Art 1767

Ortega vs CA 245 SCRA 529 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L.
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by
the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO;
on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B.
Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating: I am
withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other partners. Not only have they refused
to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice
in a manner that deprived them of their self-respect. The result of such policies is the formation of the
union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits,
rent or interest attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner
or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing
partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the
parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner stipulated in the partnership agreement;
(d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of
the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in
any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad
faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored.
We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on
this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not
a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their legal
and other affairs; and to appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally authorized to do
so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among
partners,7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon
its dissolution, the partnership continues and its legal personality is retained until the complete winding
up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions
of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among
them and normally takes precedence to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of
the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of
a deceased partner, as the case may be. In the event of any disagreement between the said appraisers
a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two
(2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not
be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner
is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful
act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
2. Pang Lim and Galvez vs Lo Seng 42 Ph 282 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees, vs.LO SENG, defendant-appellant.

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang
Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in
the business of running a distillery, known as "El Progreso," in the Municipality of Paombong, in the
Province of Bulacan. The land on which said distillery is located as well as the buildings and
improvements originally used in the business were, at the time to which reference is now made, the
property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng and Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented
by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years.
The reason why the contract was made for so long a period of time appears to have been that the Bureau
of Internal Revenue had required sundry expensive improvements to be made in the distillery, and it was
agreed that these improvements should be effected at the expense of the lessees. In conformity with
this understanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng
alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
 x
1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by
way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng and Co.), after the termination of the previous contract,
because of the fact that they are required, by the Bureau of Internal Revenue, to rearrange, alter and
clean up the distillery.
2. That all the improvements and betterments which they may introduce, such as machinery, apparatus,
tanks, pumps, boilers and buildings which the business may require, shall be, after the termination of the
fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings being considered as
improvements.
3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September
11, 1911, acknowledged before the notary public D. Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present
conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending the same was inscribed in the property
registry, for the reason that the estate which is the subject of the lease has never at any time been so
inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the
latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo
Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and
another Chinaman named Benito Galvez, the entire distillery plant including the land used in connection
therewith. As in case of the lease this document also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to
yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises. From the
decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment
was rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which
reads in part as follows:

ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time
of making the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law.
In considering this provision it may be premised that a contract of lease is personally binding on all who
participate in it regardless of whether it is recorded or not, though of course the unrecorded lease creates
no real charge upon the land to which it relates. The Mortgage Law was devised for the protection of
third parties, or those who have not participated in the contracts which are by that law required to be
registered; and none of its provisions with reference to leases interpose any obstacle whatever to the
giving of full effect to the personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to be so understood by all
commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent
observation: "The Mortgage Law is enacted in aid of and in respect to third persons only; it does not
affect the relations between the contracting parties, nor their capacity to contract. Any question affecting
the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while any
question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a
la Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed
therein, the lease in question was from the beginning, and has remained, binding upon all the parties
thereto among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co.
this does not really solve the problem now before us, which is, whether the plaintiffs herein, as
purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding
upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the
Civil Code; and the position of the defendant derives no assistance from the mere circumstance that the
lease was admittedly binding as between the parties thereto.
The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a
qualification which evidently has reference to the familiar proposition that recorded instruments are
effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from
whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever.
But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from
exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease
which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as
applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority
for the proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken
part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of
the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third
persons; and the same observation will suffice to dispose of it that was made by us above in discussing
the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is binding on all
persons who participate therein, this does not determine the question whether, admitting the lease to be
so binding, it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as
article 1549 of the Civil Coded all of which, as we have seen, are undecisive we are brought to
consider the aspect of the case which seems to us conclusive. This is found in the circumstance that the
plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely,
first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every competent person is by law
bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any contract previously
entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease,
and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang
Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise
of a purchaser of the estate, to destroy an interest derived from himself, and for which he has received
full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the
circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and
Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that
position had acquired knowledge of the possibilities of the property and possibly an experience which
would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On
account of his status as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease
had been extended for fifteen years; and he knew the extent of valuable improvements that had been
made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if
the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in
a business, worthless without the lease, could intervene as purchaser of the property and confiscate for
his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of
justice recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required to exhibit towards each other the
highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as
fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply
exclusively to his own benefit the results of the knowledge and information gained in the character of
partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the
renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of
the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to
such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name
of one partner after the dissolution of the firm and pending its liquidation. (16 R. C. L., 906;
Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)
An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable
is deducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee
for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now
under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred
to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease; and while it cannot
be supposed that the obligation to warrant recognized in the articles cited would nullify article 1571, if
the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said
articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our
opinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo
Seng.
It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in
courts of common law under the head of estoppel by deed, in accordance with which it is held that if a
person, having no title to land, conveys the same to another by some one or another of the recognized
modes of conveyance at common law, any title afterwards acquired by the vendor will pass to the
purchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired
title. The indenture of lease, it may be further noted, was recognized as one of the modes of conveyance
at common law which created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now
in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action
of unlawful detainer by him. Moreover, it is fatal to the maintenance of the action brought jointly by Pang
Lim and Benito Galvez. The reason is that in the action of unlawful detainer, under section 80 of the
Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order
to maintain the action, in the form in which it is here presented, the proof must show that occupant's
possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the
right to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang
Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as
between themselves, in the position of tenants in common or owners pro indiviso, according to the
proportion of their respective contribution to the purchase price. But it is well recognized that one tenant
in common cannot maintain a possessory action against his cotenant, since one is as much entitled to
have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson,
27 Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he
cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one
cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could
not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be
effected where the partitioners are cotenants, that is, have an interest of an identical character as among
themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound
to respect Lo Seng's lease, at least in so far as the present action is concerned.
We have assumed in the course of the preceding discussion that the deed of sale under which the
plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs.
It is, however, earnestly insisted by the attorney for Lo Seng that this document, having never been
recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in court against
him because as to said instrument he is a third party. The important question thus raised is not absolutely
necessary to the decision of this case, and we are inclined to pass it without decision, not only because
the question does not seem to have been ventilated in the Court of First Instance but for the further
reason that we have not had the benefit of any written brief in this case in behalf of the appellees.
The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It
is so ordered, without express adjudication as to costs.

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, Plaintiffs-Appellants, vs. YANG
CHIAO SENG,

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
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between
them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively
to the second party, Mrs. Yulo. The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it
was stipulated that the lease shall continue for an indefinite period of time, but that after one year the
lease may be cancelled by either party by written notice to the other party at least 90 days before the
date of cancellation. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948.
But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the
contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a
civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises.
On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two cases were
afterwards heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her
husband, and declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing
the reasonable monthly rentals of said premises at P100. Both parties appealed from said decision and
the Court of Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against
Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has
not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E"). In view of the refusal of Yang to pay her
the amount agreed upon, Mrs. Yulo instituted this action on May 26, 1954, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from
December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo
and Yang terminated, as a result of which, plaintiff became the absolute owner of the building occupied
by the Cine Astor; that the reasonable rental that the defendant should pay therefor from January, 1951
is P5,000; that the defendant has acted maliciously and refuses to pay the participation of the plaintiff in
the profits of the business amounting to P35,000 from November, 1949 to October, 1950, and that as a
result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered damages in the
amount of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a demand
for the payment of the above sums plus the sum of P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and the plaintiff against
the sublease of the said property. As to the other claims, he denies the same and alleges that the fair
rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has suffered damages amounting to
P100,000. The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment
ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision, however, was set aside on a motion for reconsideration.
In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief
that a joint petition for postponement filed by both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the Court of Appeals in two previous cases between the
owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation
in the profit of the business, etc. The court, finding the above motion, well-founded, set aside its decision
and a new trial was held. After trial the court rendered the decision making the following findings: that it
is not true that a partnership was created between the plaintiff and the defendant because defendant
has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount; that
the real agreement between the plaintiff and the defendant is not of the partnership but one of the lease
for the reason that under the agreement the plaintiff did not share either in the profits or in the losses of
the business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the supposed existence of a partnership between
them. It. therefore, denied plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to
the balcony of the theatre which could not be used for business purposes under existing ordinances of
the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground
that the defendant failed to present sufficient evidence to sustain the same. It is against this decision
that the appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial
because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence
at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former
judgment. The final result of the hearing shown by the decision indicates that the setting aside of the
previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out
the evidence offered by the 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 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.

VICENTE SY, TRINIDAD PAULINO, 6BS

TRUCKING,CORPORATION, petitioners, v HON. COURT OF APPEALS and JAIME SAHOT, .

This petition for review seeks the reversal of the decision[2] of the Court of Appeals dated February
29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision[3] of the National Labor
Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also
pray for the reinstatement of the decision[4] of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-
94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners
family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the
same family business, renamed T. Paulino Trucking Service, later 6Bs Trucking Corporation in 1985,
and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names
and for 36 years, private respondent continuously served the trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering
from various ailments. Particularly causing him pain was his left thigh, which greatly affected the
performance of his task as a driver. He inquired about his medical and retirement benefits with the Social
Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined
and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and heart enlargement (Annex G, p.
107).[8] On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal
request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of
his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to
terminate his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But
he could not retire on pension because petitioners never paid his correct SSS premiums. The fact
remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. They
carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless
and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation
pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking,
T. Paulino Trucking Service, 6Bs Trucking and SBT Trucking, herein petitioners.
 For their part, petitioners admitted they had a trucking business in the 1950s but denied employing
helpers and drivers. They contend that private respondent was not illegally dismissed as a driver
because he was in fact petitioners industrial partner. They add that it was not until the year 1994, when
SBT Trucking Corporation was established, and only then did respondent Sahot become an employee
of the company, with a monthly salary that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not
able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his
leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent
never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for
illegal dismissal against the trucking company and its owners.
Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of
absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot
had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited
NLRC Case No. RE-4997-76, entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a
defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahots,
hence they are in pari material and Sahots complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there
was no illegal dismissal in Sahots case. Private respondent had failed to report to work. Moreover, said
the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The
Labor Arbiter concluded by ordering petitioners to pay financial assistance of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It
declared that private respondent was an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was terminated on account of his illness,
pursuant to Article 284[9] of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private
respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years
of service.
Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated
February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that
private respondent was indeed an employee of petitioners since 1958. It also increased the amount of
separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for
36 years of service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking
Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR
THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]
Hence, the instant petition anchored on the following contentions:
I
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION
AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS
COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE
CIVIL CODE.[11]
II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR
ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND
DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS
IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).[12]
III
PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING
CORPORATION.[13]
Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed
between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether
or not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal
dismissal can prosper, an employer-employee relationship must first be established.[14]
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was in fact, petitioners industrial partner.[15] It is contended
that it was the Labor Arbiter who heard the case and had the opportunity to observe the demeanor and
deportment of the parties. The same conclusion, aver petitioners, is supported by substantial
evidence.[16] Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned
by the NLRC when the latter made the following pronouncement:
We agree with complainant that there was error committed by the Labor Arbiter when he concluded that
complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that
he was only twenty-three (23) years when he started working with respondent as truck helper. How can
we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant was only an employee, not a partner of
respondents from the time complainant started working for respondent.[17]
Because the Court of Appeals also found that an employer-employee relationship existed,
petitioners aver that the appellate courts decision gives an imprimatur to the illegal finding and conclusion
of the NLRC.
Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There
was no written agreement, no proof that he received a share in petitioners profits, nor was there anything
to show he had any participation with respect to the running of the business.[18]
The elements to determine the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct. The most important element is the employers control
of the employees conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.[19]
As found by the appellate court, petitioners owned and operated a trucking business since the 1950s
and by their own allegations, they determined private respondents wages and rest day.[20] Records of
the case show that private respondent actually engaged in work as an employee. During the entire
course of his employment he did not have the freedom to determine where he would go, what he would
do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as
long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper
and driver of petitioners not for his own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that in 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.[22] Not one of these circumstances is present in this case. No written
agreement exists to prove the partnership between the parties. Private respondent did not contribute
money, property or industry for the purpose of engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business. Thus, the NLRC and the CA did
not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from
1958 to 1994.
On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime
Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of
an employer-employee relationship is ultimately a question of fact[23] and the findings thereon by the
NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when supported by
substantial evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion.[24]
Time and again this Court has said that if doubt exists between the evidence presented by the
employer and the employee, the scales of justice must be tilted in favor of the latter.[25] Here, we entertain
no doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the
trucking business.
Coming now to the second issue, was private respondent validly dismissed by petitioners?
Petitioners contend that it was private respondent who refused to go back to work. The decision of
the Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent
Sahot to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit
to continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did
not like to work as a driver anymore, then he could be given a job that was less strenuous, such as
working as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals,
petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did
not report for work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue working with respondents
despite his alleged illness, there is no direct evidence that will prove that complainants illness prevents
or incapacitates him from performing the function of a driver. The fact remains that complainant suddenly
stopped working due to boredom or otherwise when he refused to work as a checker which certainly is
a much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of
Appeals, held that:
While it was very obvious that complainant did not have any intention to report back to work due to his
illness which incapacitated him to perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one of those falling under the just
causes of terminating an employment. The insistence of respondent in making complainant work did not
change the scenario.
It is worthy to note that respondent is engaged in the trucking business where physical strength is of
utmost requirement (sic). Complainant started working with respondent as truck helper at age twenty-
three (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when the complaint
was filed and suffering from various illness triggered by his work and age.
x x x[27]
In termination cases, the burden is upon the employer to show by substantial evidence that the
termination was for lawful cause and validly made.[28] Article 277(b) of the Labor Code puts the burden
of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without
distinction whether the employer admits or does not admit the dismissal.[29] For an employees dismissal
to be valid, (a) the dismissal must be for a valid cause and (b) the employee must be afforded due
process.[30]
Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of
disease, viz:
Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee
who has been found to be suffering from any disease and whose continued employment is prohibited by
law or prejudicial to his health as well as the health of his co-employees: xxx
However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the
Omnibus Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a certification by competent public health
authority that the disease is of such nature or at such a stage that it cannot be cured within a period of
six (6) months even with proper medical treatment. If the disease or ailment can be cured within the
period, the employer shall not terminate the employee but shall ask the employee to take a leave. The
employer shall reinstate such employee to his former position immediately upon the restoration of his
normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,[31] the requirement for a
medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would
sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the
employees illness and thus defeat the public policy in the protection of labor.
In the case at bar, the employer clearly did not comply with the medical certificate requirement before
Sahots dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter
should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have
been complied with. In the absence of the required certification by a competent public health authority,
this Court has ruled against the validity of the employees dismissal. It is therefore incumbent upon the
private respondents to prove by the quantum of evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be
unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the
evidence must be substantial and not arbitrary and must be founded on clearly established facts
sufficient to warrant his separation from work.[32]
In addition, we must likewise determine if the procedural aspect of due process had been complied
with by the employer.
From the records, it clearly appears that procedural due process was not observed in the separation
of private respondent by the management of the trucking company. The employer is required to furnish
an employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee
of the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge;
and (2) the notice informing the employee of his dismissal, to be issued after the employee has been
given reasonable opportunity to answer and to be heard on his defense.[33] These, the petitioners failed
to do, even only for record purposes. What management did was to threaten the employee with
dismissal, then actually implement the threat when the occasion presented itself because of private
respondents painful left thigh.
All told, both the substantive and procedural aspects of due process were violated. Clearly,
therefore, Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation
pay. The law is clear on the matter. An employee who is terminated because of disease is entitled to
separation pay equivalent to at least one month salary or to one-half month salary for every year of
service, whichever is greater xxx.[34] Following the formula set in Art. 284 of the Labor Code, his
separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880.
We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate
court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated
worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six
percent (6%) interest per annum should be charged thereon, for any delay, pursuant to provisions of the
Civil Code.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29,
2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36
years of service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00,
with interest of six per centum (6%) per annum from finality of this decision until fully paid.
Costs against petitioners.

