this property has an assessed value of P82,255.00
as of 1948;

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

4. That on April 28, 1944 they purchased from the Insular Investments Inc.,
a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This
property has an assessed value of P4,983.00 as of 1948;

7. Evangelista vs. CIR G.R. No. L-9996, Oct. 15, 1957

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of
8,371 sq. m. including improvements thereon for P237,234.34. This
property has an assessed value of P59,140.00 as of 1948;

G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,

petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General
Esmeraldo Umali and Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part
of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the
income tax, real estate dealer's tax and the residence tax for the years
1945 to 1949, inclusive, in accordance with the respondent's assessment
for the same in the total amount of P6,878.34, which is hereby affirmed and
the petition for review filed by petitioner is hereby dismissed with costs
against petitioners.

6. That in a document dated August 16, 1945, they appointed their brother
Simeon Evangelista to 'manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor; in default of such
payment, to bring suits against the defaulting tenants; to sign all letters,
contracts, etc., for and in their behalf, and to endorse and deposit all notes
and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945,
the total amount collected as rents on their real properties was P9,599.00
while the expenses amounted to P3,650.00 thereby leaving them a net
rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of
P24,786.30, out of which amount was deducted in the sum of P16,288.27
for expenses thereby leaving them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of
the which amount was deducted the sum of P4,837.65 as expenses,
thereby leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal
Revenue demanded the payment of income tax on corporations, real estate dealer's
fixed tax and corporation residence tax for the years 1945-1949, computed,
according to assessment made by said officer, as follows:

25

INCOME TAXES

1949

150.00

Total including penalty

P527.00

1945

14.84

1946

1,144.71

1947

10.34

1945

P38.75

1948

1,912.30

1946

38.75

1949

1,575.90

1947

38.75

Total including surcharge and compromise

P6,157.09

1948

38.75

1949

38.75

REAL ESTATE DEALER'S FIXED TAX

RESIDENCE TAXES OF CORPORATION

1946

P37.50

Total including surcharge

P193.75

1947

150.00

TOTAL TAXES DUE

P6,878.34.

1948

150.00

Said letter of demand and corresponding assessments were delivered to petitioners

on December 3, 1954, whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that "the decision of the respondent contained in his
letter of demand dated September 24, 1954" be reversed, and that they be

26

absolved from the payment of the taxes in question, with costs against the
respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned
decision for the respondent, and a petition for reconsideration and new trial having
been subsequently denied, the case is now before Us for review at the instance of
the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers fixed tax. With respect to the tax on corporations, the issue
hinges on the meaning of the terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations or insurance companies, but does not include
duly registered general copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to
contribute money, properly, or industry to a common fund, with the
intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are fully satisfied that their purpose
was to engage in real estate transactions for monetary gain and then divide the
same among themselves, because:
1. Said common fund was not something they found already in existence. It
was not property inherited by them pro indiviso. They created it purposely.
What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.
2. They invested the same, not merely not merely in one transaction, but in
a series of transactions. On February 2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This

was soon followed on April 23, 1944, by the acquisition of another real
estate for P108,825.00. Five (5) days later (April 28, 1944), they got a
fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation
of the aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but perceive a
character of habitually peculiar to business transactions engaged in the
purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. The properties were leased separately
to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely Simeon Evangelista, with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and contracts, and to
indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or
business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or,
to be exact, over fifteen (15) years, since the first property was acquired,
and over twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality
independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance,
section 24 of said Code exempts from the aforementioned tax "duly registered
general partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code,

27

"the term corporation includes partnerships, no matter how created or organized."

This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have
been expressly excluded by law (sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots above referred to,
under the management of one person even if true, on which we express no
opinion tends to increase the similarity between the nature of their venture and
that corporations, and is, therefore, an additional argument in favor of the
imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed
differently from "partnerships". By specific provisions of said laws, such
"corporations" include "associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the aforementioned
laws.
. . . in any narrow or technical sense. It includes any organization, created
for the transaction of designed affairs, or the attainment of some object,
which like a corporation, continues notwithstanding that its members or
participants change, and the affairs of which, like corporate affairs, are
conducted by a single individual, a committee, a board, or some other
group, acting in a representative capacity. It is immaterial whether such
organization is created by an agreement, a declaration of trust, a statute,
or otherwise. It includes a voluntary association, a joint-stock corporation or
company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust,
and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a
partnership association, and any other type of organization (by whatever
name known) which is not, within the meaning of the Code, a trust or an
estate, or a partnership. (7A Mertens Law of Federal Income Taxation, p.
788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership
'it includes not only a partnership as known at common law but, as well, a
syndicate, group, pool, joint venture or other unincorporated organizations
which carries on any business financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . . (7A
Merten's Law of Federal Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on, . . .. ( 8 Merten's Law
of Federal Income Taxation, p. 562 Note 63; emphasis supplied.) .

For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships with the exception only of duly registered general
copartnerships within the purview of the term "corporation." It is, therefore, clear
to our mind that petitioners herein constitute a partnership, insofar as said Code is
concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No.
465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing
business in the Philippines shall pay an annual residence tax of five pesos
and an annual additional tax which in no case, shall exceed one thousand
pesos, in accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion), association
or insurance company, no matter how created or organized. (emphasis
supplied.)
Considering that the pertinent part of this provision is analogous to that of section
24 and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466),
and that the latter was approved on June 15, 1939, the day immediately after the
approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with substantially
the same meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the yearly
gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section 193 (q) of our National
Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section
194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying,
selling, exchanging, leasing, or renting property or his own account as
principal and holding himself out as a full or part time dealer in real estate
or as an owner of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a year. . . (emphasis
supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with
costs against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

8. Pascual v. CIR, G.R. No. 78133, October 18, 1988

28

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a majority
decision of March 30, 1987, 2 affirmed the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered
partnership was in fact formed by petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a coownership between the petitioners, there was no adequate basis for the conclusion
that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.

GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total amount of P107,101.70
as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in
the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from the
tax liability of the unregistered partnership. Hence, the petitioners were required to
pay the deficiency income tax assessed.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged
errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION
OF THE RESPONDENT COMMISSIONER, TO THE EFFECT THAT
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP SUBJECT
TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE
PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED
THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT
WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE
EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE
PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD
COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.

29

They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental income.
Thus, the Collector of Internal Revenue demanded the payment of income tax on a
corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax
on corporations provided for in section 24 of Commonwealth Act
No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate
dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and
partnership as used in sections 24 and 84 of said Code, the
pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied,
assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including
duly registered general co-partnerships (companies collectives), a
tax upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participation), associations or insurance
companies, but does not include duly registered general copartnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.
Pursuant to this article, the essential elements of a partnership are
two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed
to, and did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was

to engage in real estate transactions for monetary gain and then

divide the same among themselves, because:
1. Said common fund was not something they found already in
existence. It was not a property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a
series of transactions. On February 2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days
later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transcations undertaken, as well
as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design
that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by
petitioners in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or
to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not
even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely, Simeon Evangelists, with full
power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business
enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. They did not even try to
offer an explanation therefor.

30

Although, taken singly, they might not suffice to establish the

intent necessary to constitute a partnership, the collective effect
of these circumstances is such as to leave no room for doubt on
the existence of said intent in petitioners herein. Only one or two
of the aforementioned circumstances were present in the cases
cited by petitioners herein, and, hence, those cases are not in
point. 5
In the present case, there is no evidence that petitioners entered into an agreement
to contribute money, property or industry to a common fund, and that they intended
to divide the profits among themselves. Respondent commissioner and/ or his
representative just assumed these conditions to be present on the basis of the fact
that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the purpose
of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not
sell the same nor make any improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only 1968 when they sold the two (2)
parcels of land after which they did not make any additional or new purchase. The
remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition existed
for over fifteen (15) years. None of the circumstances are present in the case at bar.
The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of
the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint

or common right or interest in any property from which the returns

are derived;
From the above it appears that the fact that those who agree to
form a co- ownership share or do not share any profits made by
the use of the property held in common does not convert their
venture into a partnership. Or the sharing of the gross returns
does not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in
the property. This only means that, aside from the circumstance of
profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the
others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953
ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more
persons contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention
cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise
and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title
to their respective contribution, are not thereby rendered partners.
They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the
proceeds derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a copartnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the
parties are only tenants in common. (Clark vs. Sideway, 142 U.S.
682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners
of a single tract of realty, holding as tenants in common, and to
divide the profits of disposing of it, the brother and the other not
being entitled to share in plaintiffs commission, no partnership
existed as between the three parties, whatever their relation may
have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233
Mass. 341.)
In order to constitute a partnership inter sese there must be: (a)
An intent to form the same; (b) generally participating in both

31

profits and losses; (c) and such a community of interest, as far as

third persons are concerned as enables each party to make
contract, manage the business, and dispose of the whole
property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a
partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and
use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners.
There is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them
partners. They shared in the gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for said
deficiency corporate income tax, then petitioners can be held individually liable as
partners for this unpaid obligation of the partnership p. 7 However, as petitioners
have availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent
Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of the corporate income tax
liability in this case, without pronouncement as to costs.

