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ARTICLE 1767 41477, 1 which disposed as follows:

STATUTORY DEFINITION OF PARTNERSHIP WHEREFORE, [there being] no reversible error in the appealed
decision, the same is hereby affirmed. 2
THIRD DIVISION The decretal portion of the Quezon City Regional Trial Court (RTC)
G.R. No. 136448 November 3, 1999 ruling, which was affirmed by the CA, reads as follows:
LIM TONG LIM, petitioner, WHEREFORE, the Court rules:
vs. 1. That plaintiff is entitled to the writ of preliminary attachment
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following
PANGANIBAN, J.: amounts, subject to the modifications as hereinafter made by reason
A partnership may be deemed to exist among parties who agree to of the special and unique facts and circumstances and the
borrow money to pursue a business and to divide the profits or losses proceedings that transpired during the trial of this case;
that may arise therefrom, even if it is shown that they have not a. P532,045.00 representing [the] unpaid purchase price of the
contributed any capital of their own to a "common fund." Their fishing nets covered by the Agreement plus P68,000.00 representing
contribution may be in the form of credit or industry, not necessarily the unpaid price of the floats not covered by said Agreement;
cash or fixed assets. Being partner, they are all liable for debts b. 12% interest per annum counted from date of plaintiff's invoices
incurred by or on behalf of the partnership. The liability for a and computed on their respective amounts as follows:
contract entered into on behalf of an unincorporated association or i. Accrued interest of P73,221.00 on Invoice No. 14407 for
ostensible corporation may lie in a person who may not have directly P385,377.80 dated February 9, 1990;
transacted on its behalf, but reaped benefits from that contract. ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
The Case P146,868.00 dated February 13, 1990;
In the Petition for Review on Certiorari before us, Lim Tong Lim iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
assails the November 26, 1998 Decision of the Court of Appeals in P68,000.00 dated February 19, 1990;
CA-GR CV c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing

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P500.00 per appearance in court; for the P900,000.00 cash bidded and paid for by plaintiff to serve as
d. P65,000.00 representing P5,000.00 monthly rental for storage its bond in favor of defendants.
charges on the nets counted from September 20, 1990 (date of From the foregoing, it would appear therefore that whatever
attachment) to September 12, 1991 (date of auction sale); judgment the plaintiff may be entitled to in this case will have to be
e. Cost of suit. satisfied from the amount of P900,000.00 as this amount replaced the
With respect to the joint liability of defendants for the principal attached nets and floats. Considering, however, that the total
obligation or for the unpaid price of nets and floats in the amount of judgment obligation as computed above would amount to only
P532,045.00 and P68,000.00, respectively, or for the total amount P840,216.92, it would be inequitable, unfair and unjust to award the
P600,045.00, this Court noted that these items were attached to excess to the defendants who are not entitled to damages and who
guarantee any judgment that may be rendered in favor of the plaintiff did not put up a single centavo to raise the amount of P900,000.00
but, upon agreement of the parties, and, to avoid further deterioration aside from the fact that they are not the owners of the nets and floats.
of the nets during the pendency of this case, it was ordered sold at For this reason, the defendants are hereby relieved from any and all
public auction for not less than P900,000.00 for which the plaintiff liabilities arising from the monetary judgment obligation enumerated
was the sole and winning bidder. The proceeds of the sale paid for by above and for plaintiff to retain possession and ownership of the nets
plaintiff was deposited in court. In effect, the amount of P900,000.00 and floats and for the reimbursement of the P900,000.00 deposited
replaced the attached property as a guaranty for any judgment that by it with the Clerk of Court.
plaintiff may be able to secure in this case with the ownership and SO ORDERED. 3
possession of the nets and floats awarded and delivered by the sheriff The Facts
to plaintiff as the highest bidder in the public auction sale. It has also On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
been noted that ownership of the nets [was] retained by the plaintiff Peter Yao entered into a Contract dated February 7, 1990, for the
until full payment [was] made as stipulated in the invoices; hence, in purchase of fishing nets of various sizes from the Philippine Fishing
effect, the plaintiff attached its own properties. It [was] for this Gear Industries, Inc. (herein respondent). They claimed that they
reason also that this Court earlier ordered the attachment bond filed were engaged in a business venture with Petitioner Lim Tong Lim,
by plaintiff to guaranty damages to defendants to be cancelled and who however was not a signatory to the agreement. The total price of

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the nets amounted to P532,045. Four hundred pieces of floats worth bidding and deposited with the said court the sales proceeds of
P68,000 were also sold to the Corporation. 4 P900,000. 7
The buyers, however, failed to pay for the fishing nets and the floats; On November 18, 1992, the trial court rendered its Decision, ruling
hence, private respondents filed a collection suit against Chua, Yao that Philippine Fishing Gear Industries was entitled to the Writ of
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary Attachment and that Chua, Yao and Lim, as general partners, were
attachment. The suit was brought against the three in their capacities jointly liable to pay respondent. 8
as general partners, on the allegation that "Ocean Quest Fishing The trial court ruled that a partnership among Lim, Chua and Yao
Corporation" was a nonexistent corporation as shown by a existed based (1) on the testimonies of the witnesses presented and
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Certification from the Securities and Exchange Commission. On (2) on a Compromise Agreement executed by the three in Civil
September 20, 1990, the lower court issued a Writ of Preliminary Case No. 1492-MN which Chua and Yao had brought against Lim in
Attachment, which the sheriff enforced by attaching the fishing nets the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
on board F/B Lourdes which was then docked at the Fisheries Port, commercial documents; (b) a reformation of contracts; (c) a
Navotas, Metro Manila. declaration of ownership of fishing boats; (d) an injunction and (e)
Instead of answering the Complaint, Chua filed a Manifestation damages. 10 The Compromise Agreement provided:
admitting his liability and requesting a reasonable time within which a) That the parties plaintiffs & Lim Tong Lim agree to have the four
to pay. He also turned over to respondent some of the nets which (4) vessels sold in the amount of P5,750,000.00 including the fishing
were in his possession. Peter Yao filed an Answer, after which he net. This P5,750,000.00 shall be applied as full payment for
was deemed to have waived his right to cross-examine witnesses and P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
to present evidence on his behalf, because of his failure to appear in Lim;
subsequent hearings. Lim Tong Lim, on the other hand, filed an b) If the four (4) vessel[s] and the fishing net will be sold at a higher
Answer with Counterclaim and Crossclaim and moved for the lifting price than P5,750,000.00 whatever will be the excess will be divided
of the Writ of Attachment. 6 The trial court maintained the Writ, and into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
upon motion of private respondent, ordered the sale of the fishing c) If the proceeds of the sale the vessels will be less than
nets at a public auction. Philippine Fishing Gear Industries won the P5,750,000.00 whatever the deficiency shall be shouldered and paid

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to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; assailed Decision on the following grounds:
1/3 Peter Yao. 11 I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON
The trial court noted that the Compromise Agreement was silent as A COMPROMISE AGREEMENT THAT CHUA, YAO AND
to the nature of their obligations, but that joint liability could be PETITIONER LIM ENTERED INTO IN A SEPARATE CASE,
presumed from the equal distribution of the profit and loss. 21 THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
Lim appealed to the Court of Appeals (CA) which, as already stated, THEM.
affirmed the RTC. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT
Ruling of the Court of Appeals HE WAS ACTING FOR OCEAN QUEST FISHING
In affirming the trial court, the CA held that petitioner was a partner CORPORATION WHEN HE BOUGHT THE NETS FROM
of Chua and Yao in a fishing business and may thus be held liable as PHILIPPINE FISHING, THE COURT OF APPEALS WAS
a such for the fishing nets and floats purchased by and for the use of UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM
the partnership. The appellate court ruled: AS WELL.
The evidence establishes that all the defendants including herein III THE TRIAL COURT IMPROPERLY ORDERED THE
appellant Lim Tong Lim undertook a partnership for a specific SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
undertaking, that is for commercial fishing . . . . Obviously, the GOODS.
ultimate undertaking of the defendants was to divide the profits In determining whether petitioner may be held liable for the fishing
among themselves which is what a partnership essentially is . . . . By nets and floats from respondent, the Court must resolve this key
a contract of partnership, two or more persons bind themselves to issue: whether by their acts, Lim, Chua and Yao could be deemed to
contribute money, property or industry to a common fund with the have entered into a partnership.
intention of dividing the profits among themselves (Article 1767, This Court's Ruling
New Civil Code). 13 The Petition is devoid of merit.
Hence, petitioner brought this recourse before this Court. 14 First and Second Issues:
The Issues Existence of a Partnership
In his Petition and Memorandum, Lim asks this Court to reverse the and Petitioner's Liability

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In arguing that he should not be held liable for the equipment (1) That Petitioner Lim Tong Lim requested Peter Yao who was
purchased from respondent, petitioner controverts the CA finding engaged in commercial fishing to join him, while Antonio Chua was
that a partnership existed between him, Peter Yao and Antonio Chua. already Yao's partner;
He asserts that the CA based its finding on the Compromise (2) That after convening for a few times, Lim, Chua, and Yao
Agreement alone. Furthermore, he disclaims any direct participation verbally agreed to acquire two fishing boats, the FB Lourdes and the
in the purchase of the nets, alleging that the negotiations were FB Nelson for the sum of P3.35 million;
conducted by Chua and Yao only, and that he has not even met the (3) That they borrowed P3.25 million from Jesus Lim, brother of
representatives of the respondent company. Petitioner further argues Petitioner Lim Tong Lim, to finance the venture.
that he was a lessor, not a partner, of Chua and Yao, for the (4) That they bought the boats from CMF Fishing Corporation,
"Contract of Lease " dated February 1, 1990, showed that he had which executed a Deed of Sale over these two (2) boats in favor of
merely leased to the two the main asset of the purported partnership Petitioner Lim Tong Lim only to serve as security for the loan
— the fishing boat F/B Lourdes. The lease was for six months, with extended by Jesus Lim;
a monthly rental of P37,500 plus 25 percent of the gross catch of the (5) That Lim, Chua and Yao agreed that the refurbishing, re-
boat. equipping, repairing, dry docking and other expenses for the boats
We are not persuaded by the arguments of petitioner. The facts as would be shouldered by Chua and Yao;
found by the two lower courts clearly showed that there existed a (6) That because of the "unavailability of funds," Jesus Lim again
partnership among Chua, Yao and him, pursuant to Article 1767 of extended a loan to the partnership in the amount of P1 million
the Civil Code which provides: secured by a check, because of which, Yao and Chua entrusted the
Art. 1767 — By the contract of partnership, two or more persons ownership papers of two other boats, Chua's FB Lady Anne Mel and
bind themselves to contribute money, property, or industry to a Yao's FB Tracy to Lim Tong Lim.
common fund, with the intention of dividing the profits among (7) That in pursuance of the business agreement, Peter Yao and
themselves. Antonio Chua bought nets from Respondent Philippine Fishing Gear,
Specifically, both lower courts ruled that a partnership among the in behalf of "Ocean Quest Fishing Corporation," their purported
three existed based on the following factual findings: 15 business name.