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs.COURT OF APPEALS, JUDGE

BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City,
Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON,

Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:

The instant petition for annulment of decision is DISMISSED.

1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.

2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and
was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff,
and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces
of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months
after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of
April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on
February 1, 1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was
likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to
the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin
is void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision
We agree with respondents that the decision in this case has become final. In fact a writ of execution
had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We
respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:

To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were commonly
used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status
of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on
the dissolution and winding up in case a partnership so existed as well as the issue of ownership over
the properties subject matter of recovery.

As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00 or more in money or property, the same must
appear in a public instrument which must be recorded in the Office of the Securities and Exchange
Commission. Failure to comply with these requirements shall only affect liability of the partners to third
persons.

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary
equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds
realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her
obligation. The same has been done by the herein brother and the herein defendant who started to work
in the business. A cursory examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name.

While there may have been co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is
explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show
proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were
profits realized in 1975 after the two-year deficits were compensated, this could only be subject to an
equal sharing consonant to the agreement to equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in
the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.

In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself
had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the
other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency
with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as
alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier
agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only
to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue
raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.
No special pronouncement is made as to costs.
6. Lim Tong Lim vs Phil Fishing Gear Industries GR 136448

LIM TONG LIM, petitioner, vs. PHILIPPINE

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

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision
of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by
the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts and circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement
plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective
amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets
and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount
of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of
the nets during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid
for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached
property as a guaranty for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment
bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in
this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached
nets and floats. Considering, however, that the total judgment obligation as computed above would
amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the amount
of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason,
the defendants are hereby relieved from any and all liabilities arising from the monetary judgment
obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price
of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the
Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed
a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the
allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.[5] On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to respondent some of the nets which were
in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to
cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds
of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in
Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch
72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever
will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall
be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues

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

The Petition is devoid of merit.

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

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of the respondent
company.Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract
of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the
purported partnership -- the fishing 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.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of
the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these
two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other
expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the
amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-
litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother.In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term common fund under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business
could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be divided
among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In
assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

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

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

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do
so without authority and at their own risk. And as it is an elementary principle of law that a person who
acts as an agent without authority or without a principal is himself regarded as the principal, possessed
of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In
the first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith
on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not appear on any of the contracts
and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat
which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of
the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude
the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence,
are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle
art of movement and position , entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly
trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done
upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We
agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were specifically manufactured
and 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 is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

7. Santos vs Reyes 368 SCRA 261 2001

FERNANDOSANTOS, petitioner, vs. Spou es ARSENIO and NIEVES
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are
binding on the Supreme Court. However, there are several exceptions to this principle. In the present
case, we find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,[1] as well
as the August 17, 1998 and the October 9, 1998 Resolutions,[2] issued by the Court of Appeals (CA) in
CA-GR CV No. 34742. The Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby
DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts decision
dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is AFFIRMED in
toto, with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of
the August 17, 1998 Resolution.[5]
The Facts
The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced
to each other by one Meliton Zabat regarding a lending business venture proposed by Nieves. It was
verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan payments. The venture was launched on June 13, 1986,
with the understanding that [petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte
Maria Development Corporation[6] (Monte Maria, for brevity), sought short-term loans for members of the
corporation. [Petitioner] and Gragera executed an agreement providing funds for Monte Marias
members. Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books as representative
of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending business
in competition with their partnership[.] Zabat was thereby expelled from the partnership. The operations
with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner]
charged [respondents], allegedly in their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Grageras complaint that his commissions were inadequately remitted, [petitioner] entrusted P200,000.00
to x x x Nieves to be given to Gragera. x x x Nieves allegedly failed to account for the amount. [Petitioner]
asserted that after examination of the records, he found that of the total amount of P4,623,201.90
entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby leaving the balance
of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming their
rightful share to the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner] learned
of Zabats activities.Arsenio resigned from his job at the Asian Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986
through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over
to Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made
on worksheets were based on this assumptive 100% collection of all loans. The loan releases were made
less Grageras agreed commission. Because of this arrangement, she neither received payments from
borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to
15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners with
respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he ceased
infusing funds, thereby causing the extinguishment of the partnership. The agreement with Gragera was
a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were
hired as salaried employees with respect to the partnership between [petitioner] and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from which
Nieves deducted Grageras commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were
employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for delivery
to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to Gragera
and whether [respondents] were entitled to their counterclaim for share in the profits.[7]
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his
partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus,
respondents counterclaim for their share in the partnership and for damages was granted. The trial court
disposed as follows:
WHEREFORE, the Court hereby renders judgment as follows:
THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES,
the following:
.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture
with the [petitioner]. 39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987
until the P3,064,428.00 is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES,
the following: 39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent]
ARSENIO REYES in the profits of his joint venture with the [petitioner]. 39.3.2. Six (6) percent of - As
damages from P2,899,739.50 August 3, 1987 until the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and 39.4.2 The cost of the suit.[8]
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was
reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the
parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending business and
introduced him to Gragera; (2) Arsenio received dividends or profit-shares covering the period July 15
to August 7, 1986 (Exh. 6); and (3) the partnership contract was executed after the Agreement with
Gragera and petitioner and thus showed the parties intention to consider it as a transaction of the
partnership. In their common venture, petitioner invested capital while respondents contributed industry
or services, with the intention of sharing in the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts
due, while hers was merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to keep
track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess
or lack of jurisdiction in:
Holding that private respondents were partners/joint venturers and not employees of Santos in
connection with the agreement between Santos and Monte Maria/Gragera;

Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves
Reyes signified receipt of copies of the documents and not of the sums shown thereon;

Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;

Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to
Gragera;

Affirming the dismissal of Santos [Second] Amended Complaint;

Affirming the decision of the trial court, upholding private respondents counterclaim;
Denying Santos motion for reconsideration dated September 11, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship
was one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of
money allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner.She was only a witness to the Agreement
between the two. Separate from the partnership between petitioner and Gragera was that which existed
among petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it was organized and
as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by
the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria
was done in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat
(later Arsenio) was organized. Gragera who represented Monte Maria was merely paid commissions in
exchange for the collection of loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of gross returns does not in itself
establish a partnership.[11]
We agree with both courts on this point. 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.[12] The Articles of Agreement stipulated that the signatories shall share the
profits of the business in a 70-15-15 manner, with petitioner getting the lions share.[13] This stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending
money to the members of the Monte Maria Community Development Group, Inc., which later on changed
its business name to Private Association for Community Development, Inc. (PACDI). Nieves was not
merely petitioners employee. She discharged her bookkeeping duties in accordance with paragraphs 2
and 3 of the Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the loan payments
of the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business operation shall be handled by
the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand,
Arsenios duties as credit investigator are subsumed under the phrase screening of prospective
borrowers. Because of this Agreement and the disbursement of monthly allowances and profit shares or
dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the
partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioners contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month after
the Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement itself
attests to this fact:
WHEREAS, the parties have decided to formalize the terms of their business relationship in order that
their respective interests may be properly defined and established for their mutual benefit and
understanding.[15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit
B (the Schedule of Daily Payments), which bears her signature under the words received by. For the
period July 1986 to March 1987, Gragera should have earned a total commission
of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented the unpaid commissions. Exhibit H
is an untitled tabulation which, according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery
to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come, and
that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that
Nieves received amounts from Monte Marias members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period
of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due execution
and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court
which states:
Sec. 20. Proof of Private Document Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial stroke
of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures of NIEVES
(Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This difference in the start of
the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence to Nieves
claim that the signature Exh. E-1 is a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the predetermined
100% collection as guaranteed by Gragera is credible and clearly in accord with the evidence. A perusal
of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries were indeed based
on the 100% assumptive collection guaranteed by Gragera. Thus, the total amount recorded on Exh. B
is exactly the number of borrowers multiplied by the projected collection of P150.00 per borrower. This
holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more
believable than [petitioners] assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the document
showed a liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by Gragera
believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the loans, he
took charge of the collections. As [petitioners] representative, Nieves merely prepared the daily cash
flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of Grageras
operations. Gragera on the other hand devised the schedule of daily payment (Exhs. B and F) to record
the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA [were]
paid to him[,] that of NIEVES is more logical and practical and therefore, more believable. SANTOS
version would have given rise to this improbable situation: GRAGERA would collect the daily
amortizations and then give them to NIEVES; NIEVES would get GRAGERAs commissions from the
amortizations and then give such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the additional cash
was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then his
claim is not true. This is so because it is a liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA when
he received the latters letter complaining of its delayed release. Assuming as true SANTOS claim that
he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not give it to
GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not even present
the letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending business of SANTOS were
covered by petty cash vouchers. It is therefore strange why SANTOS did not present any voucher or
receipt covering the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits B and F are merely computations of what Gragera should collect
for the day; they do not show that Nieves received the amounts stated therein. Neither is there sufficient
proof that she misappropriated P200,000, because Exhibit H does not indicate that such amount was
received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court
are binding and conclusive on the Supreme Court.[19] Although there are exceptions to this rule, petitioner
has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains
that both business propositions were flops, as his investments were consumed and eaten up by the
commissions orchestrated to be due Gragera a situation that could not have been rendered possible
without complicity between Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it
was about time to get her share of the profits which had already accumulated to some P3 million.
Respondents add that while the partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses show that from
June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq. and 15 et
seq.). Based on that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh.
10-I-3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash
Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming the
trial courts ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review of
the records of this case, however, there appears to be sufficient basis to determine the amount of shares
of the parties and damages incurred by [respondents]. The fact is that the court a quo already made
such a determination [in its] decision dated August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
27. The defendants counterclaim for the payment of their share in the profits of their joint venture with
SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5, 5-A
and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from
June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and
ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged in
netted a profit and that the originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture with NIEVES and ZABAT resulted
in a loss of about half a million pesos to him. But such loss, even if true, does not negate NIEVES claim
that overall, the joint venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is no
reason for the Court to doubt the veracity of [the testimony of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and 6-B)
should be deducted from his total share.[21]
After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit
10-I shows that the partnership earned a total income of P20,429,520 for the period June 13, 1986
[22]

until April 19, 1987. This entry is derived from the sum of the amounts under the following column
headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income
and Interest Income on Investment. Such entries represent the collections of the money-lending business
or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses sustained by the
partnership. For instance, it did not factor in the gross loan releases representing the money loaned to
clients. Since the business is money-lending, such releases are comparable with the inventory or
supplies in other business enterprises.
Noticeably missing from the computation of the total income is the deduction of the weekly allowance
disbursed to respondents. Exhibits I et seq. and J et seq.[23] show that Arsenio received allowances from
July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986
to March 27, 1987 in the total amount of P25,600. These allowances are different from the profit already
received by Arsenio. They represent expenses that should have been deducted from the business
profits. The point is that all expenses incurred by the money-lending enterprise of the parties must first
be deducted from the total income in order to arrive at the net profit of the partnership. The share of each
one of them should be based on this net profit and not from the gross income or total income reflected
in Exhibit 10-I, which the two courts invariably referred to as cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports, do not reflect the business
expenses incurred by the parties, because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents exhibits do not reflect the complete financial
condition of the money-lending business. The lower courts obviously labored over a mistaken notion that
Exhibit 10-I-1 represented the net profits earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who shares in the
profits but is not liable for the losses), the gross income from all the transactions carried on by the firm
must be added together, and from this sum must be subtracted the expenses or the losses sustained in
the business. Only in the difference representing the net profits does the industrial partner share. But if,
on the contrary, the losses exceed the income, the industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different conclusion, as in this particular issue, a review of
its factual findings may be conducted, as an exception to the general rule applied to the first two issues.[26]
The trial court has the advantage of observing the witnesses while they are testifying, an opportunity
not available to appellate courts. Thus, its assessment of the credibility of witnesses and their testimonies
are accorded great weight, even finality, when supported by substantial evidence; more so when such
assessment is affirmed by the CA. But when the issue involves the evaluation of exhibits or documents
that are attached to the case records, as in the third issue, the rule may be relaxed. Under that situation,
this Court has a similar opportunity to inspect, examine and evaluate those records, independently of
the lower courts.Hence, we deem the award of the partnership share, as computed by the trial court and
adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision
is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998
are REVERSED and SET ASIDE. No costs.

8. Tocao vs CA 365 SCRA 463 2001

MARJORIE TOCAO and WILLIAM T.
BELO, petitioners, vs. COURT OF
APPEALS and NENITA A.
ANAY, respondents.

The inherent powers of a Court to amend and control its processes and orders so as to make them
conformable to law and justice includes the right to reverse itself, especially when in its honest opinion
it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice
to a party litigant.[1]
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership
bettween petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that
the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo
acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondents
own witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was
Peter Lo who was the companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo with
Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for
us. We can borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the
Geminesse Enterprise?
A He is the one fixing our orders that open
the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely
the guarantor of Geminesse Enterprise, am
I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by respondents evidence. It should be recalled
that the business relationship created between petitioner Tocao and respondent Anay was an informal
partnership, which was not even recorded with the Securities and Exchange Commission. As such, it
was understandable that Belo, who was after all petitioner Tocaos good friend and confidante, would
occasionally participate in the affairs of the business, although never in a formal or official
capacity.[3] Again, respondents witness, Elizabeth Bantilan, confirmed that petitioner Belos presence in
Geminesse Enterprises meetings was merely as guarantor of the company and to help petitioner
Tocao.[4]
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of
the business enterprise.Respondent herself professed lack of knowledge that petitioner Belo received
any share in the net income of the partnership.[5]On the other hand, petitioner Tocao declared that
petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise.[6] With no
participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership
is that the partners share in the profits and losses.[7]
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent
had no cause of action against him and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith
for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent. We do not agree. Given the
circumstances surrounding private respondents sudden ouster from the partnership by petitioner Tocao,
her act of withholding whatever stocks were in her possession and control was justified, if only to serve
as security for her claims against the partnership. However, while we do not agree that the same renders
private respondent in bad faith and should bar her claim for damages, we find that the said sum of
P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of
the formal account of the partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY
GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed
as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of P208,250.00 shall be
deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after
the formal accounting of the partnership affairs.