HEIRS OF JOSE LIM,

represented by ELENITO LIM,
Petitioners,

G.R. No. 172690

Present:
CORONA, J.,
Chairperson,
VELASCO, JR.,
NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

- versus -

Promulgated:
JULIET VILLA LIM,

Respondent.

March 3, 2010

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Civil Procedure, assailing the Court of Appeals (CA) Decision [2] dated June 29, 2005,
which reversed and set aside the decision [3] of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia
Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all
surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a
Complaint[4] for Partition, Accounting and Damages against respondent Juliet Villa
Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of
Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
SO ORDERED.

Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu
(Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking
business. Initially, with a contribution of P50,000.00 each, they purchased a truck to

9. Heirs of Jose Lim and Juliet Lim, G.R. No. 172690, March 3, 2010

be used in the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15, 1981. Thereafter,

32

Jose's heirs, including Elfledo, and partners agreed to continue the business under

to Jimmy and to the heirs of Norberto, as she could no longer run the business.

the management of Elfledo. The shares in the partnership profits and income that

Jimmy suggested that three out of the nine trucks be given to him as his share,

formed part of the estate of Jose were held in trust by Elfledo, with petitioners'

while the other three trucks be given to the heirs of Norberto. However, Norberto's

authority for Elfledo to use, purchase or acquire properties using said funds.

wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate

Respondent also alleged that when Jose died in 1981, he left no known assets, and

serving as his fathers driver in the trucking business. He was never a partner or an

the partnership with Jimmy and Norberto ceased upon his demise. Respondent also

investor in the business and merely supervised the purchase of additional trucks

stressed that Jose left no properties that Elfledo could have held in trust.

using the income from the trucking business of the partners. By the time the

Respondent maintained that all the properties involved in this case were purchased

partnership ceased, it had nine trucks, which were all registered in Elfledo's name.

and acquired through her and her husbands joint efforts and hard work, and without

Petitioners asseverated that it was also through Elfledos management of the

any participation or contribution from petitioners or from Jose. Respondent

partnership that he was able to purchase numerous real properties by using the

submitted that these are conjugal partnership properties; and thus, she had the

profits derived therefrom, all of which were registered in his name and that of

right to refuse to render an accounting for the income or profits of their own

respondent. In addition to the nine trucks, Elfledo also acquired five other motor

business.

vehicles.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners

claimed

that

respondent

took

over

the

administration

of

the

of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and

aforementioned properties, which belonged to the estate of Jose, without their

consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the administration

2) Ordering the defendant to submit an accounting of all

incomes, profits and rentals received by her from said properties.

thereof. Respondent refused; thus, the filing of this case.

SO ORDERED.
Aggrieved, respondent appealed to the CA.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also claimed that per testimony of
Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the latter's capital in
an informal partnership with Jimmy and Norberto. When Elfledo and respondent got
married in 1981, the partnership only had one truck; but through the efforts of

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however, denied in its Resolution [6] dated May 8,
2006.

Elfledo, the business flourished. Other than this trucking business, Elfledo, together
with respondent, engaged in other business ventures. Thus, they were able to buy
real properties and to put up their own car assembly and repair business. When
Norberto was ambushed and killed on July 16, 1993, the trucking business started to

Hence, this Petition, raising the sole question, viz.:

falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked

33

(4) When the judgment is based on a misapprehension of facts;

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE
PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER
PARTNERS IN THE PARTNERSHIP?[7]

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;

In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a partner; and that he and Norberto entered into
a partnership with Jose. Thus, the CA erred in not giving that testimony greater
weight than that of Cresencia, who was merely the spouse of Jose and not a party to
the partnership.[8]

Respondent counters that the issue raised by petitioners is not proper in a petition

(8) When the findings of fact are conclusions without citation of

specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted
by the evidence on record.[11]

for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would
entail the review, evaluation, calibration, and re-weighing of the factual findings of

We note, however, that the findings of fact of the RTC are contrary to those of the

the CA. Moreover, respondent invokes the rationale of the CA decision that, in light

CA. Thus, our review of such findings is warranted.

of the admissions of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the

On the merits of the case, we find that the instant Petition is bereft of merit.

RTC's findings was fully justified.[9]

We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues an exercise that is not appropriate for a petition for
review on certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally, we
are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.

[10]

A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses among them. A contract of
partnership is defined by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. [12]

When supported by substantial evidence, the

findings of fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the following recognized
exceptions:

Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine

(1) When the conclusion is a finding grounded entirely on

speculation, surmises and conjectures;

who between Jose and Elfledo was the partner in the trucking business.

(2) When the inference made is manifestly mistaken, absurd or

impossible;

A careful review of the records persuades us to affirm the CA decision. The evidence

(3) Where there is a grave abuse of discretion;

that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by

presented by petitioners falls short of the quantum of proof required to establish

34

Elfledo and respondent form part of the estate of Jose, having been derived from the
alleged partnership.

(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:

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
evidence against respondent. It must be considered and weighed along with

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.

petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases,

the party having the burden of proof must establish his case by a preponderance of
evidence. "Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered synonymous with the
term "greater weight of the evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis, means probability
of the truth. It is evidence that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto. [13] Rule 133, Section 1 of the Rules

Applying the legal provision to the facts of this case, the following circumstances

of Court provides the guidelines in determining preponderance of evidence, thus:

tend

to

prove

that

Elfledo

was

himself

the

partner

of

Jimmy

and

Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
SECTION I. Preponderance of evidence, how determined. In civil
cases, the party having burden of proof must establish his case by
a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which
they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility
so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.

partnership, on a date that coincided with the payment of the initial capital in the
partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;[16] (3) all of the properties, particularly the nine trucks
of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the partnership, indicating that what
he actually received were shares of the profits of the business; [17] and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from
Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18]a

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals[14] is

demand for periodic accounting is evidence of a partnership.

enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:

Furthermore, petitioners failed to adduce any evidence to show that the real and

Art. 1769. In determining whether a partnership exists, these

rules shall apply:

personal properties acquired and registered in the names of Elfledo and respondent

(1) Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third persons;

partnership with Jimmy and Norberto. They failed to refute respondent's claim that

(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;

Elfledo also sold Interwood lumber as a sideline. [19] Petitioners could not offer any

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the
returns are derived;

evidence that between documentary and oral evidence, the former carries more

formed part of the estate of Jose, having been derived from Jose's alleged

Elfledo and respondent engaged in other businesses. Edison even admitted that

credible evidence other than their bare assertions. Thus, we apply the basic rule of

weight.[20]

35

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help
but one of the partners in the trucking business, active and visible
in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control,
administration and management of the partnership and its
business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners,
are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how
the business was ran.Evidently it was through Elfredos efforts and
hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the
affairs of the partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was
barely a year old, and the partnership and its business not only
continued but also flourished. If it were true that it was Jose Lim
and
not
Elfledo
who wasthe partner,
then upon his
death the partnership should have
been dissolved and its assets liquidated. On the contrary, these
were not done but instead its operation continued under the helm
of Elfledo and without any participation from the heirs of Jose
Lim.
Whatever properties appellant and her husband had acquired,
this was through their own concerted efforts and hard
work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as
they are amply supported by the law and by the evidence on record.

GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court of the Decision[1] of the Court of Appeals dated January 31, 2000 in the case
entitled Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23,
2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga
Chan and Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint
against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga
(hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto
L. Sunga (hereafter Jacinto), for Winding Up of Partnership Affairs, Accounting,
Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment
with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with
Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For
business convenience, respondent and Jacinto allegedly agreed to register the
business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter
Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in
turn produced P100,000.00 as his counterpart contribution, with the intention that
the profits would be equally divided between them. The partnership allegedly had
Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the
wife of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers
fee or remuneration of 10% of the gross profit and Josephine would receive 10% of
the net profits, in addition to her wages and other remuneration from the business.

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals

Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.

10. Lilibeth Sunga-Chan G.R. No. 143 340, August 15, 2001
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T.
CHUA, respondent.
DECISION

Allegedly, from the time that Shellite opened for business on July 8, 1977, its
business operation went quite well and was profitable. Respondent claimed that he
could attest to the success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however
suspected that the amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner
Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations,
control, custody, disposition and management of Shellite without respondents
consent.