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(8) That subsequently, Civil Case No. 1492-MN was filed in the fishing nets and the floats, both essential to fishing, were obviously
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against acquired in furtherance of their business. It would have been
Lim Tong Lim for (a) declaration of nullity of commercial inconceivable for Lim to involve himself so much in buying the boat
documents; (b) reformation of contracts; (c) declaration of ownership but not in the acquisition of the aforesaid equipment, without which
of fishing boats; (4) injunction; and (e) damages. the business could not have proceeded.
(9) That the case was amicably settled through a Compromise Given the preceding facts, it is clear that there was, among petitioner,
Agreement executed between the parties-litigants the terms of which Chua and Yao, a partnership engaged in the fishing business. They
are already enumerated above. purchased the boats, which constituted the main assets of the
From the factual findings of both lower courts, it is clear that Chua, partnership, and they agreed that the proceeds from the sales and
Yao and Lim had decided to engage in a fishing business, which they operations thereof would be divided among them.
started by buying boats worth P3.35 million, financed by a loan We stress that under Rule 45, a petition for review like the present
secured from Jesus Lim who was petitioner's brother. In their case should involve only questions of law. Thus, the foregoing
Compromise Agreement, they subsequently revealed their intention factual findings of the RTC and the CA are binding on this Court,
to pay the loan with the proceeds of the sale of the boats, and to absent any cogent proof that the present action is embraced by one of
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divide equally among them the excess or loss. These boats, the the exceptions to the rule. In assailing the factual findings of the
purchase and the repair of which were financed with borrowed two lower courts, petitioner effectively goes beyond the bounds of a
money, fell under the term "common fund" under Article 1767. The petition for review under Rule 45.
contribution to such fund need not be cash or fixed assets; it could be Compromise Agreement
an intangible like credit or industry. That the parties agreed that any Not the Sole Basis of Partnership
loss or profit from the sale and operation of the boats would be Petitioner argues that the appellate court's sole basis for assuming the
divided equally among them also shows that they had indeed formed existence of a partnership was the Compromise Agreement. He also
a partnership. claims that the settlement was entered into only to end the dispute
Moreover, it is clear that the partnership extended not only to the among them, but not to adjudicate their preexisting rights and
purchase of the boat, but also to that of the nets and the floats. The obligations. His arguments are baseless. The Agreement was but an

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embodiment of the relationship extant among the parties prior to its consent to the sale proved that there was a preexisting partnership
execution. among all three.
A proper adjudication of claimants' rights mandates that courts must Verily, as found by the lower courts, petitioner entered into a
review and thoroughly appraise all relevant facts. Both lower courts business agreement with Chua and Yao, in which debts were
have done so and have found, correctly, a preexisting partnership undertaken in order to finance the acquisition and the upgrading of
among the parties. In implying that the lower courts have decided on the vessels which would be used in their fishing business. The sale of
the basis of one piece of document alone, petitioner fails to the boats, as well as the division among the three of the balance
appreciate that the CA and the RTC delved into the history of the remaining after the payment of their loans, proves beyond cavil that
document and explored all the possible consequential combinations F/B Lourdes, though registered in his name, was not his own
in harmony with law, logic and fairness. Verily, the two lower courts' property but an asset of the partnership. It is not uncommon to
factual findings mentioned above nullified petitioner's argument that register the properties acquired from a loan in the name of the person
the existence of a partnership was based only on the Compromise the lender trusts, who in this case is the petitioner himself. After all,
Agreement. he is the brother of the creditor, Jesus Lim.
Petitioner Was a Partner, We stress that it is unreasonable — indeed, it is absurd — for
Not a Lessor petitioner to sell his property to pay a debt he did not incur, if the
We are not convinced by petitioner's argument that he was merely relationship among the three of them was merely that of lessor-
the lessor of the boats to Chua and Yao, not a partner in the fishing lessee, instead of partners.
venture. His argument allegedly finds support in the Contract of Corporation by Estoppel
Lease and the registration papers showing that he was the owner of Petitioner argues that under the doctrine of corporation by estoppel,
the boats, including F/B Lourdes where the nets were found. liability can be imputed only to Chua and Yao, and not to him.
His allegation defies logic. In effect, he would like this Court to Again, we disagree.
believe that he consented to the sale of his own boats to pay a debt of Sec. 21 of the Corporation Code of the Philippines provides:
Chua and Yao, with the excess of the proceeds to be divided among Sec. 21. Corporation by estoppel. — All persons who assume to act
the three of them. No lessor would do what petitioner did. Indeed, his as a corporation knowing it to be without authority to do so shall be

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liable as general partners for all debts, liabilities and damages The doctrine of corporation by estoppel may apply to the alleged
incurred or arising as a result thereof: Provided however, That when corporation and to a third party. In the first instance, an
any such ostensible corporation is sued on any transaction entered by unincorporated association, which represented itself to be a
it as a corporation or on any tort committed by it as such, it shall not corporation, will be estopped from denying its corporate capacity in
be allowed to use as a defense its lack of corporate personality. a suit against it by a third person who relied in good faith on such
One who assumes an obligation to an ostensible corporation as such, representation. It cannot allege lack of personality to be sued to
cannot resist performance thereof on the ground that there was in fact evade its responsibility for a contract it entered into and by virtue of
no corporation. which it received advantages and benefits.
Thus, even if the ostensible corporate entity is proven to be legally On the other hand, a third party who, knowing an association to be
nonexistent, a party may be estopped from denying its corporate unincorporated, nonetheless treated it as a corporation and received
existence. "The reason behind this doctrine is obvious — an benefits from it, may be barred from denying its corporate existence
unincorporated association has no personality and would be in a suit brought against the alleged corporation. In such case, all
incompetent to act and appropriate for itself the power and attributes those who benefited from the transaction made by the ostensible
of a corporation as provided by law; it cannot create agents or confer corporation, despite knowledge of its legal defects, may be held
authority on another to act in its behalf; thus, those who act or liable for contracts they impliedly assented to or took advantage of.
purport to act as its representatives or agents do so without authority There is no dispute that the respondent, Philippine Fishing Gear
and at their own risk. And as it is an elementary principle of law that Industries, is entitled to be paid for the nets it sold. The only question
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a person who acts as an agent without authority or without a here is whether petitioner should be held jointly liable with Chua
principal is himself regarded as the principal, possessed of all the and Yao. Petitioner contests such liability, insisting that only those
right and subject to all the liabilities of a principal, a person acting or who dealt in the name of the ostensible corporation should be held
purporting to act on behalf of a corporation which has no valid liable. Since his name does not appear on any of the contracts and
existence assumes such privileges and obligations and becomes since he never directly transacted with the respondent corporation,
personally liable for contracts entered into or for other acts ergo, he cannot be held liable.
performed as such agent. 17 Unquestionably, petitioner benefited from the use of the nets found

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inside F/B Lourdes, the boat which has earlier been proven to be an won by a rapier's thrust. Technicality, when it deserts its proper
asset of the partnership. He in fact questions the attachment of the office as an aid to justice and becomes its great hindrance and chief
nets, because the Writ has effectively stopped his use of the fishing enemy, deserves scant consideration from courts. There should be no
vessel. vested rights in technicalities.
It is difficult to disagree with the RTC and the CA that Lim, Chua Third Issue:
and Yao decided to form a corporation. Although it was never Validity of Attachment
legally formed for unknown reasons, this fact alone does not Finally, petitioner claims that the Writ of Attachment was
preclude the liabilities of the three as contracting parties in improperly issued against the nets. We agree with the Court of
representation of it. Clearly, under the law on estoppel, those acting Appeals that this issue is now moot and academic. As previously
on behalf of a corporation and those benefited by it, knowing it to be discussed, F/B Lourdes was an asset of the partnership and that it
without valid existence, are held liable as general partners. was placed in the name of petitioner, only to assure payment of the
Technically, it is true that petitioner did not directly act on behalf of debt he and his partners owed. The nets and the floats were
the corporation. However, having reaped the benefits of the contract specifically manufactured and tailor-made according to their own
entered into by persons with whom he previously had an existing design, and were bought and used in the fishing venture they agreed
relationship, he is deemed to be part of said association and is upon. Hence, the issuance of the Writ to assure the payment of the
covered by the scope of the doctrine of corporation by estoppel. We price stipulated in the invoices is proper. Besides, by specific
reiterate the ruling of the Court in Alonso v. Villamor: 19 agreement, ownership of the nets remained with Respondent
A litigation is not a game of technicalities in which one, more deeply Philippine Fishing Gear, until full payment thereof.
schooled and skilled in the subtle art of movement and position, WHEREFORE, the Petition is DENIED and the assailed Decision
entraps and destroys the other. It is, rather, a contest in which each AFFIRMED. Costs against petitioner.
contending party fully and fairly lays before the court the facts in SO ORDERED.
issue and then, brushing aside as wholly trivial and indecisive all Melo, Purisima and Gonzaga-Reyes, JJ., concur.
imperfections of form and technicalities of procedure, asks that Vitug, J., pls. see concurring opinion.
justice be done upon the merits. Lawsuits, unlike duels, are not to be Separate Opinions

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VITUG, J., concurring opinion; course of the business of the partnership or with the authority of his
I share the views expressed in the ponencia of an esteemed co-partners, loss or injury is caused to any person, not being a
colleague, Mr. Justice Artemio V. Panganiban, particularly the partner in the partnership, or any penalty is incurred, the partnership
finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim is liable therefor to the same extent as the partner so acting or
have incurred the liabilities of general partners. I merely would wish omitting to act; (2) where one partner acting within the scope of his
to elucidate a bit, albeit briefly, the liability of partners in a general apparent authority receives money or property of a third person and
partnership. misapplies it; and (3) where the partnership in the course of its
When a person by his act or deed represents himself as a partner in business receives money or property of a third person and the money
an existing partnership or with one or more persons not actual or property so received is misapplied by any partner while it is in the
partners, he is deemed an agent of such persons consenting to such custody of the partnership 3
— consistently with the rules on the
representation and in the same manner, if he were a partner, with nature of civil liability in delicts and quasi-delicts.
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respect to persons who rely upon the representation. The
association formed by Chua, Yao and Lim, should be, as it has been
deemed, a de facto partnership with all the consequent obligations EN BANC
for the purpose of enforcing the rights of third persons. The liability G.R. No. L-9996 October 15, 1957
of general partners (in a general partnership as so opposed to a EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
limited partnership) is laid down in Article 1816 2 which posits that FRANCISCA EVANGELISTA, petitioners,
all partners shall be liable pro rata beyond the partnership assets for vs.
all the contracts which may have been entered into in its name, under THE COLLECTOR OF INTERNAL REVENUE and THE
its signature, and by a person authorized to act for the partnership. COURT OF TAX APPEALS, respondents.
This rule is to be construed along with other provisions of the Civil Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of
Code which postulate that the partners can be held solidarily liable the Solicitor General Ambrosio Padilla, Assistant Solicitor General
with the partnership specifically in these instances — (1) where, by Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
any wrongful act or omission of any partner acting in the ordinary Respondents.

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CONCEPCION, J.: thereon for P108,825.00. This property has an assessed value of
This is a petition filed by Eufemia Evangelista, Manuela Evangelista P4,983.00 as of 1948;
and Francisca Evangelista, for review of a decision of the Court of 5. That on April 28, 1944 they bought form Mrs. Valentina Afable a
Tax Appeals, the dispositive part of which reads: lot of 8,371 sq. m. including improvements thereon for P237,234.34.
FOR ALL THE FOREGOING, we hold that the petitioners are liable This property has an assessed value of P59,140.00 as of 1948;
for the income tax, real estate dealer's tax and the residence tax for 6. That in a document dated August 16, 1945, they appointed their
the years 1945 to 1949, inclusive, in accordance with the brother Simeon Evangelista to 'manage their properties with full
respondent's assessment for the same in the total amount of power to lease; to collect and receive rents; to issue receipts therefor;
P6,878.34, which is hereby affirmed and the petition for review filed in default of such payment, to bring suits against the defaulting
by petitioner is hereby dismissed with costs against petitioners. tenants; to sign all letters, contracts, etc., for and in their behalf, and
It appears from the stipulation submitted by the parties: to endorse and deposit all notes and checks for them;
1. That the petitioners borrowed from their father the sum of 7. That after having bought the above-mentioned real properties the
P59,1400.00 which amount together with their personal monies was petitioners had the same rented or leases to various tenants;
used by them for the purpose of buying real properties,. 8. That from the month of March, 1945 up to an including
2. That on February 2, 1943, they bought from Mrs. Josefina December, 1945, the total amount collected as rents on their real
Florentino a lot with an area of 3,713.40 sq. m. including properties was P9,599.00 while the expenses amounted to P3,650.00
improvements thereon from the sum of P100,000.00; this property thereby leaving them a net rental income of P5,948.33;
has an assessed value of P57,517.00 as of 1948; 9. That on 1946, they realized a gross rental income of in the sum of
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 P24,786.30, out of which amount was deducted in the sum of
parcels of land with an aggregate area of 3,718.40 sq. m. including P16,288.27 for expenses thereby leaving them a net rental income of
improvements thereon for P130,000.00; this property has an assessed P7,498.13;
value of P82,255.00 as of 1948; 10. That in 1948, they realized a gross rental income of P17,453.00
4. That on April 28, 1944 they purchased from the Insular out of the which amount was deducted the sum of P4,837.65 as
Investments Inc., a lot of 4,353 sq. m. including improvements expenses, thereby leaving them a net rental income of P12,615.35.