9. Woodhouse vs Halili 83 Phil 526 1953

CHARLES F. WOODHOUSE, plaintiff-appellant, vs.FORTUNATO F. HALILI, defendant-appellant.

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the
most important provisions of which are (1) that they shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of
general policy regarding the business, while the plaintiff was to attend to the operation and development
of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the
business. The above agreement was arrived at after various conferences and consultations by and
between them, with the assistance of their respective attorneys. Prior to entering into this agreement,
plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of
the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in the bottling and
distribution of the said beverages, and requested, in order that he may close the deal with him, that the
right to bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days"
option on exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations
between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with
their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement,
Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears
to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United
States without the agreement being not first signed. On that day plaintiff and defendant went to the
United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the
Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the
exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the
Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for
duty in January, 1948, but operations were not begun until the first week of February, 1948. In January
plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March
9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership
papers be executed. At first defendant executed himself, saying there was no hurry. Then he promised
to do so after the sales of the product had been increased to P50,000. As nothing definite was
forthcoming, after this condition was attained, and as defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible
settlement. as none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits,
and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer
defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the owner, or was about to become owner of an
exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise,
but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that
it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership,
but plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues
the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant
to render an accounting of the profits of the bottling and distribution business, subject of the action, and
to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment
both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely represented that
he had an exclusive franchise to bottle Mission beverages, and whether this false representation or
fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable
that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract
prior to the final one can not be considered for the purpose of determining the issue, as they are
presumed to have been already integrated into the final agreement; that fraud is never presumed and
must be proved; that the parties were represented by attorneys, and that if any party thereto got the
worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive
franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a franchise, thus:

A. I don't recall any discussion about that matter. I took along with me the file of the office with regards
to this matter. I notice from the first draft of the document which I prepared which calls for the organization
of a corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee
of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first
paragraph states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the
Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . .
..
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding
the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant
to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced
to change or alter the terms of the agreement, but to prove how he induced the defendant to enter into
it to prove the representations or inducements, or fraud, with which or by which he secured the other
party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26
Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of
a jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited
from proving said representations or inducements, on the ground that the agreement had already been
entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence
rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by
the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to speak with authority so that we could come to
terms as far as he and I were concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for a limited period of
time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which
to bargain with defendant and close the deal with him, he must have used his said option for the above-
indicated purpose, especially as it appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when
plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to
operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections
of 1949 plaintiff went to see the defendant (and at that time he had already the option), he must have
exultantly told defendant that he had the authority already. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only,
and still more improbable for him to have disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The
existence of this provision in the final agreement does not militate against plaintiff having represented
that he had the exclusive franchise; it rather strengthens belief that he did actually make the
representation. How could plaintiff assure defendant that he would get the franchise for the latter if he
had not actually obtained it for himself? Defendant would not have gone into the business unless the
franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant
he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above
provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff
was to secure it for the partnership. To show that the insertion of the above provision does not eliminate
the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final
agreement contains in its third paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff
was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was
to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one
half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the alleged representation took place before the
conferences were had, in other words, plaintiff had already represented to defendant, and the latter had
already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and
they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's
lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the
papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder
of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff
had the exclusive franchise. Defendant would not perhaps have gone to California and incurred
expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter
would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be
allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123,
Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate
the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations,
from the innocent praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In consequence, article 1270 of the
Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for
the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable
for damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article
1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances
indicative that the fact that the principal consideration, the main cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's
counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as to the said obligation but
as to the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The
contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred
to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time
the contract was perfected. But while he had already lost his option thereto (when the contract was
entered into), the principal obligation that he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if
he was guilty of a false representation, this was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration
or price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As
a consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non
assessable shares of the said corporation . . . twenty-five per centum of the capital stock of the said
corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution
of beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the
toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did
not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of
30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice
in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it
was used to get the other party's consent to a big share in the profits, an incidental matter in the
agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui,
el que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el
consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar
tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that
next comes before us is, May the agreement be carried out or executed? We find no merit in the claim
of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as
it is evident from the very language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later date. They expressly agreed that they
shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from
the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this
agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his
own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out
the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act
of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art.
1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a
realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio
romano nemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa.
Los que perciben la posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera
obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo
propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo
cuandodecia que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya
precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio
Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho
ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la
conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las
relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada
dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues,
posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que
afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo puedan tampoco ser modificadas; pero no debe
serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las contractuales, y
cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo
dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because
of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106
of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably
expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount
of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits. We can do no better than follow the appraisal
that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was
to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant appears to
have readily given his assent. It was under this understanding, which amounts to a virtual modification
of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three
months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision
of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the
said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the
case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The
agreement contains the stipulation that upon the termination of the partnership, defendant was to convey
the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period
within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare
that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
10. Jarantilla vs Jarantila 636 Scra 299 2010
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMASJARANTILLA,

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July
30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the
Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt,
was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her complaint, were
his late aunt Conchita Jarantillas husband Buenaventura Remotigue, who died during the pendency of
the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and Buenaventura
Remotigue, and his brothers Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their
deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of Rafael
and Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each
other by way of financial support to any commercial and agricultural activity on a joint business
arrangement. This business relationship proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and construct buildings, among other
things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein
they acknowledged that while registered only in Buenaventura Remotigues name, they were not the
only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue
Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
of Participating Capital," they stated the participating capital of their co-owners as of the year 1952, with
Antonieta Jarantillas stated as eight thousand pesos (8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla
against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for its partition and
the delivery of her share corresponding to eight percent (8%), and for damages. Antonieta claimed that
in 1946, she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael
Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged that the initial
contribution of property and money came from the heirs inheritance, and her subsequent annual
investment of seven thousand five hundred pesos (7,500.00) as additional capital came from the
proceeds of her farm. Antonieta also alleged that from 1946-1969, she had helped in the management
of the business they co-owned without receiving any salary. Her salary was supposedly rolled back into
the business as additional investments in her behalf. Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of the defendants since the only way the defendants
could have purchased these properties were through the partnership as they had no other source of
income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no position to do so as she was still in school at that
time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred
that while she may have helped in the businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their claim
that Antonietas 8% share was limited to the businesses enumerated therein. With regard to Antonietas
claim in their other corporations and businesses, the respondents said these should also be limited to
the number of her shares as specified in the respective articles of incorporation. The respondents denied
using the partnerships income to purchase the subject real properties and said that the certificates of
title should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he supported
Antonietas claims and asserted that he too was entitled to six percent (6%) of the supposed partnership
in the same manner as Antonieta was. He prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering
the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT
Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of
the Registry of Deeds of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial
Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of 50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of 50,000.00 as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTCs factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was limited
to the businesses enumerated in the Acknowledgement of Participating Capital. On July 30, 2002, the
Court of Appeals rendered the herein challenged decision setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is
hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits
of the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their
Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals
denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16,
2002, assailing the Court of Appeals decision on "similar grounds and similar assignments of errors as
this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER
FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING
COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends that
from this partnership, several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantillas testimony to support this contention.
The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital
funded the subject real properties. In other words, what is the petitioners right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
only questions of law may be raised by the parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on
the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented,
the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is whether the appellate court
can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the
questions of law that are now in issue, shall look into the facts only in so far as the two courts a quo
differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses and
real properties of the respondents as they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8% share in the business
enumerated in the Acknowledgement of Participating Capital, but not as to her share in the other
corporations and real properties. The Court of Appeals ruled that Antonietas claim of 8% is based on
the "Acknowledgement of Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the other corporations from
her share in the partnerships businesses. The Court of Appeals also said that her claim in the
respondents real properties was more "precarious" as these were all covered by certificates of title which
served as the best evidence as to all the matters contained therein.32 Since petitioners claim was
essentially the same as Antonietas, the Court of Appeals also ruled that petitioner be given his 6% share
in the same businesses listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive
except in the following cases: (1) when the inference made is manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court of 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 of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-
ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was affirmed
in the 1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a 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.35 The Court, in Pascual v. The Commissioner
of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue37 to further elucidate on the distinctions between a co-ownership and a
partnership, to wit:
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.
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.
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common.
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.
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both 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. x x x.
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.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (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, all the parties in this case 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.39 It is not denied that
all the parties in this case have agreed to contribute capital to a common fund to be able to later on share
its profits. They have admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would
be instructive to examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City
and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and
equipments, and general merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and their participation in the
capital of the three establishments together with the other co-owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND) 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.
[Sgd.] BUENAVENTURA REMOTIGUE
[Sgd.] CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by
Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the Civil
Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence
of any such stipulations, then to his share in proportion to his contribution to the partnership. The
petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital.
However, petitioner fails to realize that this document specifically enumerated the businesses covered
by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations
in the document. Therefore, the Court of Appeals did not err in limiting petitioners share to the assets of
the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares
to be paid out to the partners is necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes available for the payment of the partners shares.42
There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties based on the concept of trust.
He claims that since the subject real properties were purchased using funds of the partnership, wherein
he has a 6% share, then "law and equity mandates that he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of an intention to create a trust as a matter of law or
through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements. While implied
trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the respondents used the partnerships money to purchase
the said properties. Even assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own
self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not
presented evidence, other than these unsubstantiated testimonies, to prove that the respondents did not
have the means to fund their other businesses and real properties without the partnerships income. On
the other hand, the respondents have not only, by testimonial evidence, proven their case against the
petitioner, but have also presented sufficient documentary evidence to substantiate their claims,
allegations and defenses. They presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations.47 It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership, they may constitute strong evidence of
ownership when accompanied by possession for a period sufficient for prescription."48 Moreover, it is a
rule in this jurisdiction that testimonial evidence cannot prevail over documentary evidence.49 This Court
had on several occasions, expressed our disapproval on using mere self-serving testimonies to support
ones claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail
over the array of documents presented by Belen. A claim of ownership cannot be based simply on the
testimonies of witnesses; much less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over the particular property
described therein. Registration in the Torrens system does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a remedy in
law.52 However, petitioner asserts ownership over portions of the subject real properties on the strength
of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in
Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and
a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title existing prior to the issuance thereof
not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its face.54
As we have settled that this action never really was for partition of a co-ownership, to permit petitioners
claim on these properties is to allow a collateral, indirect attack on respondents admitted titles. In the
words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of these certificates
of title, more so since plaintiffs [petitioners] claims amount to a collateral attack, which is prohibited
under Section 48 of Presidential Decree No. 1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify
the title, thereby challenging the judgment pursuant to which the title was decreed."56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief and as an incident to the
present action, an attack is made against the judgment granting the title. This manner of attack is to be
distinguished from a direct attack against a judgment granting the title, through an action whose main
objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the Acknowledgement of Participating Capital, which
as discussed above, failed to prove that the real properties he is claiming co-ownership of were acquired
out of the proceeds of the businesses covered by such document. Therefore, petitioners theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 40887, dated July 30, 2002 is AFFIRMED.

11. Binglawlaw vs COnstantino 109 Phil 168 1960 LUCINA BIGLANGAWA and LUCIA
ESPIRITU, Petitioners-Appellees, v. PASTOR. B. CONSTANTINO, ET AL., Respondents. PASTOR
B. CONSTANTINO, Respondent-Appellant.

1. COMPLAINTS; PRAYER; PURPOSE OF ACTION INDICATED BY PRAYER. Although the prayer

in a complaint does not determine the nature of the action, it not being a material part of the cause of
action, it logically indicates the purpose of the action.

2. ID.; NOTICE OF LIS PENDENS; COMPLAINT AS BASIS FOR ANNOTATION OF NOTICE. The
amended complaint in the instant case, not being "an action affecting the title or the right of possession
of real property" (Sec. 24, Rule 7, Rules of Court), nor one "to recover possession of real estate, or to
quiet title thereto, or to remove clouds upon the title thereof, or for partition or other proceeding of any
kind in court affecting the title to real estate or the use or occupation thereof or the buildings thereon"
(Sec. 79, Land Registration Act), can not be the basis for annotating a notice of lis pendens on the title
of the defendants.

DECISION
The only issue, which is of law, involved in this appeal, is the legality of the annotation of lis pendens
predicated on the complaint of respondent-appellant Pastor B. Constantino.

On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance of Rizal an
amended complaint (docketed as Civil Case No. 2138) against petitioners Lucina Biglangawa and Lucia
Espiritu, as follows: "AMENDED COMPLAINT

"Plaintiff, by his undersigned counsel, alleges "As First Cause of Action

"1. Plaintiff and defendants are residents of Malabon, Rizal.
"2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the owners of a parcel of land
in Marulas, Polo, Bulacan, more particularly described in "Transfer Certificate of Title No. 5459 as
follows: . . .
"3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her co-owner Lucia Espiritu,
appointed plaintiff their exclusive agent to develop the area described in paragraph 2 into subdivision
lots and to sell them to prospective homeowners; and as compensation for his services, defendants
promised to pay him a commission of 20% on the gross sales and a fee of 10% on the collections made
by him payable from the first collections received from the purchasers in respect to each lot sold. . . .
"4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in a notarial document
executed on March 3, 1950 by her and her co-defendants, who are husband and wife, with the added
stipulation that they could not revoke the contract of agency without plaintiffs consent. . . .

"5. Advancing all the expenses incurred in the development and administration of the project, plaintiff
caused the subdivision of said property into 203 lots and advertised them for sale under the name BBB
MARULAS SUBDIVISION No. 3; and up to October, 1951 plaintiff had disposed of more than half of the
entire area at P10.00 and P12.00 per square meter.

"6. Although under the express terms of the contract of January 14, 1950 (Exhibit A) the commissions
of plaintiff for making those sales and his collection fees of 10% were to be paid to him from the first
collections received from the purchasers in respect to each lot sold, Defendants, in contravention of that
agreement, oppressively and in bad faith adopted the practice of paying the latters compensation out of
30% only of the gross monthly collections from the sales, such that, as of October 15, 1951 when a
liquidation was made, there was still a balance on plaintiffs commissions in the amount of P43,899.20.

7. "Later, in October, 1951, defendants wantonly, oppressively, and in evident bad faith terminated the
agency contracts Exhibits A and B depriving plaintiff of his rights to commission fees of 20% on the
sale of the remaining lots and 10% fee on the cash receipts of the business every month.

"8. Defendants nevertheless, expressly acknowledged their liability to plaintiff in the sum of P48,899.20
for unpaid commissions as of October 16, 1951; and they promised to pay said indebtedness to plaintiff
in successive monthly installments beginning November, 1951, as follows: . . .

"9. Plaintiff consented to the settlement of the balance of his commission in monthly installments after
the termination of the agency in consideration of defendants promises that they would compute and
faithfully pay the percentage of monthly installments on the basis of their monthly gross collections from
the operation of BBB MARULAS SUBDIVISION No. 3, as stipulated in Exhibit C, and shall follow that
procedure until their total indebtedness is fully settled.