36

Despite respondents repeated demands upon petitioners for accounting,

inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of
Shellite, converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of
alibis and reasons to evade respondents demands, she disbursed out of the
partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00
represented partial payment of the latters share in the partnership, with a promise
that the former would make the complete inventory and winding up of the properties
of the business establishment. Despite such commitment, petitioners allegedly
failed to comply with their duty to account, and continued to benefit from the assets
and income of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that
the Securities and Exchange Commission (SEC) in Manila, not the Regional Trial
Court in Zambaonga del Norte had jurisdiction over the action.Respondent opposed
the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory
Counterclaims, contending that they are not liable for partnership shares,
unreceived income/profits, interests, damages and attorneys fees, that respondent
does not have a cause of action against them, and that the trial court has no
jurisdiction over the nature of the action, the SEC being the agency that has original
and exclusive jurisdiction over the case. As counterclaim, petitioner sought
attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the
ground that the claim for winding up of partnership affairs, accounting and recovery
of shares in partnership affairs, accounting and recovery of shares in partnership
assets /properties should be dismissed and prosecuted against the estate of
deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for
lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition
and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499
questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to
Suspend Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of
merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed
by petitioner, as petitioners failed to show that a reversible error was committed by
the appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court and
the case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and
set the hearing of the case on January 17, 1996. Respondent presented his evidence
while petitioners were considered to have waived their right to present evidence for
their failure to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for
respondent. The dispositive portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the
Shellite Gas Appliance Center since the time of death of Jacinto L. Sunga, from
whom they continued the business operations including all businesses derived from
the Shellite Gas Appliance Center; submit an inventory, and appraisal of all these
properties, assets, income, profits, etc. to the Court and to plaintiff for approval or
disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and
advantage that legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the
plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
from the partnership from 1988 to may 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with legal rate of interest until
fully paid;

37

(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the interest,
shares, participation and equity in the partnership, or the value thereof in money or
moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic)
and P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The
dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in
all respects.[4]
On May 23, 2000, the Court of Appeals denied the motion for reconsideration
filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there
existed a partnership between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latters invitation and offer and that
upon his death the partnership assets and business were taken over
by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches
and/or prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there
was competent and credible evidence to warrant the finding of a
partnership, and assuming arguendo that indeed there was a
partnership, the finding of highly exaggerated amounts or values in
the partnership assets and profits.[5]

Petitioners question the correctness of the finding of the trial court and the
Court of Appeals that a partnership existed between respondent and Jacinto from
1977 until Jacintos death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argue that these courts
were proscribed from hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after Jacintos death. To
support this argument, petitioners invoke the Dead Mans Statute or Survivorship
Rule under Section 23, Rule 130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or
assignors of parties to a case, or persons in whose behalf a case is prosecuted,
against an executor or administrator or other representative of a deceased person,
or against a person of unsound mind, upon a claim or demand against the estate of
such deceased person, or against such person of unsound mind, cannot testify as to
any matter of fact occurring before the death of such deceased person or before
such person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and his
alter ego, Josephine, should not have been admitted to prove certain claims against
a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary.[6] Hence, based on the intention of the parties, as gathered from
the facts and ascertained from their language and conduct, a verbal contract of
partnership may arise.[7] The essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a common stock, and (2)
a joint interest in the profits.[8] Understandably so, in view of the absence of a
written contract of partnership between respondent and Jacinto, respondent resorted
to the introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is whether or not the Dead Mans Statute
applies to this case so as to render inadmissible respondents testimony and that of
his witness, Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the
surviving party is not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.[9] But before this rule
can be successfully invoked to bar the introduction of testimonial evidence, it is
necessary that:
1. The witness is a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted.

38

2. The action is against an executor or administrator or other

representative of a deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the
estate of such deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the
death of such deceased person or before such person became of
unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their
answer before the trial court, and with the filing of their counterclaim, petitioners
themselves effectively removed this case from the ambit of the Dead Mans Statute.
[12]
Well entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim.[13] Moreover, as defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of fact occurring before the death of the
deceased, said action not having been brought against but by the estate or
representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans Statute
for the simple reason that she is not a party or assignor of a party to a case or
persons in whose behalf a case is prosecuted. Records show that respondent offered
the testimony of Josephine to establish the existence of the partnership between
respondent and Jacinto. Petitioners insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term assignor of a party
means assignor of a cause of action which has arisen, and not the assignor of a right
assigned before any cause of action has arisen.[15] Plainly then, Josephine is merely a
witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony lacks
probative value because she was allegedly coerced by respondent, her brother-inlaw, to testify in his favor. Josephine merely declared in court that she was requested
by respondent to testify and that if she were not requested to do so she would not
have testified. We fail to see how we can conclude from this candid admission that
Josephines testimony is involuntary when she did not in any way categorically say
that she was forced to be a witness of respondent. Also, the fact that Josephine is
the sister of the wife of respondent does not diminish the value of her testimony
since relationship per se, without more, does not affect the credibility of witnesses.
[16]

Petitioners reliance alone on the Dead Mans Statute to defeat respondents

claim cannot prevail over the factual findings of the trial court and the Court of
Appeals that a partnership was established between respondent and Jacinto. Based

not only on the testimonial evidence, but the documentary evidence as well, the
trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By
the weight of judicial precedents, a factual matter like the finding of the existence of
a partnership between respondent and Jacinto cannot be inquired into by this Court
on review.[17] This Court can no longer be tasked to go over the proofs presented by
the parties and analyze, assess and weigh them to ascertain if the trial court and the
appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other. [18] It must be also pointed out that petitioners
failed to attend the presentation of evidence of respondent. Petitioners cannot now
turn to this Court to question the admissibility and authenticity of the documentary
evidence of respondent when petitioners failed to object to the admissibility of the
evidence at the time that such evidence was offered. [19]
With regard to petitioners insistence that laches and/or prescription should
have extinguished respondents claim, we agree with the trial court and the Court of
Appeals that the action for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six (6) years [20] while the right to
demand an accounting for a partners interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary
agreement.[21] Considering that the death of a partner results in the dissolution of
the partnership[22], in this case, it was after Jacintos death that respondent as the
surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution
did not immediately terminate the partnership. The Civil Code[23] expressly provides
that upon dissolution, the partnership continues and its legal personality is retained
until the complete winding up of its business, culminating in its termination. [24]
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had an initial
capital of P200,000.00 should have been registered with the Securities and
Exchange Commission (SEC) since registration is mandated by the Civil Code. True,
Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code[25] explicitly provides that the partnership
retains its juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so long
as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the
members themselves knew of the contents of their contract. [26] In the case at bar,
non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and
Jacinto indeed forged the partnership in question.

39

WHEREFORE, in view of the foregoing, the petition is DENIED and the

appealed decision is AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

11. CIR v. Suter G.R. No. L-25532, February 28, 1969

G.R. No. L-25532

February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for
petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and
Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic phonographs, radios, television
sets and amusement machines, their parts and accessories. It had an office and held
itself out as a limited partnership, handling and carrying merchandise, using
invoices, bills and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to
secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after
trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co.,
Ltd. should be disregarded for income tax purposes, considering that respondent
William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit;
and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them
by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the
partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage
of Suter and Spirig and their subsequent acquisition of the interests of remaining
partner Carlson in the partnership dissolved the limited partnership, and if they did
not, the fiction of juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership and control of
the business; consequently the income tax return of respondent Suter for the years
in question should have included his and his wife's individual incomes and that of
the limited partnership, in accordance with Section 45 (d) of the National Internal
Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable
year shall be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax
Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New Civil Code, and that since
its juridical personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual
return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner,
William J. Suter to the originally limited partner, Julia Spirig one year after the

40

partnership was organized is rested by the appellant upon the opinion of now
Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

contributions remained their respective separate property under the Spanish Civil
Code (Article 1396):
The following shall be the exclusive property of each spouse:

A husband and a wife may not enter into a contract

of general copartnership, because under the Civil Code, which applies in
the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that the
marriage of partners necessarily brings about the dissolution of a preexisting partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of the partners,
as contributed by them to the common fund, or else "all that the partners may
acquire by their industry or work during the existence of the partnership". William J.
Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money, P20,000.00 by William Suter
and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It
follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho
Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the
prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular? Aunque el
punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los
contratos de sociedad particular entre esposos, ya que ningun precepto de
nuestro Codigo los prohibe, y hay que estar a la norma general segun la
que toda persona es capaz para contratar mientras no sea declarado
incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue
favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas
parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in wedlock, such

(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners (unlike
American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True, section
24 of the Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco,
77 Phil. 504) as authority for disregarding the fiction of legal personality of the
corporations involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax purposes. This is not true
in the present case. Here, the limited partnership is not a mere business conduit of
the partner-spouses; it was organized for legitimate business purposes; it conducted
its own dealings with its customers prior to appellee's marriage, and had been filing
its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from
the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as
the records show, the partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or design to use
the partnership as a business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with what it

41

specifically provides in its Section 24: for the appellant Commissioner's stand results
in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a
limited partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the case
of compaias colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal partnership
of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779,
and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the
wife's parapherna become conjugal only when no longer needed to defray the
expenses for the administration and preservation of the paraphernal capital of the
wife. Then again, the appellant's argument erroneously confines itself to the
question of the legal personality of the limited partnership, which is not essential to
the income taxability of the partnership since the law taxes the income of even joint
accounts that have no personality of their own. 1Appellant is, likewise, mistaken in
that it assumes that the conjugal partnership of gains is a taxable unit, which it is
not. What is taxable is the "income of both spouses" (Section 45 [d] in their
individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a
given taxable year, their consequences would be different, as their contributions in
the business partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands,
does not authorize it, and even bars it by requiring the limited partnership to pay tax
on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano
and Teehankee, JJ., concur.