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It further appears that on September 24, 1954 respondent Collector Total including surcharge P193.75
of Internal Revenue demanded the payment of income tax on TOTAL TAXES DUE P6,878.34.
corporations, real estate dealer's fixed tax and corporation residence Said letter of demand and corresponding assessments were delivered
tax for the years 1945-1949, computed, according to assessment to petitioners on December 3, 1954, whereupon they instituted the
made by said officer, as follows: present case in the Court of Tax Appeals, with a prayer that "the
INCOME TAXES decision of the respondent contained in his letter of demand dated
1945 14.84 September 24, 1954" be reversed, and that they be absolved from the
1946 1,144.71 payment of the taxes in question, with costs against the respondent.
1947 10.34 After appropriate proceedings, the Court of Tax Appeals the above-
1948 1,912.30 mentioned decision for the respondent, and a petition for
1949 1,575.90 reconsideration and new trial having been subsequently denied, the
Total including surcharge and compromise P6,157.09 case is now before Us for review at the instance of the petitioners.
REAL ESTATE DEALER'S FIXED TAX The issue in this case whether petitioners are subject to the tax on
1946 P37.50 corporations provided for in section 24 of Commonwealth Act. No.
1947 150.00 466, otherwise known as the National Internal Revenue Code, as
1948 150.00 well as to the residence tax for corporations and the real estate
1949 150.00 dealers fixed tax. With respect to the tax on corporations, the issue
Total including penalty P527.00 hinges on the meaning of the terms "corporation" and "partnership,"
RESIDENCE TAXES OF CORPORATION as used in section 24 and 84 of said Code, the pertinent parts of
1945 P38.75 which read:
1946 38.75 SEC. 24. Rate of tax on corporations.—There shall be levied,
1947 38.75 assessed, collected, and paid annually upon the total net income
1948 38.75 received in the preceding taxable year from all sources by every
1949 38.75 corporation organized in, or existing under the laws of the

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Philippines, no matter how created or organized but not including existence. It was not property inherited by them pro indiviso. They
duly registered general co-partnerships (compañias colectivas), a tax created it purposely. What is more they jointly borrowed a
upon such income equal to the sum of the following: . . . substantial portion thereof in order to establish said common fund.
SEC. 84 (b). The term 'corporation' includes partnerships, no matter 2. They invested the same, not merely not merely in one transaction,
how created or organized, joint-stock companies, joint accounts but in a series of transactions. On February 2, 1943, they bought a lot
(cuentas en participacion), associations or insurance companies, but for P100,000.00. On April 3, 1944, they purchased 21 lots for
does not include duly registered general copartnerships. (compañias P18,000.00. This was soon followed on April 23, 1944, by the
colectivas). acquisition of another real estate for P108,825.00. Five (5) days later
Article 1767 of the Civil Code of the Philippines provides: (April 28, 1944), they got a fourth lot for P237,234.14. The number
By the contract of partnership two or more persons bind themselves of lots (24) acquired and transactions undertaken, as well as the brief
to contribute money, properly, or industry to a common fund, with interregnum between each, particularly the last three purchases, is
the intention of dividing the profits among themselves. strongly indicative of a pattern or common design that was not
Pursuant to the article, the essential elements of a partnership are limited to the conservation and preservation of the aforementioned
two, namely: (a) an agreement to contribute money, property or common fund or even of the property acquired by the petitioners in
industry to a common fund; and (b) intent to divide the profits February, 1943. In other words, one cannot but perceive a character
among the contracting parties. The first element is undoubtedly of habitually peculiar to business transactions engaged in the purpose
present in the case at bar, for, admittedly, petitioners have agreed to, of gain.
and did, contribute money and property to a common fund. Hence, 3. The aforesaid lots were not devoted to residential purposes, or to
the issue narrows down to their intent in acting as they did. Upon other personal uses, of petitioners herein. The properties were leased
consideration of all the facts and circumstances surrounding the case, separately to several persons, who, from 1945 to 1948 inclusive, paid
we are fully satisfied that their purpose was to engage in real estate the total sum of P70,068.30 by way of rentals. Seemingly, the lots
transactions for monetary gain and then divide the same among are still being so let, for petitioners do not even suggest that there has
themselves, because: been any change in the utilization thereof.
1. Said common fund was not something they found already in 4. Since August, 1945, the properties have been under the

13
management of one person, namely Simeon Evangelista, with full partnerships are lacking in the case at bar. This pretense was
power to lease, to collect rents, to issue receipts, to bring suits, to correctly rejected by the Court of Tax Appeals.
sign letters and contracts, and to indorse and deposit notes and To begin with, the tax in question is one imposed upon
checks. Thus, the affairs relative to said properties have been "corporations", which, strictly speaking, are distinct and different
handled as if the same belonged to a corporation or business and from "partnerships". When our Internal Revenue Code includes
enterprise operated for profit. "partnerships" among the entities subject to the tax on
5. The foregoing conditions have existed for more than ten (10) "corporations", said Code must allude, therefore, to organizations
years, or, to be exact, over fifteen (15) years, since the first property which are not necessarily "partnerships", in the technical sense of the
was acquired, and over twelve (12) years, since Simeon Evangelista term. Thus, for instance, section 24 of said Code exempts from the
became the manager. aforementioned tax "duly registered general partnerships which
6. Petitioners have not testified or introduced any evidence, either on constitute precisely one of the most typical forms of partnerships in
their purpose in creating the set up already adverted to, or on the this jurisdiction. Likewise, as defined in section 84(b) of said Code,
causes for its continued existence. They did not even try to offer an "the term corporation includes partnerships, no matter how created
explanation therefor. or organized." This qualifying expression clearly indicates that a
Although, taken singly, they might not suffice to establish the intent joint venture need not be undertaken in any of the standard forms, or
necessary to constitute a partnership, the collective effect of these in conformity with the usual requirements of the law on partnerships,
circumstances is such as to leave no room for doubt on the existence in order that one could be deemed constituted for purposes of the tax
of said intent in petitioners herein. Only one or two of the on corporations. Again, pursuant to said section 84(b), the term
aforementioned circumstances were present in the cases cited by "corporation" includes, among other, joint accounts, (cuentas en
petitioners herein, and, hence, those cases are not in point. participation)" and "associations," none of which has a legal
Petitioners insist, however, that they are mere co-owners, not personality of its own, independent of that of its members.
copartners, for, in consequence of the acts performed by them, a Accordingly, the lawmaker could not have regarded that personality
legal entity, with a personality independent of that of its members, as a condition essential to the existence of the partnerships therein
did not come into existence, and some of the characteristics of referred to. In fact, as above stated, "duly registered general

14
copartnerships" — which are possessed of the aforementioned (whether of the fixed or the management type), an interinsuarance
personality — have been expressly excluded by law (sections 24 and exchange operating through an attorney in fact, a partnership
84 [b] from the connotation of the term "corporation" It may not be association, and any other type of organization (by whatever name
amiss to add that petitioners' allegation to the effect that their liability known) which is not, within the meaning of the Code, a trust or an
in connection with the leasing of the lots above referred to, under the estate, or a partnership. (7A Mertens Law of Federal Income
management of one person — even if true, on which we express no Taxation, p. 788; emphasis supplied.).
opinion — tends to increase the similarity between the nature of Similarly, the American Law.
their venture and that corporations, and is, therefore, an additional . . . provides its own concept of a partnership, under the term
argument in favor of the imposition of said tax on corporations. 'partnership 'it includes not only a partnership as known at common
Under the Internal Revenue Laws of the United States, law but, as well, a syndicate, group, pool, joint venture or other
"corporations" are taxed differently from "partnerships". By specific unincorporated organizations which carries on any business
provisions of said laws, such "corporations" include "associations, financial operation, or venture, and which is not, within the meaning
joint-stock companies and insurance companies." However, the term of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of
"association" is not used in the aforementioned laws. Federal Income taxation, p. 789; emphasis supplied.)
. . . in any narrow or technical sense. It includes any organization, The term 'partnership' includes a syndicate, group, pool, joint venture
created for the transaction of designed affairs, or the attainment of or other unincorporated organization, through or by means of which
some object, which like a corporation, continues notwithstanding any business, financial operation, or venture is carried on, . . .. ( 8
that its members or participants change, and the affairs of which, like Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis
corporate affairs, are conducted by a single individual, a committee, supplied.) .
a board, or some other group, acting in a representative capacity. It is For purposes of the tax on corporations, our National Internal
immaterial whether such organization is created by an agreement, a Revenue Code, includes these partnerships — with the exception
declaration of trust, a statute, or otherwise. It includes a voluntary only of duly registered general copartnerships — within the purview
association, a joint-stock corporation or company, a 'business' trusts of the term "corporation." It is, therefore, clear to our mind that
a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust petitioners herein constitute a partnership, insofar as said Code is

15
concerned and are subject to the income tax for corporations. 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject
As regards the residence of tax for corporations, section 2 of to the tax provided in section 193 (q) of our National Internal
Commonwealth Act No. 465 provides in part: Revenue Code, for "real estate dealers," inasmuch as, pursuant to
Entities liable to residence tax.-Every corporation, no matter how section 194 (s) thereof:
created or organized, whether domestic or resident foreign, engaged 'Real estate dealer' includes any person engaged in the business of
in or doing business in the Philippines shall pay an annual residence buying, selling, exchanging, leasing, or renting property or his own
tax of five pesos and an annual additional tax which in no case, shall account as principal and holding himself out as a full or part time
exceed one thousand pesos, in accordance with the following dealer in real estate or as an owner of rental property or properties
schedule: . . . rented or offered to rent for an aggregate amount of three thousand
The term 'corporation' as used in this Act includes joint-stock pesos or more a year. . . (emphasis supplied.)
company, partnership, joint account (cuentas en participacion), Wherefore, the appealed decision of the Court of Tax appeals is
association or insurance company, no matter how created or hereby affirmed with costs against the petitioners herein. It is so
organized. (emphasis supplied.) ordered.
Considering that the pertinent part of this provision is analogous to Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and
that of section 24 and 84 (b) of our National Internal Revenue Code Felix, JJ., concur.
(commonwealth Act No. 466), and that the latter was approved on
June 15, 1939, the day immediately after the approval of said BAUTISTA ANGELO, J., concurring:
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the I agree with the opinion that petitioners have actually contributed
terms "corporation" and "partnership" are used in both statutes with money to a common fund with express purpose of engaging in real
substantially the same meaning. Consequently, petitioners are estate business for profit. The series of transactions which they had
subject, also, to the residence tax for corporations. undertaken attest to this. This appears in the following portion of the
Lastly, the records show that petitioners have habitually engaged in decision:
leasing the properties above mentioned for a period of over twelve 2. They invested the same, not merely in one transaction, but in a
years, and that the yearly gross rentals of said properties from June series of transactions. On February 2, 1943, they bought a lot for