"10. From October 16, 1951 to March 31, 1953, defendants made a total monthly gross collection of
around P52,849.63 from the business, and out of these receipts plaintiff was entitled to minimum
payments of P3,711.13 pursuant to Exhibit C; but again defendant wantonly, fraudulently, oppressively,
and in evident bad faith paid plaintiff only the sum of P6,204.13 or P2,507.00 short of what plaintiff should
have received during the period.

"11. Upon gaining information of the breach of the contract by defendants about the end of March, 1953
and verifying the existence of such breach, plaintiff immediately demanded of defendants the difference
between the amounts due to him under the contract Exhibit C and those actually paid by them, but
defendants wantonly, fraudulently, and without cause refused to make the necessary settlement.
x x x
"13. The balance of plaintiffs commissions remaining unpaid as of the filing of this complaint, excluding
the underpayments from November, 1951 to March, 1953, is P39,534.62.

"As to Second Cause of Action

"1. Plaintiff reproduces paragraphs 1 to 13 of the first cause of action.
"2. For defendants gross and evident bad faith in refusing plaintiffs valid, just, and demandable claim
against them, plaintiff was forced to prosecute the present case against them, and became liable for
attorneys fees in the sum of P7,000.00.

"WHEREFORE, plaintiff prays for judgment

"(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is defendants underpayments from
November, 1951 to March, 1953, with interest at the legal rate;

"(b) Declaring defendants to have lost the right to pay plaintiff in monthly installments and requiring them
to pay plaintiff at once the balance of his commissions and fees in the amount of P89,543.62, with interest
at the legal rate from the filing of this complaint;

"(c) Ordering defendants to pay plaintiff moral damages in the sum of P40,000.00, exemplary damages
in the sum of P30,000.00, and attorneys fees in the sum of P7,000.00.

"(d) Granting costs and such other reliefs as this court may deem just and equitable in the premises."

To this complaint, petitioners filed their answer on August 25, 1953.

While said Civil Case No. 2138 was pending in said court, respondent, on April 5, 1955, filed with the
Office of the Register of Deeds of Bulacan, the following notice of lis pendens:jgc:

"Please make of record the pendency of a complaint involving, among other things, rights and interest
and claims for services and damages on the following described property, which has been converted
into a subdivision as shown by the plan Psd-29964, situated in Marulas, Polo, Bulacan, to wit: (Technical
description of the real property mentioned in the complaint) which property is more particularly described
in Transfer Certificate of Title No. 5459 of the Register of Deeds of Bulacan. A copy of the complaint and
amended complaint, marked Appendices A and A-1, are attached hereto and made integral part
hereof."cralaw virtua1aw library

On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender their owners copy
of Transfer Certificate of Title No. 5459 for annotation of said notice of lis pendens, but petitioners refused
to do so. However, on May 17, 1955, when petitioners registered the absolute deed of sale in favor of
Carmelita L. Santos covering some of the lots of the subdivision, said official, without their knowledge
and consent, made the annotation of the lis pendens on petitioners aforementioned title, as well as on
the title issued to Carmelita L. Santos.

Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of Bulacan, a petition
praying for the cancellation of said notice of lis pendens. To this petition, respondent filed his answer on
June 17, 1955, to which, petitioners filed their reply on June 23, 1955. On June 24, 1955, respondent
filed a rejoinder to said reply.

Acting on said petition, the court issued an order on July 19, 1955, which reads:

"ORDER "Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu dated June
11, 1955 and the answer thereto, and it appearing from the amended complaint of Pastor B. Constantino,
plaintiff in Civil Case No. 2138 of the Court of First Instance of Rizal (respondent herein) that said action
is purely and clearly a claim for money judgment which does not affect the title or the right of possession
of real property covered by Transfer Certificate of Title No. T-5459 and it being a settled rule in this
jurisdiction that a notice of lis pendens may be invoked as a remedy in cases where the very lis mota of
the pending litigation concerns directly the possession of, or title to a specific real property;

"Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to cancel Entry No. 28176
for lis pendens on Transfer Certificate of Title No. T-5459 of the petitioners as well as the annotation of
the same on Transfer Certificate of Title No. T-014480 of Carmelita L. Santos.

"So ordered."cralaw virtua1aw library

Respondent, on August 8, 1955, filed a motion for reconsideration of the above order, but the same was
denied by the court on September 30, 1955. Hence, this appeal.

Respondent-appellant claims that the lower court erred in holding that his pending action (Civil Case No.
2138) in the Court of First Instance of Rizal, is purely a claim for money judgment which does not affect
the title or right of possession of petitioners real property, covered by Transfer Certificate of Title No. T-
5459. Instead, he contends that the agreement whereby he was to be paid a commission of 20% on the
gross sales and a fee of 10% on the collections made by him, converted him into a partner and gave him
1/5 participation in the property itself. Hence, he argues, his suit is one for the settlement and adjustment
of partnership interest or a partition action or proceeding.

Appellants theory is neither supported by the allegations of his complaint, nor borne out by the purpose
of his action. There is no word or expression in the various paragraphs of his amended complaint that
suggests any idea of partnership. On the contrary, appellant expressly averred that petitioners
"appointed plaintiff (appellant) their exclusive agent to develop the area described in paragraph 2 into
subdivision lots and to sell them to prospective homeowners; and as compensation for his services
defendants (appellees) promised to pay him a commission of 20% on the gross sales and a fee of 10%
on the collections made by him . . ." (See paragraph 3 of amended complaint.) Categorically, appellant
referred to himself as an agent, not a partner; entitled to compensation, not participation, in the form of
commission or fee, not a share.

It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have made advances
for the expenses incurred in the development and administration of the property. But again he never
considered these as contributions to the business as to make him a partner; otherwise, he would have
so stated it in his complaint. In fact, after a liquidation of these advances and the commissions due to
appellant at the time of the termination of the agency, the whole balance was considered as appellees
indebtedness which appellant consented to be settled in monthly installments (see paragraphs 6, 8, and
9 of the amended complaint).

While it is true again that the prayer in a complaint does not determine the nature of the action, it not
being a material part of the cause of action, still it logically indicates, as it does in this case, the purpose
of the actor. The four paragraphs of the prayer seeks the recovery of fixed amounts of underpayments
and commissions and fees; not liquidation or accounting or partition as now insisted upon by Appellant.

Appellants amended complaint, not being "an action affecting the title or the right of possession of real
property", 1 nor one "to recover possession of real estate, or to quiet title thereto, or to remove clouds
upon the title thereof, or for partition or other proceeding of any kind in court affecting the title to real
estate or the use or occupation thereof or the buildings thereon . . .", 2 the same can not be the basis for
annotating a notice of lis pendens on the title of the Petitioners-Appellees.

Having reached the above conclusion, this Court finds it unnecessary to decide the incidental matters
raised by the parties during the pendency of this appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same is hereby affirmed, with
costs against the respondent- appellant. So ordered.

Art 1768
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,
vs.DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ,respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation
and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July
26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the
Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof
a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to
[respondents] the amount of P253,114.00. No pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering business under the
name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His
capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners.7
In the same month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were deposited in the
respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer
to return their capital contribution.9
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration
of the restaurant furniture and equipment stored in their house. She also reiterated the request for the
return of their one-third share in the equity of the partnership. The repeated oral and written requests
were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000;
and that the latter had no right to demand a return of their equity because their share, together with the
rest of the capital of the partnership, had been spent as a result of irreversible business losses.12
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, if such allegation were true, then the loans incurred by petitioners should be regarded
as purely personal and, as such, not chargeable to the partnership. The former further averred that they
had not received any regular report or accounting from the latter, who had solely managed the business.
Respondents also alleged that they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and
Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and
appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be
dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18
"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners]
ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital contribution,
the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient evidence was presented to show financial losses, the
CA. computed their liability as follows:
"Consequently, since what has been proven is only the outstanding obligation of the partnership in the
amount of P240,658.00, although contracted by the partnership before [respondents'] have joined the
partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have
to be deducted from the remaining capitalization of the said partnership which is in the amount of
P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents],
this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for
each share and which is the only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the
latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents' share is
correct; and (3) whether the CA was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue: Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust
in, the latter's management of the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners."23 Since
the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the
equity of the retiring partners.24
Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated.25 After all the creditors have been
paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in
the partnership cannot be determined until all the partnership assets will have been liquidated in other
words, sold and converted to cash and all partnership creditors, if any, paid. The CA's computation of
the amount to be refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital contribution
was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea
is speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or
decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented before the trial court showed that the
business had made meager profits.26However, notable therefrom is the omission of any provision for the
depreciation27 of the furniture and the equipment. The amortization of the goodwill28 (initially valued at
P500,000) is not reflected either. Properly taking these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership
assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the
capital.
Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658
was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The
balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an
outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained
a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact that
their investment would either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the time of dissolution did not amount
to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish
or disastrous contracts they have entered into with all the required formalities and with full awareness of
what they were doing. Courts have no power to relieve them from obligations they have voluntarily
assumed, simply because their contracts turn out to be disastrous deals or unwise investments.29
Petitioners further argue that respondents acted negligently by permitting the partnership assets in their
custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their
net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully settling the latter's share in the
partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners.
Hence, the former cannot be faulted for not disposing of the stored items to recover their capital
investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as
may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise
provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special
reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower court's judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This
disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION
The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein,
a motion was presented by the appellants praying this court that this case be considered purely a moot
question now, for the reason that subsequent to the decision appealed from, the partnership Campos
Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself insolvent, which is just
what the herein petitioners and appellants tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by the appellants
in their motion aforesaid. The question raised in this case is not purely moot one; the fact that a man
was insolvent on a certain day does not justify an inference that he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some
time prior thereto. Many contingencies, such as unwise investments, losing contracts, misfortune, or
accident, might happen to reduce a person from a state of solvency within a short space of time. (Kimball
vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos
Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another to declare it insolvent
in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were
not paid more than thirty days prior to the date of the filing by the petitioners of the application for
involuntary insolvency now before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of
the aforesaid firm were insolvent at the time the application was filed; and that was said partners are
personally and solidarily liable for the consequence of the transactions of the partnership, it cannot be
adjudged insolvent so long as the partners are not alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the ground that this finding of the lower court is
erroneous.
The fundamental question that presents itself for decision is whether or not a limited partnership, such
as the appellee, which has failed to pay its obligation with three creditors for more than thirty days, may
be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all
intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality of a limited partnership being different from that
of its members, it must, on general principle, answer for, and suffer, the consequence of its acts as such
an entity capable of being the subject of rights and obligations. If, as in the instant case, the limited
partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of bankruptcy upon
which an adjudication of involuntary insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent. We are not unmindful of the fact that
some courts of the United States have held that a partnership may not be adjudged insolvent in an
involuntary insolvency proceeding unless all of its members are insolvent, while others have maintained
a contrary view. But it must be borne in mind that under the American common law, partnerships have
no juridical personality independent from that of its members; and if now they have such personality for
the purpose of the insolvency law, it is only by virtue of general law enacted by the Congress of the
United States on July 1, 1898, section 5, paragraph (h), of which reads thus:
In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the
partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of the partner or partners
adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the limitations
prescribed in subsection (h) above set forth gave rise to the conflict noted in American decisions, as
stated in the case of In reSamuels (215 Fed., 845), which mentions the two apparently conflicting
doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186
Fed., 481).
But there being in our insolvency law no such provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited partnership
being recognized by our statutes from their formation in all their acts and contracts the decision of
American courts on this point can have no application in this jurisdiction, nor we see any reason why
these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their
members, provided the partnership has, as such, committed some of the acts of insolvency provided in
our law. Under this view it is unnecessary to discuss the other points raised by the parties, although in
the particular case under consideration it can be added that the liability of the limited partners for the
obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the
common fund except when a limited partner should have included his name or consented to its inclusion
in the firm name (arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty
days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and
the International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No.
1956, and consequently the petitioners have the right to a judicial decree declaring the involuntary
insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership
Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for more
than thirty days to meet its obligations with the three petitioners herein, and it is ordered that this
proceeding be remanded to the Court of First Instance of Manila with instruction to said court to issue
the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final disposition.
It is so ordered without special finding as to costs.