12. Aurbach v. Sanitary Wares G.R. No. 75875, December 15, 1989
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

42

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

43

adjournment were registered and having been ignored, Mr. Jaqua

the ASI representative, stated that the meeting was not adjourned
but only recessed and that the meeting would be reconvened in
the next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the Chairman on
the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54%
of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while Andres
Gatmaitan acted as Secretary. On the basis of the cumulative
votes cast earlier in the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay. Luciano E. Salazar voted for himself, thus the
said five directors were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation that there was
a tie among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to break the
tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

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

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.

44

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)

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.

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.

(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:

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)

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)

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

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

45

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

46

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

47

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. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or
associations engaging in partially nationalized activities shall be
allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are

48

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 Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.

49

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.

Respondents.
x--------------------------------------------------x
DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review
at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August
2006 issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No.
93841 which, respectively, dismissed the petition for review of petitioner J. Tiosejo
Investment Corp. (JTIC) for having been filed out of time [1] and denied the motion for
reconsideration of said dismissal.[2]

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.

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
SO ORDERED.

Primetown Property Group, Inc. (PPGI) for the development of a residential

condominium project to be known asThe Meditel on the formers 9,502 square meter

13. J. Tiosejo Investment v. Spouses Ang, G.R. No. 174149,

September 8, 2010

property

along Samat

St.,

Highway

Hills, Mandaluyong City.[3] With

petitioner

contributing the same property to the joint venture and PPGI undertaking to develop
the condominium, the JVA provided, among other terms and conditions, that the

J. TIOSEJO INVESTMENT CORP.,

Petitioner,

- versus -

G.R. No. 174149

developed units shall be shared by the former and the latter at a ratio of 17%-83%,

Present:

respectively.[4] While both parties were allowed, at their own individual responsibility,

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.

to pre-sell the units pertaining to them,[5] PPGI further undertook to use all proceeds
from the pre-selling of its saleable units for the completion of the Condominium
Project.

[6]

Promulgated:
SPOUSES BENJAMIN AND ELEANOR ANG,

September 8, 2010

50

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners.

[7]

respondents for a transfer of their investment to its other feasible projects and for

By

the amounts they already paid to be considered as partial payment for the

virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses

replacement unit/s; and, that the complaint was prematurely filed in view of the on-

Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square meter

going negotiations it is undertaking with its buyers and prospective joint venture

condominium unit denominated as Unit A-1006, for the agreed contract price

partners. Aside from the dismissal of the complaint, PPGI sought the readjustment of

of P52,597.88 per square meter or a total P2,077,334.25.

[8]

On the same date PPGI

and respondents also executed Contract to Sell No. 0214 over the 12.50 square

the contract price and the grant of its counterclaims for attorneys fees and litigation
expenses.[11]

meter parking space identified as Parking Slot No. 0405, for the stipulated
consideration of P26,400.00 square meters or a total of P313,500.00.[9]
Petitioner also specifically denied the material allegations of the complaint in
separate

answer dated

February

2002[12] which

it

amended

on

20

May

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the

2002. Calling attention to the fact that its prestation under the JVA consisted in

rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB

contributing the property on which The Meditel was to be constructed, petitioner

Case No. REM 072199-10567. Contending that they were assured by petitioner and

asseverated that, by the terms of the JVA, each party was individually responsible for

PPGI that the subject condominium unit and parking space would be available for

the marketing and sale of the units pertaining to its share; that not being privy to

turn-over and occupancy in December 1998, respondents averred, among other

the Contracts to Sell executed by PPGI and respondents, it did not receive any

matters, that in view of the non-completion of the project according to said

portion of the payments made by the latter; and, that without any contributory fault

representation, respondents instructed petitioner and PPGI to stop depositing the

and negligence on its part, PPGI breached its undertakings under the JVA by failing

post-dated checks they issued and to cancel said Contracts to Sell; and, that despite

to complete the condominium project. In addition to the dismissal of the complaint

several

refund

and the grant of its counterclaims for exemplary damages, attorneys fees, litigation

the P611,519.52 they already paid under the circumstances. Together with the

expenses and the costs, petitioner interposed a cross-claim against PPGI for full

refund of said amount and interests thereon at the rate of 12% per annum,

reimbursement of any sum it may be adjudged liable to pay respondents. [13]

demands, petitioner

and

PPGI

have

failed

and refused

to

respondents prayed for the grant of their claims for moral and exemplary damages
as well as attorneys fees and the costs. [10]
Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to
Specifically denying the material allegations of the foregoing complaint, PPGI filed its

render the 30 July 2003 decision declaring the subject Contracts to Sell cancelled

7 September 1999 answer alleging that the delay in the completion of the project

and rescinded on account of the non-completion of the condominium project. On the

was attributable to the economic crisis which affected the country at the time; that

ground that the JVA created a partnership liability on their part, petitioner and PPGI,

the unexpected and unforeseen inflation as well as increase in interest rates and

as co-owners of the condominium project, were ordered to pay: (a) respondents

cost of building materials constitute force majeure and were beyond its control; that

claim for refund of the P611,519.52 they paid, with interest at the rate of 12% per

aware of its responsibilities, it offered several alternatives to its buyers like

annum from 5 February 1997; (b) damages in the sum of P75,000.00; (c) attorneys

51

fees in the sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the

also issued another order on the same date, granting petitioner a period of 15 days

sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of Presidential

from 28 February 2005 or until 15 March 2005 within which to file its appeal

Elevated to the HLURB Board of Commissioners via the petition

memorandum.[22] In view of petitioners filing of a second motion for extension dated

for review filed by petitioner,[16] the foregoing decision was modified to grant the

15 March 2005,[23] the OP issued the 18 March 2005 order granting the former an

latters

additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its

Decree No. 957.

[15]

cross-claim in

the 14

September

2004

decision

rendered

by

administrative bodys Second Division in HLURB Case No. REM-A-031007-0240,

said
[17]

to

wit:

appeal memorandum, provided no further extension shall be allowed. [24] Claiming to

have received the aforesaid 3 March 2005 order only on 16 March 2005, however,
petitioner filed its 31 March 2005 motion seeking yet another extension of 10 days
or until 10 April 2005 within which to file its appeal memorandum. [25]

Wherefore, the petition for review of the respondent Corporation is

dismissed. However, the decision of the Office below dated July 30,
2003 is modified, hence, its dispositive portion shall read:
1. Declaring the contracts to sell, both dated
February 5, 1997, as cancelled and
rescinded, and ordering the respondents to
immediately pay the complainants the
following:
a.

b.
c.
d.

The amount of P611,519.52, with

interest at the legal rate reckoned
from February 5, 1997 until fully
paid;
Damages of P75,000.00;
Attorneys
fees
equivalent
to P30,000.00; and
The Cost of suit;

2. Ordering respondents to pay this Office

administrative
fine
of P10,000.00
for
violation of Section 20 in relation to Section
38 of P.D. 957; and
3. Ordering respondent Primetown to reimburse
the entire amount which the respondent
Corporation will be constrained to pay the
complainants.

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner[26] which eventually filed its appeal memorandum by
registered mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a
Sunday.[27] On 25 October 2005, the OP rendered a decision dismissing petitioners
appeal on the ground that the latters appeal memorandum was filed out of time and
that the HLURB Board committed no grave abuse of discretion in rendering the
appealed decision.[28] Aggrieved by the denial of its motion for reconsideration of the
foregoing decision in the 3 March 2006 order issued by the OP, [29] petitioner filed
before the CA its 29 March 2006 motion for an extension of 15 days from 31 March
2006 or until 15 April 2006 within which to file its petition for review. [30] Accordingly,
a non-extendible period of 15 days to file its petition for review was granted
petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-G.R,
SP No. 93841.[31]

So ordered.[18]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work
With the denial of its motion for reconsideration of the foregoing decision,

prevented its counsel from finalizing its petition for review, petitioner filed a motion

petitioner filed a Notice of Appeal dated 28 February 2005 which was docketed

on 17 April 2006, seeking for an additional time of 10 days or until 27 April 2006

before the Office of the President (OP) as O.P. Case No. 05-B-072. [20] On 3 March

within which to file said pleading.[32] Although petitioner filed by registered mail a

2005, the OP issued an order directing petitioner to submit its appeal memorandum

motion to admit its attached petition for review on 19 April 2006, [33] the CA issued

[19]

within 15 days from receipt thereof.[21] Acting on the motion therefor filed, the OP