16
P100,000. On April 3, 1944, they purchase 21 lots for P18,000. This property held in common does not convert their venture into a
was soon followed on April 23, 1944, by the acquisition of another partnership. Or the sharing of the gross returns does not of itself
real state for P108,825. Five (5) days later (April 28, 1944), they got establish a partnership whether or not the persons sharing therein
a fourth lot for P237,234.14. The number of lots (24) acquired and have a joint or common right or interest in the property. This only
transactions undertaken, as well as the brief interregnum between means that, aside from the circumstance of profit, the presence of
each, particularly the last three purchases, is strongly indicative of a other elements constituting partnership is necessary, such as the clear
pattern or common design that was not limited to the conservation intent to form a partnership, the existence of a judicial personality
and preservation of the aforementioned common fund or even of the different from that of the individual partners, and the freedom to
property acquired by the petitioner in February, 1943, In other transfer or assign any interest in the property by one with the consent
words, we cannot but perceive a character of habitually peculiar to of the others (Padilla, Civil Code of the Philippines Annotated, Vol.
business transactions engaged in for purposes of gain. I, 1953 ed., pp. 635- 636).
I wish however to make to make the following observation: It is evident that an isolated transaction whereby two or more persons
Article 1769 of the new Civil Code lays down the rule for contribute funds to buy certain real estate for profit in the absence of
determining when a transaction should be deemed a partnership or a other circumstances showing a contrary intention cannot be
co-ownership. Said article paragraphs 2 and 3, provides: considered a partnership.
(2) Co-ownership or co-possession does not of itself establish a Persons who contribute property or funds for a common enterprise
partnership, whether such co-owners or co-possessors do or do not and agree to share the gross returns of that enterprise in proportion to
share any profits made by the use of the property; their contribution, but who severally retain the title to their respective
(3) The sharing of gross returns does not of itself establish contribution, are not thereby rendered partners. They have no
partnership, whether or not the person sharing them have a joint or common stock or capital, and no community of interest as principal
common right or interest in any property from which the returns are proprietors in the business itself which the proceeds derived.
derived; (Elements of the law of Partnership by Floyd R. Mechem, 2n Ed.,
From the above it appears that the fact that those who agree to form a section 83, p. 74.)
co-ownership shared or do not share any profits made by the use of A joint venture purchase of land, by two, does not constitute a

17
copartnership in respect thereto; nor does not agreement to share the necessary to constitute a partnership, the collective effect of these
profits and loses on the sale of land create a partnership; the parties circumstances (referring to the series of transactions) such as to leave
are only tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S no room for doubt on the existence of said intent in petitioners
Ct. 327, 35 L. Ed., 1157.) herein."
Where plaintiff, his brother, and another agreed to become owners of
a single tract of reality, holding as tenants in common, and to divide
the profits of disposing of it, the brother and the other not being THIRD DIVISION
entitled to share in plaintiff's commissions, no partnership existed as G.R. No. 172690 March 3, 2010
between the parties, whatever relation may have been as to third HEIRS OF JOSE LIM, represented by ELENITO LIM,
parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.) Petitioners,
In order to constitute a partnership inter sese there must be: (a) An vs.
intent to form the same; (b) generally a participating in both profits JULIET VILLA LIM, Respondent.
and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract, DECISION
manage the business, and dispose of the whole property. (Municipal NACHURA, J.:
Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.) Before this Court is a Petition for Review on Certiorari1 under Rule
The common ownership of property does not itself create a 45 of the Rules of Civil Procedure, assailing the Court of Appeals
partnership between the owners, though they may use it for purpose (CA) Decision2 dated June 29, 2005, which reversed and set aside
of making gains; and they may, without becoming partners, agree the decision3 of the Regional Trial Court (RTC) of Lucena City,
among themselves as to the management and use of such property dated April 12, 2004.
and the application of the proceeds therefrom. (Spurlock vs. Wilson, The facts of the case are as follows:
142 S. W. 363, 160 No. App. 14.) Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
This is impliedly recognized in the following portion of the decision: widow Cresencia Palad (Cresencia); and their children Elenito,
"Although, taken singly, they might not suffice to establish the intent Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners),

18
represented by Elenito Lim (Elenito). They filed a Complaint4 for Elfledo’s management of the partnership that he was able to
Partition, Accounting and Damages against respondent Juliet Villa purchase numerous real properties by using the profits derived
Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was therefrom, all of which were registered in his name and that of
the eldest son of Jose and Cresencia. respondent. In addition to the nine trucks, Elfledo also acquired five
Petitioners alleged that Jose was the liaison officer of Interwood other motor vehicles.
Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, On May 18, 1995, Elfledo died, leaving respondent as his sole
together with his friends Jimmy Yu (Jimmy) and Norberto Uy surviving heir. Petitioners claimed that respondent took over the
(Norberto), formed a partnership to engage in the trucking business. administration of the aforementioned properties, which belonged to
Initially, with a contribution of P50,000.00 each, they purchased a the estate of Jose, without their consent and approval. Claiming that
truck to be used in the hauling and transport of lumber of the they are co-owners of the properties, petitioners required respondent
sawmill. Jose managed the operations of this trucking business until to submit an accounting of all income, profits and rentals received
his death on August 15, 1981. Thereafter, Jose's heirs, including from the estate of Elfledo, and to surrender the administration
Elfledo, and partners agreed to continue the business under the thereof. Respondent refused; thus, the filing of this case.
management of Elfledo. The shares in the partnership profits and Respondent traversed petitioners' allegations and claimed that
income that formed part of the estate of Jose were held in trust by Elfledo was himself a partner of Norberto and Jimmy. Respondent
Elfledo, with petitioners' authority for Elfledo to use, purchase or also claimed that per testimony of Cresencia, sometime in 1980, Jose
acquire properties using said funds. gave Elfledo P50,000.00 as the latter's capital in an informal
Petitioners also alleged that, at that time, Elfledo was a fresh partnership with Jimmy and Norberto. When Elfledo and respondent
commerce graduate serving as his father’s driver in the trucking got married in 1981, the partnership only had one truck; but through
business. He was never a partner or an investor in the business and the efforts of Elfledo, the business flourished. Other than this
merely supervised the purchase of additional trucks using the income trucking business, Elfledo, together with respondent, engaged in
from the trucking business of the partners. By the time the other business ventures. Thus, they were able to buy real properties
partnership ceased, it had nine trucks, which were all registered in and to put up their own car assembly and repair business. When
Elfledo's name. Petitioners asseverated that it was also through Norberto was ambushed and killed on July 16, 1993, the trucking

19
business started to falter. When Elfledo died on May 18, 1995 due to profits and rentals received by her from said properties.
a heart attack, respondent talked to Jimmy and to the heirs of SO ORDERED.
Norberto, as she could no longer run the business. Jimmy suggested Aggrieved, respondent appealed to the CA.
that three out of the nine trucks be given to him as his share, while On June 29, 2005, the CA reversed and set aside the RTC's decision,
the other three trucks be given to the heirs of Norberto. However, dismissing petitioners' complaint for lack of merit. Undaunted,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, petitioners filed their Motion for Reconsideration,5 which the CA,
she sold the same to respondent, who paid for them in installments. however, denied in its Resolution6 dated May 8, 2006.
Respondent also alleged that when Jose died in 1981, he left no Hence, this Petition, raising the sole question, viz.:
known assets, and the partnership with Jimmy and Norberto ceased IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
upon his demise. Respondent also stressed that Jose left no properties SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF
that Elfledo could have held in trust. Respondent maintained that all ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT
the properties involved in this case were purchased and acquired THAN THAT BY A FORMER PARTNER ON THE ISSUE OF
through her and her husband’s joint efforts and hard work, and THE IDENTITY OF THE OTHER PARTNERS IN THE
without any participation or contribution from petitioners or from PARTNERSHIP?7
Jose. Respondent submitted that these are conjugal partnership In essence, petitioners argue that according to the testimony of
properties; and thus, she had the right to refuse to render an Jimmy, the sole surviving partner, Elfledo was not a partner; and that
accounting for the income or profits of their own business. he and Norberto entered into a partnership with Jose. Thus, the CA
Trial on the merits ensued. On April 12, 2004, the RTC rendered its erred in not giving that testimony greater weight than that of
decision in favor of petitioners, thus: Cresencia, who was merely the spouse of Jose and not a party to the
WHEREFORE, premises considered, judgment is hereby rendered: partnership.8
1) Ordering the partition of the above-mentioned properties equally Respondent counters that the issue raised by petitioners is not proper
between the plaintiffs and heirs of Jose Lim and the defendant Juliet in a petition for review on certiorari under Rule 45 of the Rules of
Villa-Lim; and Civil Procedure, as it would entail the review, evaluation, calibration,
2) Ordering the defendant to submit an accounting of all incomes, and re-weighing of the factual findings of the CA. Moreover,

20
respondent invokes the rationale of the CA decision that, in light of (5) When the findings of fact are conflicting;
the admissions of Cresencia and Edison and the testimony of (6) When the Court of Appeals, in making its findings, went beyond
respondent, the testimony of Jimmy was effectively refuted; the issues of the case and the same is contrary to the admissions of
accordingly, the CA's reversal of the RTC's findings was fully both appellant and appellee;
justified.9 (7) When the findings are contrary to those of the trial court;
We resolve first the procedural matter regarding the propriety of the (8) When the findings of fact are conclusions without citation of
instant Petition. specific evidence on which they are based;
Verily, the evaluation and calibration of the evidence necessarily (9) When the facts set forth in the petition as well as in the
involves consideration of factual issues — an exercise that is not petitioners' main and reply briefs are not disputed by the
appropriate for a petition for review on certiorari under Rule 45. This respondents; and
rule provides that the parties may raise only questions of law, (10) When the findings of fact of the Court of Appeals are premised
because the Supreme Court is not a trier of facts. Generally, we are on the supposed absence of evidence and contradicted by the
not duty-bound to analyze again and weigh the evidence introduced evidence on record.11
in and considered by the tribunals below.10 When supported by We note, however, that the findings of fact of the RTC are contrary
substantial evidence, the findings of fact of the CA are conclusive to those of the CA. Thus, our review of such findings is warranted.
and binding on the parties and are not reviewable by this Court, On the merits of the case, we find that the instant Petition is bereft of
unless the case falls under any of the following recognized merit.
exceptions: A partnership exists when two or more persons agree to place their
(1) When the conclusion is a finding grounded entirely on money, effects, labor, and skill in lawful commerce or business, with
speculation, surmises and conjectures; the understanding that there shall be a proportionate sharing of the
(2) When the inference made is manifestly mistaken, absurd or profits and losses among them. A contract of partnership is defined
impossible; by the Civil Code as one where two or more persons bind themselves
(3) Where there is a grave abuse of discretion; to contribute money, property, or industry to a common fund, with
(4) When the judgment is based on a misapprehension of facts; the intention of dividing the profits among themselves.12