NGO TIAN TEK and NGO HAY, petitioner,

vs.PHILIPPINE EDUCATION CO., INC., respondent.
The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila an action
against the defendants, Vicente Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay,
for the recovery of some P16,070.14, unpaid cost of merchandise purchased by Lee Guan Box Factory
from the plaintiff and five other corporate entities which, though not parties to the action, had previously
assigned their credits to the plaintiff, together with attorney's fees, interest and costs. /by agreement of
the parties, the case was heard before a referee, Attorney Francisco Dalupan, who in due time submitted
his report holding the defendants jointly and severally liable to the plaintiff for the sum of P16,070.14 plus
attorney's fees and interest at the rates specified in the report. On March 6, 1939, the Court of First
Instance of Manila rendered judgment was affirmed by the Court of Appeals in its decision of January
31, 1941, now the subject of our review at the instance of the partnership Ngo Tian Tek and Ngo Hay,
petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals whose findings of fact are conclusive,
"as far back as the year 1925, the Modern Box Factory was established at 603 Magdalena Street, Manila.
It was at first owned by Ngo Hay, who three years later was joined by Ngo Tian Tek as a junior partner.
The modern Box Factory dealt in pare and similar merchandise and purchased goods from the plaintiff
and its assignors in the names of the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or
Go Hay. Then about the year 1930, the Lee Guan Box Factory was established a few meters from the
Modern Box Factory, under the management of Vicente Tan. When that concern, through Vicente Tan,
sought credit with the plaintiff and its assignors, Ngo Hay, in conversations and interviews with their
officers and employees, represented that he was the principal owner of such factory, that the Lee Guan
Box Factory and the Modern Box Factory belonged to the same owner, and that the Lee Guan Box
Factory was a subsidiary of the Modern Box Factory. There is evidence that many goods purchased in
the name of the Lee Guan Box Factory were delivered to the Modern Box Factory by the employees of
the plaintiff and its assignors upon the express direction of Vicente Tan. There is also evidence that the
collectors of the sellers were requested by Vicente Tan to collect and did collect from the Modern
Box Factory the bills against the Lee Guan Box Factory. In the fact the record shows many checks signed
by Ngo Hay or Ngo Tian Tek in payment of accounts of the Lee Guan Box Factory. Furthermore, and
this seems to be conclusive-Ngo Hay, testifying for the defense, admitted that 'he' was the owner of the
Lee Guan Box Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the contract
of sale Exhibit 7, to Vicente Tan, who had been his manager of the business. Tan declared also that
before January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and Ngo Tian Tek. The contract
Exhibit 7 was found by the referee, to be untrue and simulated, for various convincing reasons that need
no repetition here. And the quoted statements serve effectively to confirm the evidence for the plaintiff
that it was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan Box Factory that
induced them to open credit for that concern. It must be stated that in this connection to answer
appellant's fitting observation that the plaintiff and the assignors have considered Ngo Hay, the
Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts of the partners
themselves, and that the proof as to Ngo Hay's statements regarding the ownership of Lee Guan Box
Factory must be taken in that view. Ngo Hay was wont to say 'he' owned the Modern Box Factory,
meaning that he was the principal owner, his other partner being Ngo Tian Tek. Now, it needs no
demonstration for appellant does not deny it that the obligations of the Lee Guan Box Factory must
rest upon its known owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals erred in holding that Lee Guan Box
Factory was a subsidiary of the Modern Box Factory and in disregarding the fact that the contracts
evidencing the debts in question were signed by Vicente Tan alias Chan Sy, without any indication that
tended to involve the Modern Box Factory or the petitioner. In the first place, we are concluded by the
finding of the Court of Appeals regarding the ownership by the petitioner of Lee Guan Box Factory.
Secondly, the circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts entered into by a factor of a commercial
establishment known to belong to a well known enterprise or association, shall be understood as made
for the account of the owner of such enterprise or association, even when the factor has not so stated at
the time of executing the same, provided that such contracts involve objects comprised in the line and
business of the establishment. (Article 286, Code of Commerce.) The fact that Vicente Tan did not have
any recorded power of attorney executed by the petitioner will not operate to prejudice third persons, like
the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions which gave rise to this suit,
Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay under the contract, Exhibit 7; and the
petitioner assails, under the second assignment of error, the conclusion of the Court of Appeals that said
contract is simulated. This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue for the credits
assigned by the five entities with which Lee Guan Box Factory originally contracted, it being argued that
the assignment, intended only for purposes of collection, did not make said respondent the real party in
interest. The petitioner has cited 5 Corpus Juris, section 144, page 958, which points out that "under
statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name, an
assignee for collection merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated in the assignment," precludes us
from ruling that respondent company is not a bona fide assignee. Even assuming, however, that said
assignment was only for collection, we are not prepared to say that, under section 114 of the Code of
Civil Procedure, in force at the time this action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal assignment, is assigned absolutely to one, but
the assignment is made for purpose of collection, the legal title thereto vests in the assignee, and it is no
concern of the debtor that the equitable title is in another, and payment to the assignee discharges the
debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner could indeed be prejudiced
by such assignment, because section 114 of the Code of Civil Procedure reserves to it "'any set-off or
other defense existing at the time of or before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting parties and
does not follow assignment," and that the contracts assigned to the respondent company "are immoral
and against public policy and therefore void," constitute defenses on the merits, but do not affect the
efficacy of the assignment. It is obvious that, apart from the fact that the petitioner can not invoke fraud
of its authorship to evade liability, the appealed decision is founded on an obligation arising, not from
fraud, but from the very contracts under which merchandise had been purchased by Lee Guan Box
Factory.
The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to hold that the writ
of attachment is issued at the commencement of this action by the Court of First Instance is illegal, and
to award in favor of the petitioner damages for such wrongful attachment. For us to sustain petitioner's
contention will amount to an unauthorized reversal of the following conclusion of fact of the Court of
Appeals: "The stereotyped manner in which defendants obtained goods on credit from the six
companies, Vicente Tan's sudden disappearance, the execution of the fake sale Exhibit 7 to throw the
whole responsibility upon the absent or otherwise insolvent Tan, defendant's mercurial and unbelievable
theories as to the ownership of the Modern Box Factory and Lee Guan Box Factory obviously adopted
in a vain effort to meet or explain away the evidentiary force of plaintiff's documentary evidence are
much too significant to permit a declaration that the attachment was not justified."
Regarding the suggestion in petitioner's memorandum that this case should be dismissed because of
the death of Ngo Hay, it is sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the partners.
The appealed decision is affirmed, with costs against the petitioner. So ordered.
Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.
Separate Opinions
FERIA, J., concurring and dissenting:
I concur in the majority except that portion thereof which deals with the question whether an assignee
for collection merely is entitled to sue in his own name, which need not be discussed, in view of the
finding of the Court of Appeals that there is nothing "simulated in the assignment" which according to the
very opinion of the majority "precludes us from ruling that the respondent company is not a bona
fide assignee;" because such being the conclusion of fact of the Court of Appeals, this Supreme Court
can not modify or reverse that conclusion and find that respondent Philippine Education Co. was not
a bona fide assignee, and the assignment was not absolute, but made merely for collection in order that
said respondent may sue in its own name.
But I dissent from the majority opinion when it further says:
Even assuming, however, that said assignment was only for collection, we are not prepared to say that,
under section 114 of the Code of Civil Procedure, in force at the time this action was instituted, ours is
not one of those jurisdictions following the rule that "when a choose, capable of legal assignment, is
assigned absolutely to one, but the assignment is made for purpose of collection, the legal title thereto
vests in the assignee, and it is no concern of the debtor that the equitable title is in another, and payment
to the assignee discharges the debtor." (5 C. J., section 114, p. 958.) No substantial right of the petitioner
could indeed be prejudiced by such assignment, because section 114 of the Code of Civil Procedure
reserves to it "any set-off or other defense exiting at the time of or before notice of the assignment."
The reason for my dissenting is that, after quoting the finding of the Court of Appeals and stating that
said conclusion precludes this Court "from ruling that the respondent company is not a bona
fide assignee," the majority should have stopped then and there. But having preferred to adduce an
additional ratio decidendi, and assume that the assignment was for collection only and not an absolute
and bona fide one, in order to meet the latter's argument, because the Court of Appeals' conclusion is
that the assignment was not simulated, that is, absolute and bona fide, the majority should have quoted
and discussed the second and third sentences of paragraph 144, page 958, of the Corpus Juris, quoted
and relied on by the petitioner, which refers to an assignment that is not absolutely and bona fide made.
However the majority opinion did not do so, and quotes and bases its conclusion to the contrary on the
first sentence of said paragraph, not relied on by the petitioner, and which deals with absolute and bona
fide assignment, and to the provision of section 114 of the Code of Civil Procedure on set-off and
defenses which defendant may set up to an action instituted by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958, of Corpus Juris quoted and
underlined by the petitioner in his brief:

144. G. Assignments for Collection. When a chose, capable of legal assignment, is assigned
absolutely to one, but the assignment is made for purpose of collection, the legal title thereto vests in the
assignee, and it is no concern of the debtor that the equitable title is in another, and payment to the
assignee discharges the debtor. Under the statutes of most jurisdictions, the assignee may prosecute
an action thereon in his own name as the real party in interest or as a trustee of an express trust; but,
under statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name,
an assignee for collection merely is not entitled to sue in his own name. An assignment merely for
collection does not transfer the beneficial ownership to the assignee.
It is not only convenient but necessary to point this error in the present concurring and dissenting opinion,
for the conclusion set forth in the above quoted portion of the majority decision is misleading; because it
apparently lays down the ruling that an assignee not bona fide to whom a credit was assigned, not
absolutely, but for collection merely may sue in his own name (a debatable question which has not yet
been passed upon squarely by this Court [ Annotation; 64 L. R. A., 585]), but the premise on which the
majority's conclusion or ruling is predicated in said portion of the Corpus Juris quoted in the opinion,
which is a wrong premise laid down, not by the petitioner, but by the writer himself of the majority opinion.

Art 1769
PHILEX MINING CORPORATION, petitioner,
vs.COMMISSIONER OF INTERNAL

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-
G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200.
Also assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with
Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latters mining
claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties
agreement was denominated as "Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the
MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
from time to time may be required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall
be deemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of
any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino
PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino
PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior approval
of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided
cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to
the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend
to the MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of
this Agency, the ratio which the MANAGERS account has to the owners account will be determined,
and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims,
shall be transferred to the MANAGERS, except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may
incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS
and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of
the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS account. After
all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to
the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone
of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and property
in accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over
the years which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in
the eventual cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Golds tangible
assets to petitioner, transferring to the latter Baguio Golds equitable title in its Philodrill assets and finally
settling the remaining liability through properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors that
petitioner had assumed as guarantor. These liabilities pertained to long-term loans amounting to
US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A.
This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets
for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00.
The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner
in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness
of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for
bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a
bad debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was
ascertained to be worthless; and (c) it was charged off within the taxable year when it was determined
to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not
be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to institute a judicial action for
collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means
to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that
the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not
filed a petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt
considering that, under the management contract, petitioner was to be paid fifty percent (50%) of the
projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of
merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the advances as petitioners investment in a partnership with
Baguio Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the "Power
of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. Since the
advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from
petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio
Gold could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold
was not in default since its loans were not yet due and demandable. What petitioner did was to pre-pay
the loans as evidenced by the notice sent by Bank of America showing that it was merely demanding
payment of the installment and interests due. Moreover, Citibank imposed and collected a "pre-
termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management of the
Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding
the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the
Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the
advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-
off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should
not only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in
Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. These
documents, allegedly evinced the parties intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material in
determining the true nature of the business relationship between petitioner and Baguio Gold. Before
resort may be had to the two compromise agreements, the parties contractual intent must first be
discovered from the expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were mere collateral
documents executed by the parties pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter which established the juridical relation
of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were
executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the "Power of Attorney". The parties
entered into the compromise agreements as a consequence of the dissolution of their business
relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended
by the parties. Under 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.15 While a corporation, like petitioner, cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been held that it may enter into a joint venture which is akin
to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. x x x It is in
fact hardly distinguishable from the partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of control. x x x 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. x x x 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. x x x It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should 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. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended
to create a partnership and establish a common fund for the purpose. They also had a joint interest in
the profits of the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine.17 In this regard, we note that there is a
substantive equivalence in the respective contributions of the parties to the development and operation
of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioners contribution would consist of its expertise in the
management and operation of mines, as well as the managers account which is comprised of P11M in
funds and property and petitioners "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of
the agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIO MINE."18
The wording of the parties agreement as to petitioners contribution to the common fund does not detract
from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5,
thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits
petitioner from withdrawing the advances until termination of the parties business relations. As can be
seen, petitioner became bound by its contributions once the transfers were made. The contributions
acquired an obligatory nature as soon as petitioner had chosen to exercise its option under paragraph
5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it had entered into a partnership with Baguio Gold;
that the stipulation only showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it, or the mutual interest of both principal
and agent.19 In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the parties relation under the agreement is one of
agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties
was one of agency and not a partnership. Although the said provision states that "this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
of the MANAGERS account," it does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor
of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage and operate the latters mine
through the parties mutual contribution of material resources and industry. The essence of an agency,
even one that is coupled with interest, is the agents ability to represent his principal and bring about
business relations between the latter and third persons.20 Where representation for and in behalf of the
principal is merely incidental or necessary for the proper discharge of ones paramount undertaking
under a contract, the latter may not necessarily be a contract of agency, but some other agreement
depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably
lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties
business relations, "the ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding
the claims" shall be transferred to petitioner.22 As pointed out by the Court of Tax Appeals, petitioner was
merely entitled to a proportionate return of the mines assets upon dissolution of the parties business
relations. There was nothing in the agreement that would require Baguio Gold to make payments of the
advances to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio
Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the
Sto. Nio mine upon termination, a provision that is more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a contract of loan, a person who receives a loan or
money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal
amount of the same kind and quality.23 In this case, however, there was no stipulation for Baguio Gold
to actually repay petitioner the cash and property that it had advanced, but only the return of an amount
pegged at a ratio which the managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination
of their business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that
petitioner would only be entitled to the return of a proportionate share of the mine assets to be computed
at a ratio that the managers account had to the owners account. Except to provide a basis for claiming
the advances as a bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner
under the compromise agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing
the terms and conditions of such loans. The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of payment was unclear. All these point to
the inevitable conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive
50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the
parties contractual stipulations simply leads to no other conclusion than that petitioners "compensation"
is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits
of a business is prima facie evidence that he is a partner in the business." Petitioner asserts, however,
that no such inference can be drawn against it since its share in the profits of the Sto Nio project was
in the nature of compensation or "wages of an employee", under the exception provided in Article 1769
(4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will
be paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in order to ensure its viability and
profitability. By pegging its compensation to profits, petitioner also stood not to be remunerated in case
the mine had no income. It is hard to believe that petitioner would take the risk of not being paid at all for
its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an
equal share in the income of the mine if it were just an employee of Baguio Gold.25 It is not surprising
that petitioner was to receive a 50% share in the net profits, considering that the "Power of Attorney"
also provided for an almost equal contribution of the parties to the St. Nino mine. The "compensation"
agreed upon only serves to reinforce the notion that the parties relations were indeed of partners and
not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a partnership
known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as
the latter was under no unconditional obligation to return the same to the former under the "Power of
Attorney". As for the amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were not yet due and
demandable at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio Golds
outstanding loans to its bank creditors and this conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions
for income tax purposes partake of the nature of tax exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.27 In this
case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio
Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385
dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10,
1995, which is the due date given for the payment of the deficiency income tax, up to the actual date of
payment

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.THE COMMISSIONER OF

INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

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.
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 co-ownership 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.
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. 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 co-partnerships (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.
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.
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.
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. 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 co-partnership 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 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.

G.R. No. 101847 May 27, 1993

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs.COURT OF APPEALS, JUDGE
BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City,
Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:

The instant petition for annulment of decision is DISMISSED.

1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and
was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff,
and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces
of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months
after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of
April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on
February 1, 1991 or 22 days after the receipt of the decision). On February 4, 1991, the trial court issued
a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex "6", p. 82, Rollo)
declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by
Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p.
83, Rollo). On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial
court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership,
contrary to the evidence on record. The appellate court, as aforesaid, outrightly dismissed the petition
due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin
is void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of execution
had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We
respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were commonly
used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status
of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on
the dissolution and winding up in case a partnership so existed as well as the issue of ownership over
the properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00 or more in money or property, the same must
appear in a public instrument which must be recorded in the Office of the Securities and Exchange
Commission. Failure to comply with these requirements shall only affect liability of the partners to third
persons.

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary
equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds
realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her
obligation. The same has been done by the herein brother and the herein defendant who started to work
in the business. A cursory examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name. While there may have been co-ownership or co-possession of some
items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant,
these are not indicative and supportive of the existence of any partnership between them. Article 1769
of the New Civil Code is explicit. Even the books and records retrieved by the Commissioner appointed
by the Court did not show proof of the existence of a partnership as conceptualized by law. Such that if
assuming that there were profits realized in 1975 after the two-year deficits were compensated, this
could only be subject to an equal sharing consonant to the agreement to equally divide any profit realized.
However, this Court cannot overlook the fact that the Audit Report of the appointed Commissioner was
not highly reliable in the sense that it was more of his personal estimate of what is available on hand.
Besides, the alleged profits was a difference found after valuating the assets and not arising from the
real operation of the business. In accounting procedures, strictly, this could not be profit but a net worth.

In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself
had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the
other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency
with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as
alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier
agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only
to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.) Withal,
the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised
therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.
No special pronouncement is made as to costs.