52

SUIT; AND (C) AFFIRMING THE HLURB BOARDS

DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS
COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

the herein assailed 23 May 2006 resolution, [34] disposing of the formers pending
motion for extension as well as the petition itself in the following wise:

The Courts Ruling

We resolve to DENY the second extension motion and rule

to DISMISS the petition for being filed late.
Settled is that heavy workload is by no means excusable
(Land Bank of the Philippines vs. Natividad, 458 SCRA 441
[2005]). If the failure of the petitioners counsel to cope up with
heavy workload should be considered a valid justification to
sidestep the reglementary period, there would be no end to
litigations so long as counsel had not been sufficiently diligent or
experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA
254, 259-260 [2005], citing Sublay vs. National Labor Relations
Commission, 324 SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion
for extension or postponement will be granted the length of time
they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned

upon,[39] it bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just discard and
disregard at will.[40] Neither being a natural right nor a part of due process, the rule is

SO ORDERED.[35]

settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law. [41] The
perfection of an appeal in the manner and within the period prescribed by law is, in

Petitioners motion for reconsideration of the foregoing resolution [36] was

denied for lack of merit in the CAs second assailed 9 August 2006 resolution,

fact, not only mandatory but jurisdictional.[42] Considering that they are requirements
which cannot be trifled with as mere technicality to suit the interest of a party,
[43]

[37]

hence, this petition.

failure to perfect an appeal in the prescribed manner has the effect of rendering

the judgment final and executory.[44]

The Issues

Petitioner seeks the reversal of the assailed resolutions on the following

grounds, to wit:

against the CA for denying its second motion for extension of time for lack of merit
and dismissing its petition for review for having been filed out of time. Acting on

I. THE COURT OF APPEALS ERRED IN DISMISSING THE

PETITION ON MERE TECHNICALITY;
II. THE

Fealty to the foregoing principles impels us to discount the error petitioner imputes

COURT OF APPEALS ERRED IN REFUSING TO

RESOLVE THE PETITION ON THE MERITS THEREBY
AFFIRMING THE OFFICE OF THE PRESIDENTS
DECISION (A) DISMISSING JTICS APPEAL ON A MERE
TECHNICALITY; (B) AFFIRMING THE HLURB BOARDS
DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY
LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG
DAMAGES, ATTORNEYS FEES AND THE COST OF THE

the 29 March 2006 motion filed for the purpose, after all, the CA had already
granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15
April 2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997
Rules of Civil Procedure provides as follows:

Sec. 4. Period of appeal. The appeal shall be taken within fifteen

(15) days from notice of the award, judgment, final order or
resolution, or from the date of its last publication, if publication is

53

required by law for its effectivity, or of the denial of petitioners

motion for new trial or reconsideration duly filed in accordance
with the governing law of the court or agency a quo. Only one (1)
motion for reconsideration shall be allowed.Upon proper motion
and payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals may
grant an additional period of fifteen (15) days only within which to
file the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to exceed
fifteen (15) days. (Underscoring supplied)

which to file its appeal memorandum, on the condition that no further extensions
shall be allowed. Aside from not heeding said proviso, petitioner had, consequently,
no more time to extend when it filed its 31 March 2005 motion seeking yet another
extension of 10 days or until 10 April 2005 within which to file its appeal
memorandum.

The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for review, on the ground
that pressures of work and the demands posed by equally important cases
prevented its counsel from finalizing the same. As correctly ruled by the CA,
however, heavy workload cannot be considered as a valid justification to sidestep
the reglementary period[45] since to do so would only serve to encourage needless
delays and interminable litigations. Indeed, rules prescribing the time for doing
specific

acts

or

for

taking

certain

proceedings

are

considered

absolutely

indispensable to prevent needless delays and to orderly and promptly discharge

judicial business.[46] Corollary to the principle that the allowance or denial of a
motion for extension of time is addressed to the sound discretion of the court,
[47]

moreover,

lawyers

cannot

expect

that

their

motions

for

extension

or

postponement will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are
necessary for an effective and expeditious administration of justice and cannot, for
said reason, be discarded with the mere expediency of claiming substantial merit.
[49]

This holds particularly true in the case at bench where, prior to the filing of its

petition for review before the CA, petitioners appeal before the OP was likewise
dismissed in view of its failure to file its appeal memorandum within the extensions
of time it had been granted by said office. After being granted an initial extension of
15 days to do the same, the records disclose that petitioner was granted by the OP a

With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure against further extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its counsels heavy workload
as ground for seeking an additional extension of 10 days within which to file its
petition for review. To our mind, petitioner would do well to remember that, rather
than the low gate to which parties are unreasonably required to stoop, procedural
rules are designed for the orderly conduct of proceedings and expeditious
settlement of cases in the courts of law. Like all rules, they are required to be
followed[50] and utter disregard of the same cannot be expediently rationalized by
harping on the policy of liberal construction [51] which was never intended as an
unfettered license to disregard the letter of the law or, for that matter, a convenient
excuse to substitute substantial compliance for regular adherence thereto. When it
comes to compliance with time rules, the Court cannot afford inexcusable delay. [52]

Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for
respondents claims and theP10,000.00 administrative fine imposed pursuant
to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it
appears that petitioner not only retained ownership of the property pending
completion of the condominium project[53] but had also bound itself to answer
liabilities proceeding from contracts entered into by PPGI with third parties. Article
VIII, Section 1 of the JVA distinctly provides as follows:

second extension of 10 days from 15 March 2005 or until 25 March 2005 within

54

Sec. 1. Rescission and damages. Non-performance by either party

of its obligations under this Agreement shall be excused when the
same is due to Force Majeure. In such cases, the defaulting party
must exercise due diligence to minimize the breach and to remedy
the same at the soonest possible time. In the event that either
party defaults or breaches any of the provisions of this Agreement
other than by reason of Force Majeure, the other party shall have
the right to terminate this Agreement by giving notice to the
defaulting party, without prejudice to the filing of a civil case for
damages arising from the breach of the defaulting party.
In the event that the Developer shall be rendered unable to
complete the Condominium Project, and such failure is directly and
solely attributable to the Developer, the Owner shall send written
notice to the Developer to cause the completion of the
Condominium Project. If the developer fails to comply within One
Hundred Eighty (180) days from such notice or, within such time,
indicates its incapacity to complete the Project, the Owner shall
have the right to take over the construction and cause the
completion thereof. If the Owner exercises its right to complete the
Condominium Project under these circumstances, this Agreement
shall be automatically rescinded upon written notice to the
Developer and the latter shall hold the former free and harmless
from any and all liabilities to third persons arising from such
rescission. In any case, the Owner shall respect and strictly comply
with any covenant entered into by the Developer and third parties
with respect to any of its units in the Condominium Project. To
enable the owner to comply with this contingent liability, the
Developer shall furnish the Owner with a copy of its contracts with
the said buyers on a month-to-month basis. Finally, in case the
Owner would be constrained to assume the obligations of the
Developer to its own buyers, the Developer shall lose its right to
ask for indemnity for whatever it may have spent in the
Development of the Project.
Nevertheless, with respect to the buyers of the Developer for the
First Phase, the area intended for the Second Phase shall not be
bound and/or subjected to the said covenants and/or any other
liability incurred by the Developer in connection with the
development of the first phase. (Underscoring supplied)

partners.[55] Whether innocent or guilty, all the partners are solidarily liable with the
partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.

SO ORDERED.

14. Gatchalian v. Collector, 67 Phil 666 (1939)

G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell executed

IMPERIAL, J.:

by PPGI and respondents. As correctly argued by the latter, moreover, a joint

venture is considered in this jurisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships. [54] Under Article 1824 of the Civil Code of the
Philippines, all partners are solidarily liable with the partnership for everything
chargeable to the partnership, including loss or injury caused to a third person or
penalties incurred due to any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of his co-

The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under
protest by way of income tax. They appealed from the decision rendered in the case
on October 23, 1936 by the Court of First Instance of the City of Manila, which
dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:

55

Come now the parties to the above-mentioned case, through their

respective undersigned attorneys, and hereby agree to respectfully submit
to this Honorable Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and
that defendant is the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to
purchase one sweepstakes ticket valued at two pesos (P2), subscribed and
paid therefor the amounts as follows:
1. Jose
Gatchalian ....................................................................................................

P0.18

2. Gregoria
Cristobal ...............................................................................................

.18

3. Saturnina
Silva ....................................................................................................

.08

4. Guillermo
Tapia ...................................................................................................

.13

5. Jesus
Legaspi ......................................................................................................

.15

6. Jose
Silva .............................................................................................................

.07

7. Tomasa
Mercado ................................................................................................

.08

8. Julio
Gatchalian ...................................................................................................

.13

9. Emiliana
Santiago ................................................................................................

.13

10. Maria C.
Legaspi ...............................................................................................

.16

11. Francisco
Cabral ...............................................................................................

.13

12. Gonzalo
Javier ....................................................................................................

.14

13. Maria
Santiago ...................................................................................................

.17

14. Buenaventura
Guzman ......................................................................................

.13

15. Mariano
Santos .................................................................................................

.14

Total ........................................................................................................