21
Undoubtedly, the best evidence would have been the contract of provides the guidelines in determining preponderance of evidence,
partnership or the articles of partnership. Unfortunately, there is none thus:
in this case, because the alleged partnership was never formally SECTION I. Preponderance of evidence, how determined. In civil
organized. Nonetheless, we are asked to determine who between Jose cases, the party having burden of proof must establish his case by a
and Elfledo was the "partner" in the trucking business. preponderance of evidence. In determining where the preponderance
A careful review of the records persuades us to affirm the CA or superior weight of evidence on the issues involved lies, the court
decision. The evidence presented by petitioners falls short of the may consider all the facts and circumstances of the case, the
quantum of proof required to establish that: (1) Jose was the partner witnesses' manner of testifying, their intelligence, their means and
and not Elfledo; and (2) all the properties acquired by Elfledo and opportunity of knowing the facts to which they are testifying, the
respondent form part of the estate of Jose, having been derived from nature of the facts to which they testify, the probability or
the alleged partnership. improbability of their testimony, their interest or want of interest,
Petitioners heavily rely on Jimmy's testimony. But that testimony is and also their personal credibility so far as the same may legitimately
just one piece of evidence against respondent. It must be considered appear upon the trial. The court may also consider the number of
and weighed along with petitioners' other evidence vis-à-vis witnesses, though the preponderance is not necessarily with the
respondent's contrary evidence. In civil cases, the party having the greater number.
burden of proof must establish his case by a preponderance of At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
evidence. "Preponderance of evidence" is the weight, credit, and Appeals14 is enlightening. Therein, we cited Article 1769 of the Civil
value of the aggregate evidence on either side and is usually Code, which provides:
considered synonymous with the term "greater weight of the Art. 1769. In determining whether a partnership exists, these rules
evidence" or "greater weight of the credible evidence." shall apply:
"Preponderance of evidence" is a phrase that, in the last analysis, (1) Except as provided by Article 1825, persons who are not partners
means probability of the truth. It is evidence that is more convincing as to each other are not partners as to third persons;
to the court as worthy of belief than that which is offered in b (2) Co-ownership or co-possession does not of itself establish a
6opposition thereto.13 Rule 133, Section 1 of the Rules of Court partnership, whether such co-owners or co-possessors do or do not

22
share any profits made by the use of the property; Elfledo; (4) Jimmy testified that Elfledo did not receive wages or
(3) The sharing of gross returns does not of itself establish a salaries from the partnership, indicating that what he actually
partnership, whether or not the persons sharing them have a joint or received were shares of the profits of the business;17 and (5) none of
common right or interest in any property from which the returns are the petitioners, as heirs of Jose, the alleged partner, demanded
derived; periodic accounting from Elfledo during his lifetime. As repeatedly
(4) The receipt by a person of a share of the profits of a business is a stressed in Heirs of Tan Eng Kee,18 a demand for periodic accounting
prima facie evidence that he is a partner in the business, but no such is evidence of a partnership.
inference shall be drawn if such profits were received in payment: Furthermore, petitioners failed to adduce any evidence to show that
(a) As a debt by installments or otherwise; the real and personal properties acquired and registered in the names
(b) As wages of an employee or rent to a landlord; of Elfledo and respondent formed part of the estate of Jose, having
(c) As an annuity to a widow or representative of a deceased partner; been derived from Jose's alleged partnership with Jimmy and
(d) As interest on a loan, though the amount of payment vary with Norberto. They failed to refute respondent's claim that Elfledo and
the profits of the business; respondent engaged in other businesses. Edison even admitted that
(e) As the consideration for the sale of a goodwill of a business or Elfledo also sold Interwood lumber as a sideline.19 Petitioners could
other property by installments or otherwise. not offer any credible evidence other than their bare assertions. Thus,
Applying the legal provision to the facts of this case, the following we apply the basic rule of evidence that between documentary and
circumstances tend to prove that Elfledo was himself the partner of oral evidence, the former carries more weight.20
Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo Finally, we agree with the judicious findings of the CA, to wit:
P50,000.00, as share in the partnership, on a date that coincided with The above testimonies prove that Elfledo was not just a hired help
the payment of the initial capital in the partnership;15 (2) Elfledo ran but one of the partners in the trucking business, active and visible in
the affairs of the partnership, wielding absolute control, power and the running of its affairs from day one until this ceased operations
authority, without any intervention or opposition whatsoever from upon his demise. The extent of his control, administration and
16
any of petitioners herein; (3) all of the properties, particularly the management of the partnership and its business, the fact that its
nine trucks of the partnership, were registered in the name of properties were placed in his name, and that he was not paid salary

23
or other compensation by the partners, are indicative of the fact that against petitioners.
Elfledo was a partner and a controlling one at that. It is apparent that SO ORDERED.
the other partners only contributed in the initial capital but had no
say thereafter on how the business was ran. Evidently it was through
Elfredo’s efforts and hard work that the partnership was able to SECOND DIVISION
acquire more trucks and otherwise prosper. Even the appellant G.R. No. L-41182-3 April 16, 1988
participated in the affairs of the partnership by acting as the DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-
bookkeeper sans salary.1avvphi1 appellants,
It is notable too that Jose Lim died when the partnership was barely a vs.
year old, and the partnership and its business not only continued but THE COURT OF APPEALS, TOURIST WORLD SERVICE,
also flourished. If it were true that it was Jose Lim and not Elfledo INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA,
who was the partner, then upon his death the partnership should have respondents-appellees.
been dissolved and its assets liquidated. On the contrary, these were
not done but instead its operation continued under the helm of SARMIENTO , J.:
Elfledo and without any participation from the heirs of Jose Lim. The petitioners invoke the provisions on human relations of the Civil
Whatever properties appellant and her husband had acquired, this Code in this appeal by certiorari. The facts are beyond dispute:
was through their own concerted efforts and hard work. Elfledo did xxx xxx xxx
not limit himself to the business of their partnership but engaged in On the strength of a contract (Exhibit A for the appellant Exhibit 2
other lines of businesses as well. for the appellees) entered into on Oct. 19, 1960 by and between Mrs.
In sum, we find no cogent reason to disturb the findings and the Segundina Noguera, party of the first part; the Tourist World
ruling of the CA as they are amply supported by the law and by the Service, Inc., represented by Mr. Eliseo Canilao as party of the
evidence on record. second part, and hereinafter referred to as appellants, the Tourist
WHEREFORE, the instant Petition is DENIED. The assailed Court World Service, Inc. leased the premises belonging to the party of the
of Appeals Decision dated June 29, 2005 is AFFIRMED. Costs first part at Mabini St., Manila for the former-s use as a branch

24
office. In the said contract the party of the third part held herself and, finding the premises locked, and, being unable to contact Lina
solidarily liable with the party of the part for the prompt payment of Sevilla, he padlocked the premises on June 4, 1962 to protect the
the monthly rental agreed on. When the branch office was opened, interests of the Tourist World Service. When neither the appellant
the same was run by the herein appellant Una 0. Sevilla payable to Lina Sevilla nor any of her employees could enter the locked
Tourist World Service Inc. by any airline for any fare brought in on premises, a complaint wall filed by the herein appellants against the
the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% appellees with a prayer for the issuance of mandatory preliminary
was to be withheld by the Tourist World Service, Inc. injunction. Both appellees answered with counterclaims. For
On or about November 24, 1961 (Exhibit 16) the Tourist World apparent lack of interest of the parties therein, the trial court ordered
Service, Inc. appears to have been informed that Lina Sevilla was the dismissal of the case without prejudice.
connected with a rival firm, the Philippine Travel Bureau, and, since The appellee Segundina Noguera sought reconsideration of the order
the branch office was anyhow losing, the Tourist World Service dismissing her counterclaim which the court a quo, in an order dated
considered closing down its office. This was firmed up by two June 8, 1963, granted permitting her to present evidence in support
resolutions of the board of directors of Tourist World Service, Inc. of her counterclaim.
dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the On June 17,1963, appellant Lina Sevilla refiled her case against the
office of the manager and vice-president of the Tourist World herein appellees and after the issues were joined, the reinstated
Service, Inc., Ermita Branch, and the second authorizing the counterclaim of Segundina Noguera and the new complaint of
corporate secretary to receive the properties of the Tourist World appellant Lina Sevilla were jointly heard following which the court a
Service then located at the said branch office. It further appears that quo ordered both cases dismiss for lack of merit, on the basis of
on Jan. 3, 1962, the contract with the appellees for the use of the which was elevated the instant appeal on the following assignment of
Branch Office premises was terminated and while the effectivity errors:
thereof was Jan. 31, 1962, the appellees no longer used it. As a I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE
matter of fact appellants used it since Nov. 1961. Because of this, NATURE OF PLAINTIFF-APPELLANT MRS. LINA O.
and to comply with the mandate of the Tourist World Service, the SEVILLA'S COMPLAINT.
corporate secretary Gabino Canilao went over to the branch office, II. THE LOWER COURT ERRED IN HOLDING THAT

25
APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH telephone line at the branch office on Ermita;
APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE 2. Whether or not the padlocking of the office by the Tourist World
MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN Service was actionable or not; and
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS 3. Whether or not the lessee to the office premises belonging to the
ONE OF JOINT BUSINESS VENTURE. appellee Noguera was appellees TWS or TWS and the appellant.
III. THE LOWER COURT ERRED IN RULING THAT In this appeal, appealant Lina Sevilla claims that a joint bussiness
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS venture was entered into by and between her and appellee TWS with
ESTOPPED FROM DENYING THAT SHE WAS A MERE offices at the Ermita branch office and that she was not an employee
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD of the TWS to the end that her relationship with TWS was one of a
SERVICE, INC. EVEN AS AGAINST THE LATTER. joint business venture appellant made declarations showing:
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT 1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. eminent eye, ear and nose specialist as well as a imediately
LINA O. SEVILLA FROM THE A. MABINI OFFICE BY columnist had been in the travel business prior to the establishment
TAKING THE LAW INTO THEIR OWN HANDS. of the joint business venture with appellee Tourist World Service,
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT Inc. and appellee Eliseo Canilao, her compadre, she being the
.ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR godmother of one of his children, with her own clientele, coming
APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION mostly from her own social circle (pp. 3-6 tsn. February 16,1965).
OF THE A. MABINI PREMISES. 2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
VI. THE LOWER COURT ERRED IN FINDING THAT 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED she expressly warranting and holding [sic] herself 'solidarily' liable
MERELY AS GUARANTOR FOR RENTALS. with appellee Tourist World Service, Inc. for the prompt payment of
On the foregoing facts and in the light of the errors asigned the issues the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-
to be resolved are: 15, tsn. Jan. 18,1964).
1. Whether the appellee Tourist World Service unilaterally disco the 3. Appellant Mrs. Sevilla did not receive any salary from appellee

26
Tourist World Service, Inc., which had its own, separate office Upon the other hand, appellee TWS contend that the appellant was
located at the Trade & Commerce Building; nor was she an an employee of the appellee Tourist World Service, Inc. and as such
employee thereof, having no participation in nor connection with was designated manager. 1
said business at the Trade & Commerce Building (pp. 16-18 tsn Id.). xxx xxx xxx
4. Appellant Mrs. Sevilla earned commissions for her own The trial court 2 held for the private respondent on the premise that
passengers, her own bookings her own business (and not for any of the private respondent, Tourist World Service, Inc., being the true
the business of appellee Tourist World Service, Inc.) obtained from lessee, it was within its prerogative to terminate the lease and
the airline companies. She shared the 7% commissions given by the padlock the premises. 3 It likewise found the petitioner, Lina Sevilla,
airline companies giving appellee Tourist World Service, Lic. 3% to be a mere employee of said Tourist World Service, Inc. and as
4
thereof aid retaining 4% for herself (pp. 18 tsn. Id.) such, she was bound by the acts of her employer. The respondent
5
5. Appellant Mrs. Sevilla likewise shared in the expenses of Court of Appeal rendered an affirmance.
maintaining the A. Mabini St. office, paying for the salary of an The petitioners now claim that the respondent Court, in sustaining
office secretary, Miss Obieta, and other sundry expenses, aside from the lower court, erred. Specifically, they state:
desicion the office furniture and supplying some of fice furnishings I
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
shouldering the rental and other expenses in consideration for the 3% AND GRAVELY ABUSED ITS DISCRETION IN HOLDING
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
16,1965). WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND
6. It was the understanding between them that appellant Mrs. Sevilla CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT
would be given the title of branch manager for appearance's sake NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR
title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE
Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH
secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief) THE CORPORATE SECRETARY OF TOURIST WORLD