4. Obillos vs CIR 139 SCRA 436 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
brothers and sisters, petitioners
vs.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which
they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of
1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build their residences. The company sold the
two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled
City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit
as a capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of
Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336
in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income
tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total
of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a "
taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76
on their profit of P134,336, in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership
or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge
Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of
the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality
should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to
the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeas says:

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.* Such intent was present in Gatchalian vs. Collector of Internal Revenue,
67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket
with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit.
Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to
the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question pro
indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or
expand the inherited properties; they merely continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in their tax returns their corresponding shares in
the income and expenses of the 'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue
the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which
produce income should not automatically be considered partners of an unregistered partnership,or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income
of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does
not produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11,
1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78). Commissioner of Internal
Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used
the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves,
it was held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father
and son purchased a lot and building, entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
where the three Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated
the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are
not prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled.
No costs.

5. Ona vs CIR 45 SCRA 74 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B.
OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., vs. THE COMMISSIONER OF
INTERNAL REVENUE,

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as
above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject
to the payment of the deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5%
surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of
the suit,1 as well as the resolution of said court denying petitioners' motion for reconsideration of said
decision.
The facts are stated in the decision of the Tax Court as follows: Julia Buales died on March 23, 1944,
leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo
T. Oa the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 3, pp.
34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition, which was
approved by the Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia
and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved, Lorenzo
T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of
First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.). The
project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half
(1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This
amount was not divided among them but was used in the rehabilitation of properties owned by them in
common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00
(t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) From said investments and properties
petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales
of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The
said incomes are recorded in the books of account kept by Lorenzo T. Oa where the corresponding
shares of the petitioners in the net income for the year are also known. Every year, petitioners returned
for income tax purposes their shares in the net income derived from said properties and securities and/or
from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did not actually
receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in
the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and
securities. (See Exhibit 3, t.s.n., pp. 50, 102-104)

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against
the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have formed
an unregistered partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit
17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows:

1955 Net income as per investigation ................ P40,209.89

Income tax due thereon ................... 8,042.00

25% surcharge .......................... 2,010.50
Compromise for non-filing ............. 50.00
Total ..................................... P10,102.50
1956
Net income as per investigation ... P69,245.23
Income tax due thereon ............. 13,849.00
25% surcharge .......................... 3,462.25
Compromise for non-filing .............. 50.00
Total .............................................. P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the
Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the
questioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the
"Compromise for non filing," the latter item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page
86, BIR records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING
FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by
the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered
partnership, should this not be only in the sense that they invested as a common fund the profits earned
by the properties owned by them in common and the loans granted to them upon the security of the said
properties, with the result that as far as their respective shares in the inheritance are concerned, the total
income thereof should be considered as that of co-owners and not of the unregistered partnership? And
(3) assuming again that they are taxable as an unregistered partnership, should not the various amounts
already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and presumably petitioners have been holding their
respective shares in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case, and We see no
reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-
owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed
earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management
of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased yearly from P87,860.00 in "land
account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became
possible because, admittedly, petitioners never actually received any share of the income or profits from
Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund
for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted
that all the profits from these ventures were divided among petitioners proportionately in accordance
with their respective shares in the inheritance. In these circumstances, it is Our considered view that
from the moment petitioners allowed not only the incomes from their respective shares of the inheritance
but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in
undertaking several transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned
provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered
as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such status as co-owners continues until the inheritance
is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and engage in business on
that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a property inherited by them pro indiviso,"
but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for
this is simple. From the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his
co-heirs under a single management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were executed for the purpose,
for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to
petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived,"
and, for that matter, on any other provision of said code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code
from that of unregistered partnerships which are considered as "corporations" under Sections 24 and
84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section
24 of said Code exempts from the aforementioned tax "duly registered general partnerships," which
constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined
in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in
any of the standard forms, or in confirmity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on corporation. Again, pursuant to
said section 84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal personality of its own, independent of that
of its members. Accordingly, the lawmaker could not have regarded that personality as a condition
essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general co-partnerships" 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." ....
xxx xxx xxx
Similarly, the American Law
provides its own concept of a partnership. Underthe term "partnership" it includes not only a partnership
as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated
organization 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 Incoe Taxation,
p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group,pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operat on, or venture is carried on.
... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
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.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G.
R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
ownership pursued by appellants therein.
As regards the second question rai
sed by petitioners about the segregation, for the purposes of the corporate taxes in question, of their
inherited properties from those acquired by them subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for reconsideration: In connection with the second
ground, it is alleged that, if there was an unregistered partnership, the holding should be limited to the
business engaged in apart from the properties inherited by petitioners. In other words, the taxable income
of the partnership should be limited to the income derived from the acquisition and sale of real properties
and corporate securities and should not include the income derived from the inherited properties. It is
admitted that the inherited properties and the income derived therefrom were used in the business of
buying and selling other real properties and corporate securities. Accordingly, the partnership income
must include not only the income derived from the purchase and sale of other properties but also the
income of the inherited properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered
as individual income of the respective heirs only so long as the inheritance or estate is not distributed or,
at least, partitioned, but the moment their respective known shares are used as part of the common
assets of the heirs to be used in making profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear
intent of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court
in the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said
court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honoable Court that the herein petitioners have formed
an unregistered partnership and, there ore, have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns reported their shares of the profits of the unregistered
partn rship. We think it only fair and equitable that the various amounts paid by the individual petiti ners
as income tax on their respective shares of the unregistered partnership should be deducted from the
deficiency income tax found by this Honorable Court against the unreg stered partnership. (page 7, Mem
randum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be reduced
by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not
correct; rather, itshould be the other way around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in
question, but the income tax due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass
upon the same. Petitioners insist that it was error for the Tax Court to so rule that whatever excess they
might have paid as individual income tax cannot be credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay double
income tax on the same income, and, worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription from recovering their overpayments
in a separate action. We do not agree. As We see it, the case of petitioners as regards the point under
discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the
corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed
what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement
are subject to the bar of prescription. And since the period for the recovery of the excess income taxes
in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely because the taxpayers
failed to make the proper return and payment of the corporate taxes legally due from them. In principle,
it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above
suspicion in their conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm
with costs against petitioners.
6. Gatchalian vs CIR 67 Phil 666 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee.

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

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

That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10,
1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a
warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit
I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said
plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan,
as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part
hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax
and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject
to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made
a part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments
at the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of
P602.51, a copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the
terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which
is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within
five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the
plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano
Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93
representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced
by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and
that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made
part hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund
thereof; copy of which is attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred
and sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant
refused and still refuses to refund the said amount notwithstanding the plaintiffs' demands.

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

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY
19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the
two following: (1) Whether the plaintiffs formed a partnership, or merely a community of property without
a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the
payment of income tax, whereas if there was merely a community of property, they are exempt from
such payment; and (2) whether they should pay the tax collectively or whether the latter should be
prorated among them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended
by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three per centum upon such income; and a like tax shall
be levied, assessed, collected, and paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of
section two of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from
the payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and
the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay
the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be
prorated among them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs
appellants. So ordered.

7. Sardane vs CA 167 SCRA 524 1988

NOBIO SARDANE, , vs.THE COURT OF APPEALS and ROMEO J. ACOJEDO,

The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should
have written finis to this case without further recourse to Us. The assignment of errors and arguments
raised in the respondent Court by herein private respondent, as the petitioner therein, having been
correctly and justifiedly sustained by said court without any reversible error in its conclusions, the present
petition must fail.
The assailed decision details the facts and proceedings which spawned the present controversy as
follows:
Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on
promissory notes executed by the herein private respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E, F, and G executed on different
dates and signed by private respondent Nobio Sardane. Exhibit B is a printed promissory note involving
Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a printed promissory note and denotes on its
face that the sum loaned was Pl,400.00. Exhibit D is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is commonly known to the layman as 'vale' which
reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY,
to be paid on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales'
involving the same amount of one hundred pesos, and dated August 25, 1972 and September 12, 1972
respectively.

It has been established in the trial court that on many occasions, the petitioner demanded the payment
of the total amount of P5,217.25. The failure of the private respondent to pay the said amount prompted
the petitioner to seek the services of lawyer who made a letter (Exhibit 1) formally demanding the return
of the sum loaned. Because of the failure of the private respondent to heed the demands extrajudicially
made by the petitioner, the latter was constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion
by the petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private
respondent in default and allowed the petitioner to present his evidence ex-parte. Based on petitioner's
evidence, the City Court of Dipolog rendered judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the City Court in an
order dated May 24, 1976, taking into consideration that the answer was filed within two hours after the
hearing of the evidence presented ex-parte by the petitioner.

After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen
Pesos and Twenty-five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when
this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost
of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which
reversed the decision of the lower court by dismissing the complaint and ordered the plaintiff-appellee
Acojedo to pay said defendant-appellant P500.00 each for actual damages, moral damages, exemplary
damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the review of
said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly,
whether the oral testimony for the therein private respondent Sardane that a partnership existed between
him and therein petitioner Acojedo are admissible to vary the meaning of the abovementioned
promissory notes; and, secondly, whether because of the failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption accorded
in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in
issue the imperfection or ambiguity of the documents in question", hence "the appellant can avail of the
parol evidence rule to prove his side of the case, that is, the said amount taken by him from appellee is
or was not his personal debt to appellee, but expenses of the partnership between him and appellee."
Consequently, said trial court concluded that the promissory notes involved were merely receipts for the
contributions to said partnership and, therefore, upheld the claim that there was ambiguity in the
promissory notes, hence parol evidence was allowable to vary or contradict the terms of the represented
loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of the agreement other than the
contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express the the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as
there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum
certain in money, payable on demand and the promise to bear the costs of litigation in the event of the
private respondent's failure to pay the amount loaned when demanded extrajudicially. Likewise, the vales
denote that the private respondent is obliged to return the sum loaned to him by the petitioner. On their
face, nothing appears to be vague or ambigous, for the terms of the promissory notes clearly show that
it was incumbent upon the private respondent to pay the amount involved in the promissory notes if and
when the petitioner demands the same. It was clearly the intent of the parties to enter into a contract of
loan for how could an educated man like the private respondent be deceived to sign a promissory note
yet intending to make such a writing to be mere receipts of the petitioner's supposed contribution to the
alleged partnership existing between the parties?
It has been established in the trial court that, the private respondent has been engaged in business for
quite a long period of time--as owner of the Sardane Trucking Service, entering into contracts with the
government for the construction of wharfs and seawall; and a member of the City Council of Dapitan
(TSN, July 20, 1976, pp. 57-58 indeed puzzles us how the private respondent could have been misled
into signing a document containing terms which he did not mean them to be. ...
The private respondent admitted during the cross-examination made by petitioner's counsel that he was
the one who was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How
could he purportedly rely on such a flimsy pretext that the promissory notes were receipts of the
petitioner's contribution? 4

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes
may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a
partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of the
net profits does not conclusively establish that he was a partner of the private respondent herein. Article
1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such
profits were received in payment as wages of an employee. Furthermore, herein petitioner had no voice
in the management of the affairs of the basnig. Under similar facts, this Court in the early case of Fortis
vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice
nor vote in the management of the affairs of the company. The fact that the compensation received by
him was to be determined with reference to the profits made by the defendant in their business did not
in any sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual
and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension
that he was a partner and not a mere employee indebted to the present private respondent. Thus, in an
action for damages filed by herein private respondent against the North Zamboanga Timber Co., Inc.
arising from the operations of the business, herein petitioner did not ask to be joined as a party plaintiff.
Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet
it is the latter who is demanding an accounting. The advertence of the Court of First Instance to the fact
that the casco bears the name of herein petitioner disregards the finding of the respondent Court that it
was just a concession since it was he who obtained the engine used in the Sardaco from the Department
of Local Government and Community Development. Further, the use by the parties of the pronoun "our"
in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the
camaraderie and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not
express the true intent and agreement of the parties, are binding on Us since there is no showing that
they fall within the exceptions to the rule limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:

Sec. 8. How to contest genuineness of such documents.When an action or defense is founded upon
a written instrument, copied in or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but
this provision does not apply when the adverse party does not appear to be a party to the instrument or
when compliance with an order for the inspection of the original instrument is refused.

The record shows that herein petitioner did not deny under oath in his answer the authenticity and due
execution of the promissory notes which had been duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in the trial court, he did not at all question the fact
that he signed said promissory notes and that the same were genuine. Instead, he presented parol
evidence to vary the import of the promissory notes by alleging that they were mere receipts of his
contribution to the alleged partnership.