2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs
purchased, in the ordinary course of business, from one of the duly
authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket
was registered in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15,
1934, the above-mentioned ticket bearing No. 178637 won one of the third
prizes in the amount of P50,000 and that the corresponding check covering
the above-mentioned prize of P50,000 was drawn by the National Charity
Sweepstakes Office in favor of Jose Gatchalian & Company against the
Philippine National Bank, which check was cashed during the latter part of
December, 1934 by Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return
covering the prize won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by Jose Gatchalian, a copy
of which return is enclosed as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against
Jose Gatchalian & Company requesting the payment of the sum of
P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until January 20, 1935 within which to pay
the said amount of P1,499.94, a copy of which letter marked Exhibit B is
enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made
a part hereof, requesting exemption from payment of the income tax to
which reply there were enclosed fifteen (15) separate individual income tax
returns filed separately by each one of the plaintiffs, copies of which returns
are attached and marked Exhibit D-1 to D-15, respectively, in order of their
names listed in the caption of this case and made parts hereof; a statement
of sale signed by Jose Gatchalian showing the amount put up by each of the
plaintiffs to cover up the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part
thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which
marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935,
for exemption from the payment of tax and reiterated his demand for the
payment of the sum of P1,499.94 as income tax and gave plaintiffs until
February 10, 1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand made
by defendant upon the plaintiffs through their attorney on March 23, 1935,
a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935
issued a warrant of distraint and levy against the property of the plaintiffs,

56

a copy of which warrant marked Exhibit I is enclosed and made a part

hereof;
10. That to avoid embarrassment arising from the embargo of the property
of the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria
Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of
P601.51 as part of the tax and penalties to the municipal treasurer of
Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is
attached and marked Exhibit J and made a part hereof, and requested
defendant that plaintiffs be allowed to pay under protest the balance of the
tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was
granted by defendant subject to the condition that plaintiffs file the usual
bond secured by two solvent persons to guarantee prompt payment of each
installments as it becomes due;

17. The parties hereto reserve the right to present other and additional
evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby
certify, that on the 11th day of August, 1934, I sold parts of my shares on
ticket No. 178637 to the persons and for the amount indicated below and
the part of may share remaining is also shown to wit:
Purchaser

Amount

Address

1. Mariano Santos ...........................................

P0.14

2. Buenaventura Guzman ...............................

.13

- Do -

3. Maria Santiago ............................................

.17

- Do -

4. Gonzalo Javier ..............................................

.14

- Do -

5. Francisco Cabral ..........................................

.13

- Do -

13. That on July 16, 1935 the said plaintiffs formally protested against the
payment of the sum of P602.51, a copy of which protest is attached and
marked Exhibit L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of the plaintiffs;

6. Maria C. Legaspi ..........................................

.16

- Do -

7. Emiliana Santiago .........................................

.13

- Do -

8. Julio Gatchalian ............................................

.13

- Do -

14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond filed by
them, the defendant in his letter dated July 23, 1935, copy of which is
attached and marked Exhibit M, ordered the municipal treasurer of Pulilan,
Bulacan to execute within five days the warrant of distraint and levy issued
against the plaintiffs on May 13, 1935;

9. Jose Silva ......................................................

.07

- Do -

10. Tomasa Mercado .......................................

.08

- Do -

11. Jesus Legaspi .............................................

.15

- Do -

12. Guillermo Tapia ...........................................

.13

- Do -

15. That in order to avoid annoyance and embarrassment arising from the
levy of their property, the plaintiffs on August 28, 1936, through Jose
Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid
under protest to the municipal treasurer of Pulilan, Bulacan the sum of
P1,260.93 representing the unpaid balance of the income tax and penalties
demanded by defendant as evidenced by income tax receipt No. 35811
which is attached and marked Exhibit N and made a part hereof; and that
on September 3, 1936, the plaintiffs formally protested to the defendant
against the payment of said amount and requested the refund thereof,
copy of which is attached and marked Exhibit O and made part hereof; but
that on September 4, 1936, the defendant overruled the protest and denied
the refund thereof; copy of which is attached and marked Exhibit P and
made a part hereof; and

13. Saturnina Silva ............................................

.08

- Do -

14. Gregoria Cristobal .......................................

.18

- Do -

15. Jose Gatchalian ............................................

.18

- Do -

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked
Exhibit K is enclosed and made a part hereof, to guarantee the payment of
the balance of the alleged tax liability by monthly installments at the rate
of P118.70 a month, the first payment under protest to be effected on or
before July 31, 1935;

Pulilan, Bulacan.

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the
parts of whatever prize that might be won by said ticket.
Pulilan, Bulacan, P.I.

16. That plaintiffs demanded upon defendant the refund of the total sum of
one thousand eight hundred and sixty three pesos and forty-four centavos
(P1,863.44) paid under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the plaintiffs' demands.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:

57

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL

DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL
REVENUE.

Name

Exhibi
t
No.

1. Jose
Gatchalian ............................. D-1
.............

Purchas
e
Price
P0.18

Price
Won
P4,42
5

Expenses

Net
prize

P 480

3,94
5

14. Buenaventura
Guzman ...........................

D-14

.13

3,325

360

2,96
5

15. Mariano
Santos ...................................
.....

D-15

.14

3,325

360

2,96
5

2.00

2. Gregoria
Cristobal ................................ D-2
......

.18

4,575

2,000

2,57
5

3. Saturnina
Silva ......................................
.......

D-3

.08

1,875

360

1,51
5

4. Guillermo
Tapia .....................................
.....

D-4

.13

3,325

360

2,96
5

5. Jesus Legaspi by Maria

Cristobal .........

D-5

.15

3,825

720

3,10
5

6. Jose
Silva ......................................
..............

D-6

.08

1,875

360

1,51
5

7. Tomasa
Mercado ................................
.......

D-7

.07

1,875

360

1,51
5

8. Julio Gatchalian by Beatriz

Guzman .......

D-8

.13

3,150

240

2,91
0

9. Emiliana
Santiago ................................ D-9
......

.13

3,325

360

2,96
5

10. Maria C.
Legaspi .................................
.....

D-10

.16

4,100

960

3,14
0

11. Francisco
Cabral ...................................
...

D-11

.13

3,325

360

2,96
5

12. Gonzalo
Javier .....................................
.....

D-12

.14

3,325

360

2,96
5

13. Maria
Santiago ................................ D-13
..........

.17

4,350

360

3,99
0

<="" td=""
style="fontsize: 14px;
text-decoration:
50,00 none; color:
0 rgb(0, 0, 128);
font-family:
arial,
verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly
be reduced to the two following: (1) Whether the plaintiffs formed a partnership, or
merely a community of property without a personality of its own; in the first case it
is admitted that the partnership thus formed is liable for the payment of income tax,
whereas if there was merely a community of property, they are exempt from such
payment; and (2) whether they should pay the tax collectively or whether the latter
should be prorated among them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833,
as last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company, partnership, joint
account (cuenta en participacion), association or insurance company,
organized in the Philippine Islands, no matter how created or organized, but
not including duly registered general copartnership (compaias colectivas),
a tax of three per centum upon such income; and a like tax shall be levied,
assessed, collected, and paid annually upon the total net income received
in the preceding calendar year from all sources within the Philippine Islands
by every corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country, including
interest on bonds, notes, or other interest-bearing obligations of residents,
corporate or otherwise: Provided, however, That nothing in this section shall
be construed as permitting the taxation of the income derived from
dividends or net profits on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real,
personal, or mixed, shall be ascertained in accordance with subsections (c)
and (d) of section two of Act Numbered Two thousand eight hundred and
thirty-three, as amended by Act Numbered Twenty-nine hundred and
twenty-six.

58

The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to the
stipulation facts the plaintiffs organized a partnership of a civil nature because each
of them put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as copartner, as such collection the prize, the office issued the check for P50,000 in favor
of Jose Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is
the one bound to pay the income tax which the defendant collected under the
aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761.
There is no merit in plaintiff's contention that the tax should be prorated among
them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

15. Yulo v. Yang Chiao Seng, 106 Phil 110 (1959)

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 for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
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

59

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 defendant-appellee 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

60

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.

16. Pioneer Insurance & Surety Corp. v. Court of Appeals, 175

SCRA 668 (1989)

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S.
LIM, respondents.

JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA,respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

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

G.R. No. 84157 July 28, 1989

61

Furthermore, he is required to pay P20,000.00 to Bormaheco and

the Cervanteses, and another P20,000.00 to Constancio B.
Maglana as attorney's fees.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in
G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C)
in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer
against defendants Bormaheco, the Cervanteses and Constancio
B. Maglana, is dismissed. Instead, plaintiff is required to indemnify
the defendants Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of P4,379.21, per
year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana
the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for
this action was filed in good faith. The fact that the properties of
the Bormaheco and the Cervanteses were attached and that they
were required to file a counterbond in order to dissolve the
attachment, is not an act of bad faith. When a man tries to protect
his rights, he should not be saddled with moral or exemplary
damages. Furthermore, the rights exercised were provided for in
the Rules of Court, and it was the court that ordered it, in the
exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc.,
the third-party defendant, for it only secured the attachment
prayed for by the plaintiff Pioneer. If an insurance company would
be liable for damages in performing an act which is clearly within
its power and which is the reason for its being, then nobody would
engage in the insurance business. No further claim or counterclaim for or against anybody is declared by this Court. (Rollo - G.R.
No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
into and executed a sales contract (Exhibit A) for the sale and purchase of two (2)
DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry
No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their contributions
to a new corporation proposed by Lim to expand his airline business. They executed
two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer,
one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and
the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all damages, losses, costs,
damages, taxes, penalties, charges and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety upon the bond/note and
to pay, reimburse and make good to Pioneer, its successors and assigns, all sums
and amounts of money which it or its representatives should or may pay or cause to
be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in
favor of the former. It was stipulated therein that Lim transfer and convey to the
surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of
the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request
payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application
for a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims
against Lim alleging that they were not privies to the contracts signed by Lim and,
by way of counterclaim, sought for damages for being exposed to litigation and for
recovery of the sums of money they advanced to Lim for the purchase of the
aircrafts in question.

62

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer
but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects
the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND
THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF
THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT
IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE
TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff
Pioneer had reinsured its risk of liability under the surety bond in
favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged
obligation to Pioneer amounts to P295,000.00, hence, plaintiffs
instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real
party in interest to institute the instant action as it does not stand
to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to

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

63

respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is
not applicable considering that whatever amount he would recover from the coindemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance
money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues
threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect
to so much of its obligations to JDA as has been paid with
reinsurance money?
2. If the answer to the preceding question is in the negative, has
Pioneer still any claim against defendants, considering the amount
it has realized from the sale of the mortgaged properties? (Record
on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the
surety bond it had executed in favor of JDA, collected the proceeds
of such reinsurance in the sum of P295,000, and paid with the said
amount the bulk of its alleged liability to JDA under the said surety
bond, it is plain that on this score it no longer has any right to
collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance
(sic), that is suing defendants for the amount paid to it by the
reinsurers, notwithstanding that the cause of action pertains to the
latter, Pioneer says: The reinsurers opted instead that the Pioneer
Insurance & Surety Corporation shall pursue alone the case.. . . .
Pioneer Insurance & Surety Corporation is representing the
reinsurers to recover the amount.' In other words, insofar as the
amount paid to it by the reinsurers Pioneer is suing defendants as
their attorney-in-fact.

But in the first place, there is not the slightest indication in the
complaint that Pioneer is suing as attorney-in- fact of the
reinsurers for any amount. Lastly, and most important of all,
Pioneer has no right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name instead of
that of the principal will not prosper, and this is so even where the
name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court
provides that 'Every action must be prosecuted
in the name of the real party in interest.' This
provision is mandatory. The real party in interest
is the party who would be benefitted or injured
by the judgment or is the party entitled to the
avails of the suit.
This Court has held in various cases that an
attorney-in-fact is not a real party in interest,
that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v.
Granada and Gentero, 18 Phil. Rep. 484;
Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep.
12; Filipinos Industrial Corporation v. San Diego
G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since
Pioneer has collected P295,000.00 from the reinsurers, the
uninsured portion of what it paid to JDA is the difference between
the two amounts, or P3,666.28. This is the amount for which
Pioneer may sue defendants, assuming that the indemnity
agreement is still valid and effective. But since the amount
realized from the sale of the mortgaged chattels are P35,000.00
for one of the airplanes and P2,050.00 for a spare engine, or a
total of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against defendants. (Record
on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the
appellate court. Considering this admitted payment, the only issue that cropped up
was the effect of payment made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the reinsurance
contract as this is strictly between the petitioner as insured and the reinsuring
company pursuant to Section 91 (should be Section 98) of the Insurance Code has
no basis.
In general a reinsurer, on payment of a loss acquires the same
rights by subrogation as are acquired in similar cases where the

64

original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses
Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in
general applicable to actions or contracts of reinsurance.
(Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126
GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or
injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v.
Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the
indemnity from the insurer, it is provided in said article that the
insurer is deemed subrogated to the rights of the insured against
the wrongdoer and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to
recover the deficiency. Evidently, under this legal provision, the
real party in interest with regard to the portion of the indemnity
paid is the insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorneyin-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner
was not the real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the counter indemnitors. It does not,
however, cite any grounds except its allegation that respondent "Maglanas defense
and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with
evidence to substantiate its finding that the counter-indemnitors are not liable to the
petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement
ceased to be valid and effective after the execution of the chattel
mortgage.
Testimonies of defendants Francisco Cervantes and Modesto
Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare
parts involved, agreed to issue the bond provided that the same
would be mortgaged to it, but this was not possible because the
planes were still in Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to the
Philippines, they would be mortgaged to Pioneer Insurance to
cover the bond, and this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original
complaint:
The various conflicting claims over the
mortgaged properties have impaired and
rendered insufficient the security under the
chattel mortgage and there is thus no other
sufficient security for the claim sought to be
enforced by this action.
This is judicial admission and aside from the chattel mortgage
there is no other security for the claim sought to be enforced by
this action, which necessarily means that the indemnity
agreement had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the
chattel mortgage on the planes and spare parts, no longer has any
further action against the defendants as indemnitors to recover
any unpaid balance of the price. The indemnity agreement was
ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to
be subrogated to the right of Pioneer should they make payments
to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.

65

Independently of the preceding proposition Pioneer's election of

the remedy of foreclosure precludes any further action to recover
any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last
installments to JDA and Pioneer as surety having made of the
payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto
Law.
Pioneer exercised the remedy of foreclosure of the chattel
mortgage both by extrajudicial foreclosure and the instant suit.
Such being the case, as provided by the aforementioned
provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to
the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance
Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from
through the contention that Pioneer is not the vendor but JDA. The
reason is that Pioneer is actually exercising the rights of JDA as
vendor, having subrogated it in such rights. Nor may the
application of the provision be validly opposed on the ground that
these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R.
No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change
of their maturity dates discharged these defendants from any
liability as alleged indemnitors. The change of the maturity dates
of the obligations of Lim, or SAL extinguish the original obligations
thru novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal
successive three months interval installments,
the first of which shall be due and payable 25
August 1965, the remainder of which ... shall be
due and payable on the 26th day x x x of each
succeeding three months and the last of which
shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a
memorandum executed by SAL or Lim and JDA, modifying the
maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight equal
successive three month interval installments the

first of which shall be due and payable 4

September 1965, the remainder of which ... shall
be due and payable on the 4th day ... of each
succeeding months and the last of which shall be
due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory
notes bearing maturity dates different from that fixed in the
aforesaid memorandum; the due date of the first installment
appears as October 15, 1965, and those of the rest of the
installments, the 15th of each succeeding three months, that of
the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity
dates, effected twice, were done without the knowledge, much
less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that
these defendants and defendant Maglana knew of and consented
to the modification of the obligations. But if that were so, there
would have been the corresponding documents in the form of a
written notice to as well as written conformity of these defendants,
and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured
by the indemnity agreement which was thereby also extinguished.
Applicable by analogy are the rulings of the Supreme Court in the
case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and
the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by
the creditor without the consent of the guarantor
extinguishes the guaranty The mere failure on
the part of the creditor to demand payment after
the debt has become due does not of itself
constitute any extension time referred to herein,
(New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when
Pioneer paid the same. Consequently, Pioneer has no more cause
of action to recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an express
stipulation in the surety bond, the failure of JDA to present its
claim to Pioneer within ten days from default of Lim or SAL on
every installment, released Pioneer from liability from the claim.

66

Therefore, Pioneer is not entitled to exact reimbursement from

these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not
entitle him to reimbursement from his codebtors if such payment is made after the
obligation has prescribed or became illegal.

established in the records that defendant Lim had duly received

the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of
the subject airplanes and spare parts (Exhibit 58). In addition, the
cross-party plaintiffs incurred additional expenses, hence, the total
sum of P 184,878.74.
We first state the principles.