27
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED APPEAL APPELLANT SEVILLA RELIEF YET NOT
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE RESOLVING HER CLAIM THAT SHE WAS IN JOINT
THE CONTROVERSY BETWEEN THE APPELLANT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
(SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH
NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" COULD NOT BE TERMINATED OR REVOKED
(ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE As a preliminary inquiry, the Court is asked to declare the true nature
OF LAW. of the relation between Lina Sevilla and Tourist World Service, Inc.
II The respondent Court of see fit to rule on the question, the crucial
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW issue, in its opinion being "whether or not the padlocking of the
AND GRAVELY ABUSED ITS DISCRETION IN DENYING premises by the Tourist World Service, Inc. without the knowledge
APPELLANT SEVILLA RELIEF BECAUSE SHE HAD and consent of the appellant Lina Sevilla entitled the latter to the
"OFFERED TO WITHDRAW HER COMP PROVIDED THAT relief of damages prayed for and whether or not the evidence for the
ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH said appellant supports the contention that the appellee Tourist
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) World Service, Inc. unilaterally and without the consent of the
III appellant disconnected the telephone lines of the Ermita branch
7
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW office of the appellee Tourist World Service, Inc. Tourist World
AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN Service, Inc., insists, on the other hand, that Lina SEVILLA was a
FACT NOT PASSING AND RESOLVING-APPELLANT mere employee, being "branch manager" of its Ermita "branch"
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, office and that inferentially, she had no say on the lease executed
20 AND 21 OF THE CIVIL CODE ON RELATIONS. with the private respondent, Segundina Noguera. The petitioners
IV contend, however, that relation between the between parties was one
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW of joint venture, but concede that "whatever might have been the true
AND GRAVELY ABUSED ITS DISCRETION IN DENYING relationship between Sevilla and Tourist World Service," the Rule of

28
Law enjoined Tourist World Service and Canilao from taking the covering the Tourist Worlds Ermita office, she had bound herself in
8
law into their own hands, in reference to the padlocking now solidum as and for rental payments, an arrangement that would be
questioned. like claims of a master-servant relationship. True the respondent
The Court finds the resolution of the issue material, for if, as the Court would later minimize her participation in the lease as one of
12
private respondent, Tourist World Service, Inc., maintains, that the mere guaranty, that does not make her an employee of Tourist
relation between the parties was in the character of employer and World, since in any case, a true employee cannot be made to part
employee, the courts would have been without jurisdiction to try the with his own money in pursuance of his employer's business, or
case, labor disputes being the exclusive domain of the Court of otherwise, assume any liability thereof. In that event, the parties must
Industrial Relations, later, the Bureau Of Labor Relations, pursuant be bound by some other relation, but certainly not employment.
to statutes then in force. 9 In the second place, and as found by the Appellate Court, '[w]hen the
In this jurisdiction, there has been no uniform test to determine the branch office was opened, the same was run by the herein appellant
evidence of an employer-employee relation. In general, we have Lina O. Sevilla payable to Tourist World Service, Inc. by any airline
13
relied on the so-called right of control test, "where the person for for any fare brought in on the effort of Mrs. Lina Sevilla. Under
whom the services are performed reserves a right to control not only these circumstances, it cannot be said that Sevilla was under the
the end to be achieved but also the means to be used in reaching such control of Tourist World Service, Inc. "as to the means used." Sevilla
10
end." Subsequently, however, we have considered, in addition to in pursuing the business, obviously relied on her own gifts and
the standard of right-of control, the existing economic conditions capabilities.
prevailing between the parties, like the inclusion of the employee in It is further admitted that Sevilla was not in the company's payroll.
the payrolls, in determining the existence of an employer-employee For her efforts, she retained 4% in commissions from airline
relationship. 11 bookings, the remaining 3% going to Tourist World. Unlike an
The records will show that the petitioner, Lina Sevilla, was not employee then, who earns a fixed salary usually, she earned
subject to control by the private respondent Tourist World Service, compensation in fluctuating amounts depending on her booking
Inc., either as to the result of the enterprise or as to the means used in successes.
connection therewith. In the first place, under the contract of lease The fact that Sevilla had been designated 'branch manager" does not

29
make her, ergo, Tourist World's employee. As we said, employment case at bar, Sevilla solicited airline fares, but she did so for and on
is determined by the right-of-control test and certain economic behalf of her principal, Tourist World Service, Inc. As compensation,
parameters. But titles are weak indicators. she received 4% of the proceeds in the concept of commissions. And
In rejecting Tourist World Service, Inc.'s arguments however, we are as we said, Sevilla herself based on her letter of November 28, 1961,
not, as a consequence, accepting Lina Sevilla's own, that is, that the pre-assumed her principal's authority as owner of the business
parties had embarked on a joint venture or otherwise, a partnership. undertaking. We are convinced, considering the circumstances and
And apparently, Sevilla herself did not recognize the existence of from the respondent Court's recital of facts, that the ties had
such a relation. In her letter of November 28, 1961, she expressly contemplated a principal agent relationship, rather than a joint
'concedes your [Tourist World Service, Inc.'s] right to stop the managament or a partnership..
14
operation of your branch office in effect, accepting Tourist World But unlike simple grants of a power of attorney, the agency that we
Service, Inc.'s control over the manner in which the business was hereby declare to be compatible with the intent of the parties, cannot
run. A joint venture, including a partnership, presupposes generally a be revoked at will. The reason is that it is one coupled with an
of standing between the joint co-venturers or partners, in which each interest, the agency having been created for mutual interest, of the
19
party has an equal proprietary interest in the capital or property agent and the principal. It appears that Lina Sevilla is a bona fide
15
contributed and where each party exercises equal rights in the travel agent herself, and as such, she had acquired an interest in the
16
conduct of the business. furthermore, the parties did not hold business entrusted to her. Moreover, she had assumed a personal
themselves out as partners, and the building itself was embellished obligation for the operation thereof, holding herself solidarily liable
17
with the electric sign "Tourist World Service, Inc. in lieu of a for the payment of rentals. She continued the business, using her own
distinct partnership name. name, after Tourist World had stopped further operations. Her
It is the Court's considered opinion, that when the petitioner, Lina interest, obviously, is not to the commissions she earned as a result
Sevilla, agreed to (wo)man the private respondent, Tourist World of her business transactions, but one that extends to the very subject
Service, Inc.'s Ermita office, she must have done so pursuant to a matter of the power of management delegated to her. It is an agency
contract of agency. It is the essence of this contract that the agent that, as we said, cannot be revoked at the pleasure of the principal.
renders services "in representation or on behalf of another. 18 In the Accordingly, the revocation complained of should entitle the

30
petitioner, Lina Sevilla, to damages. indeed some malevolent design to put the petitioner, Lina Sevilla, in
As we have stated, the respondent Court avoided this issue, a bad light following disclosures that she had worked for a rival firm.
confining itself to the telephone disconnection and padlocking To be sure, the respondent court speaks of alleged business losses to
incidents. Anent the disconnection issue, it is the holding of the justify the closure '21 but there is no clear showing that Tourist
Court of Appeals that there is 'no evidence showing that the Tourist World Ermita Branch had in fact sustained such reverses, let alone,
World Service, Inc. disconnected the telephone lines at the branch the fact that Sevilla had moonlit for another company. What the
20
office. Yet, what cannot be denied is the fact that Tourist World evidence discloses, on the other hand, is that following such an
Service, Inc. did not take pains to have them reconnected. Assuming, information (that Sevilla was working for another company), Tourist
therefore, that it had no hand in the disconnection now complained World's board of directors adopted two resolutions abolishing the
of, it had clearly condoned it, and as owner of the telephone lines, it office of 'manager" and authorizing the corporate secretary, the
must shoulder responsibility therefor. respondent Eliseo Canilao, to effect the takeover of its branch office
The Court of Appeals must likewise be held to be in error with properties. On January 3, 1962, the private respondents ended the
respect to the padlocking incident. For the fact that Tourist World lease over the branch office premises, incidentally, without notice to
Service, Inc. was the lessee named in the lease con-tract did not her.
accord it any authority to terminate that contract without notice to its It was only on June 4, 1962, and after office hours significantly, that
actual occupant, and to padlock the premises in such fashion. As this the Ermita office was padlocked, personally by the respondent
Court has ruled, the petitioner, Lina Sevilla, had acquired a personal Canilao, on the pretext that it was necessary to Protect the interests
22
stake in the business itself, and necessarily, in the equipment of the Tourist World Service. " It is strange indeed that Tourist
pertaining thereto. Furthermore, Sevilla was not a stranger to that World Service, Inc. did not find such a need when it cancelled the
contract having been explicitly named therein as a third party in lease five months earlier. While Tourist World Service, Inc. would
charge of rental payments (solidarily with Tourist World, Inc.). She not pretend that it sought to locate Sevilla to inform her of the
could not be ousted from possession as summarily as one would eject closure, but surely, it was aware that after office hours, she could not
an interloper. have been anywhere near the premises. Capping these series of
The Court is satisfied that from the chronicle of events, there was "offensives," it cut the office's telephone lines, paralyzing completely

31
its business operations, and in the process, depriving Sevilla The respondent, Eliseo Canilao, as a joint tortfeasor is likewise
anticipation therein. hereby ordered to respond for the same damages in a solidary
This conduct on the part of Tourist World Service, Inc. betrays a capacity.
sinister effort to punish Sevilla it had perceived to be disloyalty on Insofar, however, as the private respondent, Segundina Noguera is
her part. It is offensive, in any event, to elementary norms of justice concerned, no evidence has been shown that she had connived with
and fair play. Tourist World Service, Inc. in the disconnection and padlocking
We rule therefore, that for its unwarranted revocation of the contract incidents. She cannot therefore be held liable as a cotortfeasor.
of agency, the private respondent, Tourist World Service, Inc., The Court considers the sums of P25,000.00 as and for moral
25
should be sentenced to pay damages. Under the Civil Code, moral damages,24 P10,000.00 as exemplary damages, and P5,000.00 as
26 27
damages may be awarded for "breaches of contract where the nominal and/or temperate damages, to be just, fair, and
23
defendant acted ... in bad faith. reasonable under the circumstances.
We likewise condemn Tourist World Service, Inc. to pay further WHEREFORE, the Decision promulgated on January 23, 1975 as
damages for the moral injury done to Lina Sevilla from its brazen well as the Resolution issued on July 31, 1975, by the respondent
conduct subsequent to the cancellation of the power of attorney Court of Appeals is hereby REVERSED and SET ASIDE. The
granted to her on the authority of Article 21 of the Civil Code, in private respondent, Tourist World Service, Inc., and Eliseo Canilao,
relation to Article 2219 (10) thereof — are ORDERED jointly and severally to indemnify the petitioner,
ART. 21. Any person who willfully causes loss or injury to another Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum
in a manner that is contrary to morals, good customs or public policy of P10,000.00, as and for exemplary damages, and the sum of
24
shall compensate the latter for the damage. P5,000.00, as and for nominal and/or temperate damages.
ART. 2219. Moral damages 25 may be recovered in the following and Costs against said private respondents.
analogous cases: SO ORDERED.
xxx xxx xxx Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32,
34, and 35.