His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished
from the rule on actionable documents. As the respondent Court correctly explained to herein petitioner,
what he presented in the trial Court was testimonial evidence that the promissory notes were receipts of
his supposed contributions to the alleged partnership which testimony, in the light of Section 7, Rule 130,
could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned but, on the
contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated
in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not sustain his thesis that the herein
private respondent had "waived the mantle of protection given him by Rule 8, Sec. 8". It is true that such
implied admission of genuineness and due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or
ignored the fact that, as held in Yu Chuck, and the same is true in other cases of Identical factual settings,
such a finding of waiver is proper where a case has been tried in complete disregard of the rule and the
plaintiff having pleaded a document by copy, presents oral evidence to prove the due execution of the
document and no objections are made to the defendant's evidence in refutation. This situation does not
obtain in the present case hence said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-
rebuttal testimony constitute a waiver of the aforesaid implied admission. As found by the respondent
Court, said sur-rebuttal testimony consisted solely of the denial of the testimony of herein private
respondent and no new or additional matter was introduced in that sur-rebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and set aside
the appealed decision of the Court of First Instance of Zamboanga del Norte and affirmed in full the
decision of the City Court of Dipolog City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner,
as the private respondent therein, raised a third unresolved issue that the petition for review therein
should have been dismissed for lack of jurisdiction since the lower Court's decision did not affirm in full
the judgment of the City Court of Dipolog, and which he claimed was a sine qua non for such a petition
under the law then in force. He raises the same point in his present appeal and We will waive the
procedural technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the
respondent Court praying that it sustain the decision of the trial Court, thereby invoking and submitting
to its jurisdiction which he would now assail. Furthermore, the objection that he raises is actually not one
of jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29,
Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968. Subsequently, the
procedure for appeal to the Court of Appeals from decisions of the then courts of first instance in the
exercise of their appellate jurisdiction over cases originating from the municipal courts was provided for
by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The
requirement for affirmance in full of the inferior court's decision was not adopted or reproduced in
Republic Act 6031. Also, since Republic Act 6031 failed to provide for the procedure or mode of appeal
in the cases therein contemplated, the Court of Appeals en banc provided thereof in its Resolution of
August 12, 1971, by requiring a petition for review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in full that of the lower court. Said mode of appeal
and the procedural requirements thereof governed the appeal taken in this case from the aforesaid Court
of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint on this issue is, therefore,
devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein
petitioner.
8. Fortis vs Gutierrez Hermanos 6 Phil 188
JOHN FORTIS, plaintiff-appellee, vs. GUTIERREZ HERMANOS, defendants-
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to
recover a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5
per cent of the net profits of the business of the defendants for said year. The complaint also contained
a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during the
year 1903. The court below, in its judgment, found that the contract had been made as claimed by the
plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos,
Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican
currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency,
with interest thereon from December 31, 1904. The court also ordered judgment against the defendants
for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied, and they have brought the case here by bill of
exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked
for the defendants during the year 1902 under a contract by which he was to receive as compensation
5 per cent of the net profits of the business. The contract was made on the part of the defendants by
Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the
managers of the company, with full power to transact all of the business thereof. As such manager he
had authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion that the complaint be made
more definite and certain. This motion was denied. To the order denying it the defendants excepted, and
they have assigned as error such ruling of the court below. There is nothing in the record to show that
the defendants were in any way prejudiced by this ruling of the court below. If it were error it was error
without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner
of the defendants in the business which they were carrying on. This contention can not bo sustained. It
was a mere contract of employnent. The plaintiff had no voice nor vote in the management of the affairs
of the company. The fact that the compensation received by him was to be determined with reference to
the profits made by the defendants in their business did not in any sense make by a partner therein. The
articles of partnership between the defendants provided that the profits should be divided among the
partners named in a certain proportion. The contract made between the plaintiff and the then manager
of the defendant partnership did not in any way vary or modify this provision of the articles of partnership.
The profits of the business could not be determined until all of the expenses had been paid. A part of the
expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted
before the net profits of the business, which were to be divided among the partners, could be ascertained.
It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine
what the profits of the business were, after paying all of the expenses except his, but that determination
was not the final determination of the net profits of the business. It was made for the purpose of fixing
the basis upon which his compensation should be determined.
(4) It was no necessary that the contract between the plaintiff and the defendants should be made in
writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died
prior to the trial of the action, and the defendants claim that by reasons of the provisions of section 383,
paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness at the trial. That paragraph
provides that parties to an action against an executor or aministrator upon a claim or demand against
the estate of a deceased person can not testify as to any matter of fact occurring before the death of
such deceased person. This action was not brought against the administrator of Miguel Alonzo, nor was
it brought upon a claim against his estate. It was brought against a partnership which was in existence
at the time of the trial of the action, and which was juridical person. The fact that Miguel Alonzo had been
a partner in this company, and that his interest therein might be affected by the result of this suit, is not
sufficient to bring the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had
been paid as salary for the year 1900 a part of the profits of the business. This evidence was competent
for the purpose of corroborating the testimony of the plaintiff as to the existence of the contract set out
in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez,
one of the partners in the defendant company, to Miguel Alonzo Gutierrez, another partner, which letter
was read to plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court committed an error
in admitting this evidence. The case already made by the plaintiff was in itself sufficient to prove the
contract without reference to this letter. The error, if any there were, was not prejudicial, and is not ground
for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff
presented in evidence the ledger of defendants, which contained an entry made on the 31st of
December, 1902, as follows:
Perdidas y Ganancias........ a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants,
who testiffied, among other things, that there were no profits during the year 1902, but, on the contrary,
that the company suffered considerable loss during that year. We do not think the evidence of this
witnees sufficiently definite and certain to overcome the positive evidence furnished by the books of the
defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ
of the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there
for about two months looking after the business of the defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services
thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not
applicable to this case, because the amount of 600 pesos not claimed as compensation for services but
as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of
the code that is applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After
the expiration of twenty days from the date of this decision let final judgment be entered herein, and ten
days thereafter let the case be remanded to the lower court for execution. So ordered.

FRANCISCO BASTIDA, plaintiff-appellee,

vs. MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First
Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants'
amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein
the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of
the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C.
Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M.
Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in
the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit A, attached
to the original complaint as a part thereof, and likewise made a part of the amended complaint, as if it
were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture
prepared fertilizers, the former superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled
"FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept; the plaintiff had no participation in the making of these
entries, which were wholly in the defendants' charge, under whose orders every entry was made;
IV That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged
to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff
had no intervention in the preparation of these yearly balances, nor was he permitted to have any access
to the books of account; and when the balance sheets were shown him, he, believing in good faith that
they contained the true statement of the partnership business, and relying upon the good faith of the
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last
balance sheet having been rendered in the year 1926;
V That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the
plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature
and amount of which it is impossible to ascertain, even after the examination of the books of the business,
due to the defendants' refusal to furnish all the books and data required for the purpose, and the constant
obstacles they have placed in the way of the examination of the books of account and vouchers;
VI
That when the plaintiff received the information mentioned in the preceding paragraph, he demanded
that the defendants permit him to examine the books and vouchers of the business, which were in their
possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to the examination until after
the original complaint was filed in this case; but up to this time they have refused to furnish all the books,
data, and vouchers necessary for a complete and accurate examination of all the partnership's accounts;
and
VII
That as a result of the partial examination of the books of account of the business, the plaintiff has,
through his accountants, discovered that the defendants, conspiring and confederating together,
presented to the plaintiff during the period covered by the partnership contract false and incorrect
accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and
were in fact paid by the defendant Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which should have been paid for its own
account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of
materials for the manufacture of fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the
sale of fertilizers belonging to the partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for
fertilizer bought abroad, no entries of said rebates having been made on the books to the credit of the
partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and concealing the books
and papers of the partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true account of all facts relating to the
partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the beginning to April 27, 1927, and a
true statement of all merchandise of whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount thereof, besides the sums received
by the partnership from every source together with their exact nature, and a true and complete account
of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to
1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and disbursements of the partnership
during the period of its existence, besides granting the plaintiff any other remedy that the court may deem
just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco
Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para
diversas aplicaciones agricolas;
2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma;
3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio;
4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion
del negocio;
5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras
personas, o de manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique comunmente a la fertilizacion de suelos y plantas,
durante la vigencia de este contrato, a menos que obtenga autorizacion expresa de la Primera Parte
para ello;
6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas
o entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o
Fertilizantes preparados, ya sean ellos importados, ya preparados en las Islas Fllipinas; tampoco podra
dedicarse a la venta o negocio de materias o productos que tengan aplicacion como fertilizantes, o que
se usen en la composicion de fertilizantes o abonos, si ellos son productos de suelo de la manufactura
filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los
Estados Unidos o del Extranjero;
7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y
cinco por ciento) de las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a
cuenta de su parte de beneficios.
9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas
por un periodo de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte
con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de
1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except the formal allegations as to the
parties, and as a special defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise
business in the Philippine Islands since its organization in October, 1921, including the importation and
sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer
ingredients, and as a part of that business, it has been engaged since its organization in the manufacture
and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks
belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an
employment agreement with the plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers
in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers prepared
by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received
the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi &
Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked
Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed that
the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated,
should be for a definite period of five years from that date and under the other terms and conditions
stated therein, but with the understanding and agreement that the said Francisco Bastida should receive
as compensation for his said services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as
provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of December, 1922, the
defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did
assume the full management and direction of said business;
3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept
in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said agreement, for the purpose of convenience
in determining the amount of compensation due to the plaintiff under his agreement, separate books of
account for its said fertilizer business were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and
the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business
due to the said plaintiff as compensation for his services under said agreement would be made as of
December 31st, instead of June 30th, of each year, during the period of said agreement; that the
accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers
and records supporting the same, for each year of said business have been duly audited by Messrs.
White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the
end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit
and loss account and balance sheet, showing the status of said business and the share of the net profits
pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the business of its said fertilizer
department up to and including the year 1926, had been prepared by the said auditors and certified by
them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him, with
full knowledge of their contents, and as evidence of such approval, he signed his name on each of them,
as shown on the copies of said manufacturing and profit and loss account and balance sheet for each
year up to and including the year 1926, which are attached to the record of this case, and which are
hereby referred to and made a part of this amended answer, and in accordance therewith, the said
plaintiff has actually received the portion of the net profits of its said business for those years pertaining
to him for his services under said agreement; that at no time during the course of said fertilizer business
and the liquidation thereof has the plaintiff been in any way denied access to the books and records
pertaining thereto, but on the contrary, said books and records have been subject to his inspection and
examination at any time during business hours, and even since the commencement of this action, the
plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over and examining
said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned
over to said plaintiff and his accountant the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not under any conditions renew his said agreement or continue his said
employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the
said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of
the business of its said fertilizer department for the four months of 1927 covered by plaintiff's agreement
and prepare a manufacturing and profit and loss account and balance sheet of said business showing
the status of said business at the termination of said agreement, a copy of which was shown to and
explained to the plaintiff; that at that time there were accounts receivable to be collected for business
covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other
fertilizer ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or
valued by the parties, before the net profits of said business for the period of the agreement could be
determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of
the other properties for the purpose of determining the profits of said business for that period, and to pay
to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to accept,
and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said
plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M.
Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations against
the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts
receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately
P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final liquidation
and amounting of the net profits of the business covered by said agreement for the last four months
thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff
has been informed from time to time as to the status of the disposition of such properties, and he and
his auditors have fully examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were
furnished by the defendants disclosed the fact that said defendants had charged to "purchases" of the
business, undue interest, the amount of which the plaintiff is unable to determine, as he has never had
at his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact
that the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its
own cash book, but that its funds were maliciously included in the private funds of the defendant entity,
neither was there a separate BANK ACCOUNT of the partnership, such account being included in the
defendant's bank account.
III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the
partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants
by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or P64,551.38,
belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally
to pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from
the defendants to the plaintiff upon this ground, with legal interest from the filing of the original complaint
until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi &
Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business,
as it had been doing before the plaintiff was employed under the said agreement; that the said defendant,
Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened letters of credit
through the banks of Manila, accepted and paid drafts drawn upon it under said letters of credit, and
obtained loans and advances of moneys for the purchase of materials to be used in mixing and
manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all,
such business enterprises, and that such payments of interest as were actually made on such drafts,
loans and advances during the period of the said employment agreement constituted legitimate
expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm,
nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever
by way of salary for services rendered to the partnership between the plaintiff and the defendant,
inasmuch as such services were compensated with the 65% of the net profits of the business constituting
their share.
III. That the plaintiff has, on his on account and with his own money, paid all the employees he has
placed in the service of the partnership, having expended for their account, during the period of the
contract, over P88,000, without ever having made any claim upon the defendants for this sum because
it was included in the compensation of 35 per cent which he was to receive in accordance with the
contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and
excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries
of a number of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership
funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and
severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special
defense the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its
said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation
for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments
had special experienced Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer business, after its manager took
charge of it, became very successful, and owing to the large volume of business transacted, said
business required great deal of time and attention, and actually consumed at least one-half of the time
of the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co.,
furnished office space, stationery and other incidentals, for said business, and had its employees perform
the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason the said
Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which
pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional
part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the
several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922,
a just proportion of said overhead expenses were charged to said fertilizer departments and entered on
the books thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports,
which were examined, accepted and approved by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M.Menzi and P. C. Schlobohm, has
paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due
from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own money the income tax
corresponding to his share which consists in 35 per cent of the profits of the fertilizer business, expending
about P5,000 without ever having made any claim for reimbursement against the partnership, inasmuch
as it has always been understood among the partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff
the sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its
payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the
Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the
income of its whole business, including its fertilizer department; that the proportional share of such
income taxes found to be due on the business of the fertilizer department was charged as a proper and
legitimate expense of that department, in the same manner as was done in the other departments of its
business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was
required to make his own return under the Income Tax Law and to pay his own income taxes, instead of
having them paid at the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc.,
pertaining to the business, were duly entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were examined, accepted and approved by the
plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are
not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the
period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission
was not entered by the defendants in the books of the business, to the credit and benefit of the
partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff
cannot be determined, because the entries referring to these items do not appear in the partnership
books, although the plaintiff believes and alleges that they do appear in the private books of the
defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made
therefore by the auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership
during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff
the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have adduced
their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and
has now what is called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B.,
of Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive for
its propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on
all orders of potash received by it from the Philippine Islands; that during the period of said agreement,
Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent
of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission,
amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands;
that said commissioners were not in any sense discounts on the purchase price of said potash, and have
no relation to the fertilizer business of which the plaintiff was to receive a share of the net profits for his
services, and consequently were not credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of
commissions, which were received from the United Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi &
Co., Inc., but due allowance has now been given to the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers
in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with
the latter's money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons,
thereby appropriating to itself the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the
real amount obtained from such sales can only be ascertained from the examination of the private books
of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established,
even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by
merely examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to all the profits received from the sale to third persons of the fertilizers pertaining
to the partnership, and the profits they have appropriated, ordering them jointly and severally to pay 35
per cent of the net amount, with legal interest from the filing of the original complaint until the payment
thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro
its exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and
sold during the period of said agreement were simple fertilizer ingredients, which had nothing whatever
to do with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits
as a part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account
of the partnership constituted between itself and the plaintiff, and with the latter's money, purchased from
a several foreign firms various simple fertilizing material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the cost price of the
merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent
and were later credited by the selling firms to the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and
P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for
rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter
them upon the books to the credit of the partnership constituted between the defendant and the plaintiff,
but entered or had them entered to the credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35
per cent of the value of such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without
an examination of the private books of Menzi & Co., Inc., which the latter has refused to permit
notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount. Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc.,
received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business
in the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total
sum of P1,402.54; that all of department as received, but it has just recently been discovered that through
error an additional sum of P216.22 was credited to said department, which does not pertain to said
business in the profits of which the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compaia General de Tabacos de Filipinas
for the sale of said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at the
rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were delivered, according to
information received by the plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff
estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the
defendants have not rendered a true accounting of the profits obtained by the business during the last
four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the
inventory of merchandise, transportation equipment, and the value of the trade marks, for which reason
such proposed balance did not represent the true status of the business of the partnership on April 30,
1927.
V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during
the last four months of its existence, was likewise incorrect, inasmuch as it did not include the profit
realized or to be realized from the contract entered into with the Compaia General de Tabacos de
Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the
partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into with the Compaia General de
Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed
account of the business during the last four months of the existence of the partnership, i. e., from January
1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia
General de Tabacos Filipinas on April 21, 1927, was taken by it in the
regular course of its fertilizer business, and was
to be manufactured and delivered in December, 1927, and up to April, 1928; that the employment
agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in any way in
the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have any interest
in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration of his
contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the
Bureau of Commerce and
Industry the trade marks "CORONA NO. 1",
CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant having by their efforts succeeded
in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing
business a prosperous concern to such an extent that the profits obtained from the business during the
five years it has existed, amount to approximately P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks of a business of this nature amounts to at least
P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and
in spite of the plaintiff's
insistent opposition, has assumed the charge of liquidating the fertilizing business, without having
rendered a monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff
damages.
VI. That the damages sustained by the plaintiff,
as well as the amount of his share in the remaining property of the plaintiff, and may only e truly and
correctly ascertained by compelling the defendants J. M. Menzi and P. C.
Schlobohm to declare under oath and explain to the court in detail the sums obtained from the sale of
the remaining merchandise, after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the
good-will and trade marks belonging to the partnership, as well as its
ransportation equipment and other machinery, thereby indicating its intention to retain such
good-will, trade marks, transportation
equipment and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound
to pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery employed in the preparation of
the fertilizers amounts
of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed
account of the state of the liquidation of the partnership business, but said
defendants has ignored such demands, so that
the plaintiff does not, and this date, know whether the liquidation of the business has been finished, or
what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the
status of business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants
to pay the plaintiff jointly and severally 35 per cent of the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35
per cent of the value of the goodwill and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per
cent of the value of the transportation equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this
Honorable Court may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment
agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from
and since its organization, and the plaintiff can have no rights to or interest therein under his said
employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi
& Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said business; that the machinery pertaining
to the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum
of P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per
cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and
the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it
taken into consideration in arriving at the net profits due to him under his said employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general
regular commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C
to C-8, is not estopped from questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P
60,385.67 with legal interest from the date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41,
with legal interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum
of P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business,
until paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20
with legal interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business
accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum
charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A,
to pay the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff,
FranciscoBastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully
charged to the fertilizer business in question the sum of P10,918.33 as income taxes partners' balances,
foreign drafts, local drafts, and on other credit balances in the sum of P172,530.49, and that 35 per cent
thereof, or the sum of P60,358.67, with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of P10,918.33 as income taxes for the years 1923, 1924,
1925 and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his complaint, and in disallowing the item of P2,410 charged as
income tax in the liquidation in Exhibits 51 and 51 A for the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract,
Exhibit A was daring the whole period thereof considered by the parties and
performed by them as a contract of employment in relation to the fertilizer business of the defendant,
and thatthe accounts of said business were kept by the defendant, Menzi & Co., Inc., on that theory with
theknowledge and consent of the plaintiff, and that at the end of each year for five years a balance sheet
and profit and loss statement of saidbusiness were prepared from the books of account of said business
on the same theory and submitted to the plaintiff, and that each year said balance sheet and profit and
lossstatement were examined, approved and signed by said contract in accordance therewith with
fullknowledge of the manner in which said business was conducted and the charges for interest and
income taxes made against the same andthat by reason of such facts, the plaintiff is now estopped from
raising any question as to the nature of said contract or the propriety of such charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per
cent of the net profits in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its
contract with the Compaia General de Tabacos de Filipinas, or the sum of P6.578.38, with legal interest
thereon from January 1, 1929, the date upon which the liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in
question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with legal interest thereon from the date of filing his complaint.
2281598
VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi &
Co., Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal interest thereon from
the date of filing the complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal
interest thereon from the date of filing the complaint; (c) on the eight cause of action, for the sum of
P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth cause of action, for the
sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e) for
the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A
and 52 and 52-A, as true and correct, and entering judgment against said defendant only for the amounts
admitted therein as due the plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new trial.
It appears from the evidence that the defendants corporation was organized in 1921 for purpose of
importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will, trade-marks, business, and other
assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910
until that firm was taken over the Alien Property Custodian in 1917. Among the trade-marks thus acquired
by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were registered in
the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks "ARADO" and "HOZ"
had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark
"CORONA" had been used in its other business. The "HOZ" trade-mark was used by John Bordman and
the Menzi-Bordman Co. in the continuation of the fertilizer business that had belonged to Behn, Meyer
& Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different departments, each of which was in
charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had
to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for
interest was charged against the department concerned, and the interest charges were taken into
account in determining the net profits of each department. The practice of the corporation was to debit
or credit each department with interest at the bank rate on its daily balance. The fertilizer business of
Menzi & Co., Inc., was carried on in accordance with this practice under the "Sundries Department" until
July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to
see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he
could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did
not have the money to buy the ingredients to fill the order and carry on the on the business. He offered
to assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise
the mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that Menzi & Co.,
might derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted plaintiff's offer.
Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit
B:
MANILA, 10 de enero de 1922 Sr. FRANCISCO BASTIDA Manila MUY SR. NUESTRO: Interin
formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de abono
y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que
se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato
con la Calamba Sugar Estates, asi como de cuantos contratos se cierren con definitiva de nuestro
contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para garantia
y seguridad de Vd.
MENZI & CO., Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It
ordered ingredients from the United States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer
business had no separate capital. A fertilizer account was opened in the general ledger, and interest at
the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the
daily balances of the fertilizer business. This was in accordance with appellant's established practice, to
which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on under the oral agreement were
determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent
and salaries and wages, and the other expenses of said business, and the plaintiff was paid some twenty
thousand pesos in full satisfaction of his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the
basis of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically
the same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry
in the name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to
the fertilizer business, in which the plaintiff was interested. Only the fees for registering the formulas in
the Bureau of Science were charged to the fertilizer business, and the total amount thereof was credited
to this business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps
to tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other
countries. This contract is rendered to in the record as the "Vastago Contract". Menzi & Co., Inc.,
advanced the plaintiff, paying the salaries of his employees, and other expenses in performing his
contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month,
and at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer
business. These statements were delivered to the plaintiff for examination, and after he had had an
opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer
business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98