These defendants are entitled to recover damages and attorney's

fees from Pioneer and its surety by reason of the filing of the
instant case against them and the attachment and garnishment of
their properties. The instant action is clearly unfounded insofar as
plaintiff drags these defendants and defendant Maglana.' (Record
on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors
whose agreement was to do business through the corporate
vehicle but who failed to incorporate the entity in which they had
chosen to invest? How are the losses to be treated in situations
where their contributions to the intended 'corporation' were
invested not through the corporate form? This Petition presents
these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure
of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner
Lim to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to
wit:
However, defendant Lim should be held liable to pay his codefendants' cross-claims in the total amount of P184,878.74 as
correctly found by the trial court, with interest from the filing of
the cross-complaints until the amount is fully paid. Defendant Lim
should pay one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant Maglana. It is

While it has been held that as between themselves the rights of

the stockholders in a defectively incorporated association should
be governed by the supposed charter and the laws of the state
relating thereto and not by the rules governing partners (Cannon
v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is
ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name
occupy the position of partners inter se (Lynch v. Perryman, 119 P.
229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to purchase property
to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as
members of the company to the property acquired by the
company will be recognized (Smith v. Schoodoc Pond Packing Co.,
84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So,
where certain persons associated themselves as a corporation for
the development of land for irrigation purposes, and each
conveyed land to the corporation, and two of them contracted to
pay a third the difference in the proportionate value of the land
conveyed by him, and no stock was ever issued in the corporation,
it was treated as a trustee for the associates in an action between
them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among
them in proportion to the value of the property contributed by
each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation
does not necessarily exist, for ordinarily persons cannot be made
to assume the relation of partners, as between themselves, when
their purpose is that no partnership shall exist (London Assur.
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed.
688), and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to
subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other subscribers
who engage in business under the name of the pretended
corporation, so as to be liable as such in an action for settlement
of the alleged partnership and contribution (Ward v. Brigham, 127
Mass. 24). A partnership relation between certain stockholders and
other stockholders, who were also directors, will not be implied in
the absence of an agreement, so as to make the former liable to

67

contribute for payment of debts illegally contracted by the latter

(Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).

capacity as the alleged proprietor of the SAL. The answering

defendants learned for the first time of this trickery and
misrepresentation of the other, Jacob Lim, when the herein plaintiff
chattel mortgage (sic) allegedly executed by defendant Lim,
thereby forcing them to file an adverse claim in the form of third
party claim. Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories
and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of
accounts, the latter ignored, omitted and refused to comply with
them. (Record on Appeal, pp. 341-342).

In the instant case, it is to be noted that the petitioner was declared non-suited for
his failure to appear during the pretrial despite notification. In his answer, the
petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found
through Exhibit 58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows that defendant
Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation
with the respondents despite his representations to them. This gives credence to the
cross-claims of the respondents to the effect that they were induced and lured by
the petitioner to make contributions to a proposed corporation which was never
formed because the petitioner reneged on their agreement. Maglana alleged in his
cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to
procure two DC-3's from Japan and secure the necessary
certificates of public convenience and necessity as well as the
required permits for the operation thereof. Maglana sometime in
May 1965, gave Cervantes his share of P75,000.00 for delivery to
Lim which Cervantes did and Lim acknowledged receipt thereof.
Cervantes, likewise, delivered his share of the undertaking. Lim in
an undertaking sometime on or about August 9,1965, promised to
incorporate his airline in accordance with their agreement and
proceeded to acquire the planes on his own account. Since then up
to the filing of this answer, Lim has refused, failed and still refuses
to set up the corporation or return the money of Maglana. (Record
on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:

Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the airplanes
and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.

17. Yu v. National Labor Relations Commission, 224 SCRA 75 (1993)

G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU
SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.

Sometime in April 1965, defendant Lim lured and induced the

answering defendants to purchase two airplanes and spare parts
from Japan which the latter considered as their lawful contribution
and participation in the proposed corporation to be known as SAL.
Arrangements and negotiations were undertaken by defendant
Lim. Down payments were advanced by defendants Bormaheco
and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary
to the agreement among the defendants, defendant Lim in
connivance with the plaintiff, signed and executed the alleged
chattel mortgage and surety bond agreement in his personal

Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm

68

name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The

partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all
citizens of the Republic of China (Taiwan), as limited partners. The partnership
business consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum
Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its
main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to
petitioner Yu, however, he actually received only half of his stipulated monthly
salary, since he had accepted the promise of the partners that the balance would be
paid when the firm shall have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances of the business; he had
overall supervision of the workers at the marble quarry in Bulacan and took charge
of the preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between
Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great
bulk of the partnership interest. The partnership now constituted solely by Willy Co
and Emmanuel Zapanta continued to use the old firm name of Jade Mountain,
though they moved the firm's main office from Makati to Mandaluyong, Metropolitan
Manila. A Supplement to the Memorandum Agreement relating to the operation of
the marble quarry was entered into with the Cruz spouses in February of 1988. 2 The
actual operations of the business enterprise continued as before. All the employees
of the partnership continued working in the business, all, save petitioner Benjamin
Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office
for work and there met private respondent Willy Co for the first time. Petitioner was
informed by Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was responsible for the
obligations of the old partnership, including petitioner's unpaid salaries. Petitioner
was in fact not allowed to work anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and
recovery of unpaid salaries accruing from November 1984 to October 1988, moral
and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and Willy Co denied petitioner's
charges, contending in the main that Benjamin Yu was never hired as an employee
by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision
of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co
and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as Assistant
General Manager, and that there was no law requiring the new partnership to absorb
the employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his
former managerial position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against the original
members of the preceding partnership, but these though impleaded had,
apparently, not been served with summons in the proceedings before the Labor
Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us
to set aside and annul the Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that
a partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnerships composed of Willy Co
and Emmanuel Zapanta; and (2) if indeed a new partnership had come into
existence, whether petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is,
that the legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware
is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil
Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be

69

associated in the carrying on as distinguished from the winding

up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any
partner, who must act in good
faith, when no definite term or
particular undertaking is
specified;
xxx xxx xxx
(2) in contravention of the
agreement between the
partners, where the
circumstances do not permit a
dissolution under any other
provision of this article, by the
express will of any partner at
any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the
original partnership interest. The acquisition of 82% of the partnership interest by
new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the
business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its
debts, liquidating and distributing its net assets, and then re-assembling the said
assets or most of them and opening a new business enterprise. There were, no
doubt, powerful tax considerations which underlay such an informal approach to
business on the part of the retiring and the incoming partners. It is not, however,
necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new
partnership itself which continued the business of the old, dissolved, one, are liable
for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et
al, 8 the Court held that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor of the old
partnership. 9 The liability of the new partnership, upon the other hand, in the set of
circumstances obtaining in the case at bar, is established in Article 1840 of the Civil
Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing partnership,
or when any partner retires and assigns (or the representative of
the deceased partner assigns) his rights in partnership property to
two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or
with others;
(3) When any Partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of
this Article, with the consent of the retired partners or the
representative of the deceased partner, but without any
assignment of his right in partnership property;

70

(4) When all the partners or their representatives assign their

rights in partnership property to one or more third persons who
promise to pay the debts and who continue the business of the
dissolved partnership;
(5) When any partner wrongfully causes a dissolution and
remaining partners continue the businessunder the provisions of
article 1837, second paragraph, No. 2, either alone or with
others, andwithout liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with others without
liquidation of the partnership affairs;
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of creditors
to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation
of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-avisany claim of any retired or previous partner insofar as such retired partner's
interest in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or mare of the above six (6) paragraphs, the case at bar
would fall, if only because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear to the Court that under
Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries,
as well as other claims relating to his employment with the previous partnership,
against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled
to appoint and hire a new general or assistant general manager to run the affairs of
the business enterprise take over. An assistant general manager belongs to the most
senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized
cause for termination in the case at bar was redundancy. 10 The new partnership had
its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yu's old
position as Assistant General Manager thus became superfluous or redundant. 11 It
follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one
month's pay for each year of service that he had rendered to the old partnership, a
fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu
in its employ, we consider that Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from the services of Benjamin
Yu who, as noted, previously ran the whole marble quarrying, processing and
exporting enterprise. His work constituted value-added to the business itself and
therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It
is worthy of note that the new partnership did not try to suggest that there was any
cause consisting of some blameworthy act or omission on the part of Mr. Yu which
compelled the new partnership to terminate his services. Nonetheless, the new Jade
Mountain did not notify him of the change in ownership of the business, the
relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the
refusal to honor his claim for unpaid wages) accorded to Assistant General Manager
Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith
treatment, for which the new Jade Mountain may legitimately be required to respond
by paying moral damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal
rate of six percent (6%) per annum on the amount of unpaid wages, and of his

71

separation pay, computed from the date of promulgation of the award of the Labor
Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to attorney's fees in the
amount of ten percent (10%) of the total amount due from private respondent Jade
Mountain.

(c) indemnity for moral damages in the amount

of P20,000.00;
(d) six percent (6%) per annum legal interest
computed on items (a) and (b) above,
commencing on 26 December 1989 and until
fully paid; and

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to the
Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the
Labor Arbiter, shall be computed at the rate of
P2,000.00 per month multiplied by thirty-six (36)
months (November 1984 to December 1987) in
the total amount of P72,000.00;

(e) ten percent (10%) attorney's fees on the total

amount due from private respondent Jade
Mountain.
Costs against private respondents.
SO ORDERED.

(b) separation pay computed at the rate of

P4,000.00 monthly pay multiplied by three (3)
years of service or a total of P12,000.00;

72