32
THIRD DIVISION dismissal of the plaintiffs complaint. The counterclaims of the
G.R. No. 134559 December 9, 1999 defendant are likewise ordered dismissed. No pronouncement as to
ANTONIA TORRES assisted by her husband, ANGELO costs. 3
TORRES; and EMETERIA BARING, petitioners, The Facts
vs. Sisters Antonia Torres and Emeteria Baring, herein petitioners,
COURT OF APPEALS and MANUEL TORRES, respondents. entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
PANGANIBAN, J.: Pursuant to the contract, they executed a Deed of Sale covering the
Courts may not extricate parties from the necessary consequences of said parcel of land in favor of respondent, who then had it registered
their acts. That the terms of a contract turn out to be financially in his name. By mortgaging the property, respondent obtained from
disadvantageous to them will not relieve them of their obligations Equitable Bank a loan of P40,000 which, under the Joint Venture
4
therein. The lack of an inventory of real property will not ipso facto Agreement, was to be used for the development of the subdivision.
release the contracting partners from their respective obligations to All three of them also agreed to share the proceeds from the sale of
each other arising from acts executed in accordance with their the subdivided lots.
agreement. The project did not push through, and the land was subsequently
The Case foreclosed by the bank.
The Petition for Review on Certiorari before us assails the March 5, According to petitioners, the project failed because of "respondent's
1998 Decision 1 of the Court of Appeals 2
(CA) in CA-GR CV No. lack of funds or means and skills." They add that respondent used the
42378 and its June 25, 1998 Resolution denying reconsideration. The loan not for the development of the subdivision, but in furtherance of
assailed Decision affirmed the ruling of the Regional Trial Court his own company, Universal Umbrella Company.
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as On the other hand, respondent alleged that he used the loan to
follows: implement the Agreement. With the said amount, he was able to
WHEREFORE, for all the foregoing considerations, the Court, effect the survey and the subdivision of the lots. He secured the Lapu
finding for the defendant and against the plaintiffs, orders the Lapu City Council's approval of the subdivision project which he

33
advertised in a local newspaper. He also caused the construction of contract. Disagreeing with the trial court's pronouncement that losses
7
roads, curbs and gutters. Likewise, he entered into a contract with an as well as profits in a joint venture should be distributed equally,
engineering firm for the building of sixty low-cost housing units and the CA invoked Article 1797 of the Civil Code which provides:
actually even set up a model house on one of the subdivision lots. He Art. 1797 — The losses and profits shall be distributed in conformity
did all of these for a total expense of P85,000. with the agreement. If only the share of each partner in the profits
Respondent claimed that the subdivision project failed, however, has been agreed upon, the share of each in the losses shall be in the
because petitioners and their relatives had separately caused the same proportion.
annotations of adverse claims on the title to the land, which The CA elucidated further:
eventually scared away prospective buyers. Despite his requests, In the absence of stipulation, the share of each partner in the profits
petitioners refused to cause the clearing of the claims, thereby and losses shall be in proportion to what he may have contributed,
5
forcing him to give up on the project. but the industrial partner shall not be liable for the losses. As for the
Subsequently, petitioners filed a criminal case for estafa against profits, the industrial partner shall receive such share as may be just
respondent and his wife, who were however acquitted. Thereafter, and equitable under the circumstances. If besides his services he has
they filed the present civil case which, upon respondent's motion, contributed capital, he shall also receive a share in the profits in
was later dismissed by the trial court in an Order dated September 6, proportion to his capital.
1982. On appeal, however, the appellate court remanded the case for The Issue
further proceedings. Thereafter, the RTC issued its assailed Decision, Petitioners impute to the Court of Appeals the following error:
which, as earlier stated, was affirmed by the CA. . . . [The] Court of Appeals erred in concluding that the transaction
6
Hence, this Petition. . . . between the petitioners and respondent was that of a joint
Ruling of the Court of Appeals venture/partnership, ignoring outright the provision of Article 1769,
In affirming the trial court, the Court of Appeals held that petitioners and other related provisions of the Civil Code of the Philippines. 8
and respondent had formed a partnership for the development of the The Court's Ruling
subdivision. Thus, they must bear the loss suffered by the partnership The Petition is bereft of merit.
in the same proportion as their share in the profits stipulated in the Main Issue:

34
Existence of a Partnership Whereas, the FIRST PARTY had given the SECOND PARTY, the
Petitioners deny having formed a partnership with respondent. They sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine
contend that the Joint Venture Agreement and the earlier Deed of Currency upon the execution of this contract for the property
Sale, both of which were the bases of the appellate court's finding of entrusted by the SECOND PARTY, for sub-division projects and
a partnership, were void. development purposes;
In the same breath, however, they assert that under those very same NOW THEREFORE, for and in consideration of the above
contracts, respondent is liable for his failure to implement the covenants and promises herein contained the respective parties
project. Because the agreement entitled them to receive 60 percent of hereto do hereby stipulate and agree as follows:
the proceeds from the sale of the subdivision lots, they pray that ONE: That the SECOND PARTY signed an absolute Deed of Sale . .
respondent pay them damages equivalent to 60 percent of the value . dated March 5, 1969, in the amount of TWENTY FIVE
9
of the property. THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
The pertinent portions of the Joint Venture Agreement read as (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
follows: [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
KNOW ALL MEN BY THESE PRESENTS: the FIRST PARTY, but the SECOND PARTY did not actually
This AGREEMENT, is made and entered into at Cebu City, receive the payment.
Philippines, this 5th day of March, 1969, by and between MR. SECOND: That the SECOND PARTY, had received from the
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. FIRST PARTY, the necessary amount of TWENTY THOUSAND
ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the (P20,000.00) pesos, Philippine currency, for their personal
SECOND PARTY: obligations and this particular amount will serve as an advance
WITNESSETH: payment from the FIRST PARTY for the property mentioned to be
That, whereas, the SECOND PARTY, voluntarily offered the FIRST sub-divided and to be deducted from the sales.
PARTY, this property located at Lapu-Lapu City, Island of Mactan, THIRD: That the FIRST PARTY, will not collect from the SECOND
under Lot No. 1368 covering TCT No. T-0184 with a total area of PARTY, the interest and the principal amount involving the amount
17,009 square meters, to be sub-divided by the FIRST PARTY; of TWENTY THOUSAND (P20,000.00) Pesos, Philippine

35
Currency, until the sub-division project is terminated and ready for That this AGREEMENT shall be binding and obligatory to the
sale to any interested parties, and the amount of TWENTY parties who executed same freely and voluntarily for the uses and
THOUSAND (P20,000.00) pesos, Philippine currency, will be purposes therein stated. 10
deducted accordingly. A reading of the terms embodied in the Agreement indubitably
FOURTH: That all general expense[s] and all cost[s] involved in the shows the existence of a partnership pursuant to Article 1767 of the
sub-division project should be paid by the FIRST PARTY, Civil Code, which provides:
exclusively and all the expenses will not be deducted from the sales Art. 1767. By the contract of partnership two or more persons bind
after the development of the sub-division project. themselves to contribute money, property, or industry to a common
FIFTH: That the sales of the sub-divided lots will be divided into fund, with the intention of dividing the profits among themselves.
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY Under the above-quoted Agreement, petitioners would contribute
PERCENTUM 40% for the FIRST PARTY, and additional profits or property to the partnership in the form of land which was to be
whatever income deriving from the sales will be divided equally developed into a subdivision; while respondent would give, in
according to the . . . percentage [agreed upon] by both parties. addition to his industry, the amount needed for general expenses and
SIXTH: That the intended sub-division project of the property other costs. Furthermore, the income from the said project would be
involved will start the work and all improvements upon the adjacent divided according to the stipulated percentage. Clearly, the contract
lots will be negotiated in both parties['] favor and all sales shall [be] manifested the intention of the parties to form a partnership. 11
decided by both parties. It should be stressed that the parties implemented the contract. Thus,
SEVENTH: That the SECOND PARTIES, should be given an option petitioners transferred the title to the land to facilitate its use in the
to get back the property mentioned provided the amount of name of the respondent. On the other hand, respondent caused the
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, subject land to be mortgaged, the proceeds of which were used for
borrowed by the SECOND PARTY, will be paid in full to the FIRST the survey and the subdivision of the land. As noted earlier, he
PARTY, including all necessary improvements spent by the FIRST developed the roads, the curbs and the gutters of the subdivision and
PARTY, and-the FIRST PARTY will be given a grace period to entered into a contract to construct low-cost housing units on the
turnover the property mentioned above. property.

36
Respondent's actions clearly belie petitioners' contention that he Alleged Nullity of the
made no contribution to the partnership. Under Article 1767 of the Partnership Agreement
Civil Code, a partner may contribute not only money or property, but Petitioners argue that the Joint Venture Agreement is void under
also industry. Article 1773 of the Civil Code, which provides:
Petitioners Bound by Art. 1773. A contract of partnership is void, whenever immovable
Terms of Contract property is contributed thereto, if an inventory of said property is not
Under Article 1315 of the Civil Code, contracts bind the parties not made, signed by the parties, and attached to the public instrument.
only to what has been expressly stipulated, but also to all necessary They contend that since the parties did not make, sign or attach to the
consequences thereof, as follows: public instrument an inventory of the real property contributed, the
Art. 1315. Contracts are perfected by mere consent, and from that partnership is void.
moment the parties are bound not only to the fulfillment of what has We clarify. First, Article 1773 was intended primarily to protect
been expressly stipulated but also to all the consequences which, third persons. Thus, the eminent Arturo M. Tolentino states that
according to their nature, may be in keeping with good faith, usage under the aforecited provision which is a complement of Article
12
and law. 1771, "The execution of a public instrument would be useless if
It is undisputed that petitioners are educated and are thus presumed there is no inventory of the property contributed, because without its
to have understood the terms of the contract they voluntarily signed. designation and description, they cannot be subject to inscription in
If it was not in consonance with their expectations, they should have the Registry of Property, and their contribution cannot prejudice
objected to it and insisted on the provisions they wanted. third persons. This will result in fraud to those who contract with the
Courts are not authorized to extricate parties from the necessary partnership in the belief [in] the efficacy of the guaranty in which the
consequences of their acts, and the fact that the contractual immovables may consist. Thus, the contract is declared void by the
stipulations may turn out to be financially disadvantageous will not law when no such inventory is made." The case at bar does not
relieve parties thereto of their obligations. They cannot now disavow involve third parties who may be prejudiced.
the relationship formed from such agreement due to their supposed Second, petitioners themselves invoke the allegedly void contract as
misunderstanding of its terms. basis for their claim that respondent should pay them 60 percent of

37
13
the value of the property. They cannot in one breath deny the the subdivision project, for which the land was intended to be used.
contract and in another recognize it, depending on what momentarily As explained by the trial court, "the land was in effect given to the
suits their purpose. Parties cannot adopt inconsistent positions in partnership as [petitioner's] participation therein. . . . There was
regard to a contract and courts will not tolerate, much less approve, therefore a consideration for the sale, the [petitioners] acting in the
such practice. expectation that, should the venture come into fruition, they [would]
In short, the alleged nullity of the partnership will not prevent courts get sixty percent of the net profits."
from considering the Joint Venture Agreement an ordinary contract Liability of the Parties
from which the parties' rights and obligations to each other may be Claiming that respondent was solely responsible for the failure of the
inferred and enforced. subdivision project, petitioners maintain that he should be made to
Partnership Agreement Not the Result pay damages equivalent to 60 percent of the value of the property,
of an Earlier Illegal Contract which was their share in the profits under the Joint Venture
Petitioners also contend that the Joint Venture Agreement is void Agreement.
under Article 1422 14 of the Civil Code, because it is the direct result We are not persuaded. True, the Court of Appeals held that
of an earlier illegal contract, which was for the sale of the land petitioners' acts were not the cause of the failure of the project. 16 But
17
without valid consideration. it also ruled that neither was respondent responsible therefor. In
This argument is puerile. The Joint Venture Agreement clearly states imputing the blame solely to him, petitioners failed to give any
that the consideration for the sale was the expectation of profits from reason why we should disregard the factual findings of the appellate
the subdivision project. Its first stipulation states that petitioners did court relieving him of fault. Verily, factual issues cannot be resolved
not actually receive payment for the parcel of land sold to in a petition for review under Rule 45, as in this case. Petitioners
respondent. Consideration, more properly denominated as cause, can have not alleged, not to say shown, that their Petition constitutes one
18
take different forms, such as the prestation or promise of a thing or of the exceptions to this doctrine. Accordingly, we find no
service by another. 15 reversible error in the CA's ruling that petitioners are not entitled to
In this case, the cause of the contract of sale consisted not in the damages.
stated peso value of the land, but in the expectation of profits from WHEREFORE, the Perition is hereby DENIED and the challenged