Total . . . . . . . . . . . . . . . . . . . . P196,483.92
To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927,
amounting to P34,766.87, making a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff
that the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on
hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and
accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the
net profits could be finally determined, it was necessary to dispose of the materials and equipment,
collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss
statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused
to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed
to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the
defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between
the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court
for an order for the sale of the remaining property at public auction, but apparently the court did not act
on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business
was completed in December, 1928 and a final balance sheet and a profit and loss statement were
submitted to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the
whole period of the contract in question were reaudited by White, Page & Co.., certain errors of
bookkeeping were discovered by them. After making the corrections they found the balance due the
plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers
of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi &
Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally
reached very different conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and
the arguments of counsel, we are unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as
appears from the statement of facts, was in effect a continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived
by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests.
Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written agreement, Exhibit A, and for four years
the plaintiff never made any objection. On the contrary he approved and signed every year the balance
sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff began to make
objections.
The trial court relied on article 116 of the Code of Commerce, which provides that articles of association
by which two or more persons obligate themselves to place in a common fund any property, industry, or
any of these things, in order to obtain profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the provisions of this Code; but in the case at bar
there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The
business belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35
per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him
P300 a month on account of his participation in the profits. It will be noted that no provision was made
for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now
well settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem,
second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become
partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation not
engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con).
The fact is that en sociedad con as there used merely means en reunion con or in association with, and
does not carry the meaning of "in partnership with".
The trial judge found that the defendant corporation had not always regarded the contract in question as
an employment agreement, because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said
business. The trial judge concluded that the phrase "associated with", used by the defendant corporation,
indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded by the amended complaint and the
answer thereto, and the answer to the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have been
filed, allegations in the original pleadings are held admissible, but in such case the original pleadings
can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs.
Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay
to the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on
account of his share of the profits, and to grant him permission during 1923 to absent himself from the
Philippines for not more than one year are utterly incompatible with the claim that it was the intention of
the parties to form a copartnership. Various other reasons for holding that the parties were not partners
are advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish
to add that in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the
owners of the fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges
and erroneously disallowed, and this would true even if the parties had been partners. Although Menzi
& Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself
to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary
credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without
merit as not to merit serious consideration. For instance, they objected to the interest charges on draft
for materials purchased abroad. Their contention is that the corporation should have furnished the money
to purchase these materials for cash, overlooking the fact that the interest was added to the cost price,
and that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems
to us the height of absurdity, that the defendant corporation should have furnished free of charge such
financial assistance as would have made it unnecessary to discount customers' notes, thereby enabling
the business to reap the interest. In other words, the defendant corporation should have enabled the
fertilizer department to do business on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the same as those made under the
verbal agreement, upon the termination of which the parties made a settlement; the charges in question
were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision
of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A portion of the
syllabus of that case reads as follows:
CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the
parties to a contract in the course of its performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing
a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had
been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That
this action of the parties under the prior contract could properly be considered upon the question of the
interpretation of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation
placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution
thereof that the other placed a certain interpretation upon a provision of doubtful application,
nevertheless proceeded, without raising any question upon the point, to perform the services which he
was bound to render under the contract. Upon the termination of the contract by mutual consent a
question was raised as to the proper interpretation of the doubtful provision. Held: That the party raising
such question had acquiesced in the interpretation placed upon the contract by the other party and was
bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by
Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not
justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's
contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for himself.
When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to
participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the
accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi
& Co., Inc., were partners; but even if they had been partners there would have been no good-will to
dispose of. The defendant corporation had a fertilizer business before it entered into any agreement with
the plaintiff; plaintiff's agreement was for a fixed period, five years, and during that time the business was
carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right to do. There
was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks
used in the fertilizer business during the time that he was connected with it acquired great value, and
that they have been appropriated by the appellant to its own use. That seems to be the only basis of the
alleged good-will, to which a fabulous valuation was given. As we have seen, the trade- marks were not
new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for
fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of
registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was
interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no
interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence
that said balance is correct.
For the foregoing reasons, the decision appealed from is modified and the defendant corporation is
sentenced to pay the plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June 17,
1927, without a special finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.
Justice Hull participated in this case, but on account of his absence on leave at the time of the
promulgation of the decision he authorized the undersigned to certify that he voted to modify the decision
of the trial court as appears in the foregoing decision of this court. VILLAMOR, J., Presiding.

10. Heirs of Jose Lim vs Juliet Villa Lim GR 172690 March 3 2010
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, vs.JULIET VILLA LIM, Respondent.
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure,
assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which reversed and set aside the
decision3 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 Complaint4 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, 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 50,000.00 each, they
purchased a truck to 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, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo,
with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers
driver in the trucking business. He was never a partner or an investor in the business and merely
supervised the purchase of additional trucks using the income from the trucking business of the partners.
By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledos management of the partnership that he was
able to purchase numerous real properties by using the profits derived therefrom, all of which were
registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that
respondent took over the administration of the aforementioned properties, which belonged to the estate
of Jose, without their consent and approval. Claiming that 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 thereof. Respondent refused; thus, the filing of
this case.
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 50,000.00 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 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 falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested
that three out of the nine trucks be given to him as his share, while the other three trucks be given to the
heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she
sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with
Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that
Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were
purchased and acquired through her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent submitted that these are conjugal
partnership properties; and thus, she had the right to refuse to render an accounting for the income or
profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor 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
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her
from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint
for lack of merit. Undaunted, petitioners filed their Motion for Reconsideration,5 which the CA, however,
denied in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
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
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 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 the CA. Moreover, respondent invokes the rationale of the CA
decision that, in light 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 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 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:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(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;
(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
We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review
of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
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
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 who between Jose and Elfledo was the "partner" in
the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose,
having been derived from the alleged partnership.
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 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 of Court provides the guidelines in determining preponderance of evidence, thus:
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.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening. Therein, we
cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by 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.
Applying the legal provision to the facts of this case, the following circumstances tend to prove that
Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital
in the partnership;15 (2) Elfledo ran the affairs of the 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 demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties
acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of evidence that between documentary and oral
evidence, the former carries more weight.20
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.1avvphi1
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 was the 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.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29,
2005 is AFFIRMED. Costs against petitioners.

Art 1770
1. Arbes vs Polistico 53 Phil 489 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-
appellants.

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan
Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the consideration of this court for the second
time. The first one was when the same plaintiffs appeared from the order of the court below sustaining
the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to
include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court
held then that in an action against the officers of a voluntary association to wind up its affairs and enforce
an accounting for money and property in their possessions, it is not necessary that all members of the
association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and
by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the record, with the following resume:
The defendants objected to the commissioner's report, but the trial court, having examined the reasons
for the objection, found the same sufficiently explained in the report and the evidence, and accepting it,
rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing
the defendants jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the
members of the said association represented by said plaintiffs, with costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be
reduced to two points, to wit: (1) That not all persons having an interest in this association are included
as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted
by the court below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we
are of opinion that, the trial court having examined all the evidence touching the grounds for the objection
and having found that they had been explained away in the commissioner's report, the conclusion
reached by the court below, accepting and adopting the findings of fact contained in said report, and
especially those referring to the disposition of the association's money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts
made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand
upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt
vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil
Procedure it is made the duty of the court to render judgment in accordance with the report of the referee
unless the court shall unless for cause shown set aside the report or recommit it to the referee. This
provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error
that may be contained therein." The appellants stated the grounds for their objection. The trial examined
the evidence and the commissioner's report, and accepted the findings of fact made in the report. We
find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion
admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil.,
962), but the appellants allege that because it is so, some charitable institution to whom the partnership
funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer
to article 1666 of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.
Appellant's contention on this point is untenable. According to said article, no charitable institution is a
necessary party in the present case of determination of the rights of the parties. The action which may
arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid
by the member from those in charge of the administration of said partnership, and it is not necessary for
the said parties to base their action to the existence of the partnership, but on the fact that of having
contributed some money to the partnership capital. And hence, the charitable institution of the domicile
of the partnership, and in the default thereof, those of the province are not necessary parties in this case.
The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was engaged, because for the
purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract,
which is to annul and without legal existence by reason of its unlawful object; and it is self evident that
what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that
when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation
of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said
article Manresa, among other things says:
When the subscriptions of the members have been paid to the management of the partnership, and
employed by the latter in transactions consistent with the purposes of the partnership may the former
demand
the return of the reimbursement thereof from the manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-
existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an
action in favor of the partners to judicially demand from the manager or the administrator of the
partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all
doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on which to base his action. And he adds in explanation
that the partner makes his contribution, which passes to the managing partner for the purpose of carrying
on the business or industry which is the object of the partnership; or in other words, to breathe the breath
of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist
in the eyes of the law, the purpose from which the contribution was made has not come into
existence, and the administrator of the
partnership holding said contribution retains what belongs to others, without any consideration; for which
reason he is not bound to return it and he who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the partnership, because they do
not constitute or represent the partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership,
and therefor, in order to demand the proportional part of the said profits, the partner would have to base
his action on the contract which is null and void, since this partition or distribution of the profits is one of
the juridical effects thereof. Wherefore considering this contract as non-existent, by reason of its illicit
object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by
it.
Hence the distinction made in the second paragraph of this article of this Code, providing that the profits
obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such,
to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former
law, which did not describe the purpose to which those profits denied the partners were to be applied,
nor state what to be done with them.
The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion
of the capital that he contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned by the partners, because it only deals with the disposition of the profits;
but the fact that said contributions are not
included in the disposal prescribed profits, shows that in consequences of said exclusion, the general
law must be followed, and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the
possession of the manager or administrator who has refused to return them, by denying to the partners
the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with
costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum
of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall
deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk
of the trial court, in order that said court may distribute them among the members of said association,
upon being duly identified in the manner that it may deem proper. So ordered.