38
Decision AFFIRMED. Costs against petitioners. Petitioner brought an action in the City Court of Dipolog for
SO ORDERED collection of a sum of P5,217.25 based on promissory notes executed
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur. 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
SECOND DIVISION respondent Nobio Sardane. Exhibit B is a printed promissory note
G.R. No. L-47045 November 22, 1988 involving Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a
NOBIO SARDANE, petitioner, printed promissory note and denotes on its face that the sum loaned
vs. was Pl,400.00. Exhibit D is also a printed promissory note dated
THE COURT OF APPEALS and ROMEO J. ACOJEDO, May 31, 1977 involving an amount of P100.00. Exhibit E is what is
respondents. commonly known to the layman as 'vale' which reads: 'Good for: two
Y.G. Villaruz & Associates for petitioner. hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the
Pelagio R. Lachica for private respondent. following tenor: 'Received from Mr. Romeo Acojedo the sum Pesos:
Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or
REGALADO, J.: before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H
The extensive discussion and exhaustive disquisition in the decision are both vales' involving the same amount of one hundred pesos, and
1 of the respondent Court 2 should have written finis to this case dated August 25, 1972 and September 12, 1972 respectively.
without further recourse to Us. The assignment of errors and It has been established in the trial court that on many occasions, the
arguments raised in the respondent Court by herein private petitioner demanded the payment of the total amount of P5,217.25.
respondent, as the petitioner therein, having been correctly and The failure of the private respondent to pay the said amount
justifiedly sustained by said court without any reversible error in its prompted the petitioner to seek the services of lawyer who made a
conclusions, the present petition must fail. letter (Exhibit 1) formally demanding the return of the sum loaned.
The assailed decision details the facts and proceedings which Because of the failure of the private respondent to heed the demands
spawned the present controversy as follows: extrajudicially made by the petitioner, the latter was constrained to

39
bring an action for collection of sum of money. by dismissing the complaint and ordered the plaintiff-appellee
During the scheduled day for trial, private respondent failed to Acojedo to pay said defendant-appellant P500.00 each for actual
appear and to file an answer. On motion by the petitioner, the City damages, moral damages, exemplary damages and attorney's fees, as
Court of Dipolog issued an order dated May 18, 1976 declaring the well as the costs of suit. Plaintiff-appellee then sought the review of
private respondent in default and allowed the petitioner to present his said decision by petition to the respondent Court.
evidence ex-parte. Based on petitioner's evidence, the City Court of The assignment of errors in said petition for review can be
Dipolog rendered judgment by default in favor of the petitioner. capsulized into two decisive issues, firstly, whether the oral
Private respondent filed a motion to lift the order of default which testimony for the therein private respondent Sardane that a
was granted by the City Court in an order dated May 24, 1976, partnership existed between him and therein petitioner Acojedo are
taking into consideration that the answer was filed within two hours admissible to vary the meaning of the abovementioned promissory
after the hearing of the evidence presented ex-parte by the petitioner. notes; and, secondly, whether because of the failure of therein
After the trial on the merits, the City Court of Dipolog rendered its petitioner to cross-examine therein private respondent on his sur-
decision on September 14, 1976, the dispositive portion of which rebuttal testimony, there was a waiver of the presumption accorded
reads: in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.
IN VIEW OF THE FOREGOING, judgment is hereby rendered in On the first issue, the then Court of First Instance held that "the
favor of the plaintiff and against the defendant as follows: pleadings of the parties herein put in issue the imperfection or
(a) Ordering the defendant to pay unto the plaintiff the sum of Five ambiguity of the documents in question", hence "the appellant can
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos avail of the parol evidence rule to prove his side of the case, that is,
(P5,217.25) plus legal interest to commence from April 23, 1976 the said amount taken by him from appellee is or was not his
when this case was filed in court; and personal debt to appellee, but expenses of the partnership between
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as him and appellee."
attorney's fee and to pay the cost of this proceeding. 3 Consequently, said trial court concluded that the promissory notes
Therein defendant Sardane appealed to the Court of First Instance of involved were merely receipts for the contributions to said
Zamboanga del Norte which reversed the decision of the lower court partnership and, therefore, upheld the claim that there was ambiguity

40
in the promissory notes, hence parol evidence was allowable to vary incumbent upon the private respondent to pay the amount involved
or contradict the terms of the represented loan contract. in the promissory notes if and when the petitioner demands the same.
The parol evidence rule in Rule 130 provides: It was clearly the intent of the parties to enter into a contract of loan
Sec. 7. Evidence of written agreements.—When the terms of an for how could an educated man like the private respondent be
agreement have been reduced to writing, it is to be considered as deceived to sign a promissory note yet intending to make such a
containing all such terms, and, therefore, there can be, between the writing to be mere receipts of the petitioner's supposed contribution
parties and their successors in interest, no evidence of the terms of to the alleged partnership existing between the parties?
the agreement other than the contents of the writing except in the It has been established in the trial court that, the private respondent
following cases: has been engaged in business for quite a long period of time--as
(a) Where a mistake or imperfection of the writing or its failure to owner of the Sardane Trucking Service, entering into contracts with
express the the true intent and agreement of the parties, or the the government for the construction of wharfs and seawall; and a
validity of the agreement is put in issue by the pleadings; member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
(b) When there is an intrinsic ambiguity in the writing. 58).<äre||anº•1àw> It indeed puzzles us how the private respondent
As correctly pointed out by the respondent Court the exceptions to could have been misled into signing a document containing terms
the rule do not apply in this case as there is no ambiguity in the which he did not mean them to be. ...
writings in question, thus: xxx xxx xxx
In the case at bar, Exhibits B, C, and D are printed promissory notes The private respondent admitted during the cross-examination made
containing a promise to pay a sum certain in money, payable on by petitioner's counsel that he was the one who was responsible for
demand and the promise to bear the costs of litigation in the event of the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64).
the private respondent's failure to pay the amount loaned when How could he purportedly rely on such a flimsy pretext that the
demanded extrajudicially. Likewise, the vales denote that the private promissory notes were receipts of the petitioner's contribution? 4
respondent is obliged to return the sum loaned to him by the The Court of Appeals held, and We agree, that even if evidence
petitioner. On their face, nothing appears to be vague or ambigous, aliunde other than the promissory notes may be admitted to alter the
for the terms of the promissory notes clearly show that it was meaning conveyed thereby, still the evidence is insufficient to prove

41
that a partnership existed between the private parties hereto. mere employee indebted to the present private respondent. Thus, in
As manager of the basnig Sarcado naturally some degree of control an action for damages filed by herein private respondent against the
over the operations and maintenance thereof had to be exercised by North Zamboanga Timber Co., Inc. arising from the operations of the
herein petitioner. The fact that he had received 50% of the net profits business, herein petitioner did not ask to be joined as a party
does not conclusively establish that he was a partner of the private plaintiff. Also, although he contends that herein private respondent is
respondent herein. Article 1769(4) of the Civil Code is explicit that the treasurer of the alleged partnership, yet it is the latter who is
while the receipt by a person of a share of the profits of a business is demanding an accounting. The advertence of the Court of First
prima facie evidence that he is a partner in the business, no such Instance to the fact that the casco bears the name of herein petitioner
inference shall be drawn if such profits were received in payment as disregards the finding of the respondent Court that it was just a
wages of an employee. Furthermore, herein petitioner had no voice concession since it was he who obtained the engine used in the
in the management of the affairs of the basnig. Under similar facts, Sardaco from the Department of Local Government and Community
this Court in the early case of Fortis vs. Gutierrez Hermanos, 5 in Development. Further, the use by the parties of the pronoun "our" in
denying the claim of the plaintiff therein that he was a partner in the referring to "our basnig, our catch", "our deposit", or "our boseros"
business of the defendant, declared: was merely indicative of the camaraderie and not evidentiary of a
This contention cannot be sustained. It was a mere contract of partnership, between them.
employment. The plaintiff had no voice nor vote in the management The foregoing factual findings, which belie the further claim that the
of the affairs of the company. The fact that the compensation aforesaid promissory notes do not express the true intent and
received by him was to be determined with reference to the profits agreement of the parties, are binding on Us since there is no showing
made by the defendant in their business did not in any sense make that they fall within the exceptions to the rule limiting the scope of
him a partner therein. ... appellate review herein to questions of law.
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. On the second issue, the pertinent rule on actionable documents in
6 which involved the same factual and legal milieu. Rule 8, for ready reference, reads:
There are other considerations noted by respondent Court which Sec. 8. How to contest genuineness of such documents.—When an
negate herein petitioner's pretension that he was a partner and not a action or defense is founded upon a written instrument, copied in or

42
attached to the corresponding pleading as provided in the preceding hand, the presumed genuineness and due execution of said
section, the genuineness and due execution of the instrument shall be promissory notes were not affected, pursuant to the provisions of
deemed admitted unless the adverse party, under oath, specifically Section 8, Rule 8, since such aspects were not at all questioned but,
denies them, and sets forth what he claims to be the facts; but this on the contrary, were admitted by herein petitioner.
provision does not apply when the adverse party does not appear to Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong
be a party to the instrument or when compliance with an order for the Li Po, 7 which was reiterated in Central Surety & Insurance Co. vs.
inspection of the original instrument is refused. C. N. Hodges, et al. 8 does not sustain his thesis that the herein
The record shows that herein petitioner did not deny under oath in private respondent had "waived the mantle of protection given him
his answer the authenticity and due execution of the promissory by Rule 8, Sec. 8". It is true that such implied admission of
notes which had been duly pleaded and attached to the complaint, genuineness and due execution may be waived by a party but only if
thereby admitting their genuineness and due execution. Even in the he acts in a manner indicative of either an express or tacit waiver
trial court, he did not at all question the fact that he signed said thereof. Petitioner, however, either overlooked or ignored the fact
promissory notes and that the same were genuine. Instead, he that, as held in Yu Chuck, and the same is true in other cases of
presented parol evidence to vary the import of the promissory notes Identical factual settings, such a finding of waiver is proper where a
by alleging that they were mere receipts of his contribution to the case has been tried in complete disregard of the rule and the plaintiff
alleged partnership. having pleaded a document by copy, presents oral evidence to prove
His arguments on this score reflect a misapprehension of the rule on the due execution of the document and no objections are made to the
parol evidence as distinguished from the rule on actionable defendant's evidence in refutation. This situation does not obtain in
documents. As the respondent Court correctly explained to herein the present case hence said doctrine is obviously inapplicable.
petitioner, what he presented in the trial Court was testimonial Neither did the failure of herein private respondent to cross-examine
evidence that the promissory notes were receipts of his supposed herein petitioner on the latter's sur-rebuttal testimony constitute a
contributions to the alleged partnership which testimony, in the light waiver of the aforesaid implied admission. As found by the
of Section 7, Rule 130, could not be admitted to vary or alter the respondent Court, said sur-rebuttal testimony consisted solely of the
explicit meaning conveyed by said promissory notes. On the other denial of the testimony of herein private respondent and no new or

43
additional matter was introduced in that sur-rebuttal testimony to on the provisions of Section 29, Republic Act 296 as amended by
exonerate herein petitioner from his obligations under the aforesaid Republic Act 5433 effective September 9, 1968. Subsequently, the
promissory notes. procedure for appeal to the Court of Appeals from decisions of the
On the foregoing premises and considerations, the respondent Court then courts of first instance in the exercise of their appellate
correctly reversed and set aside the appealed decision of the Court of jurisdiction over cases originating from the municipal courts was
First Instance of Zamboanga del Norte and affirmed in full the provided for by Republic Act 6031, amending Section 45 of the
decision of the City Court of Dipolog City in Civil Case No. A-1838, Judiciary Act effective August 4, 1969. The requirement for
dated September 14, 1976. affirmance in full of the inferior court's decision was not adopted or
Belatedly, in his motion for reconsideration of said decision of the reproduced in Republic Act 6031. Also, since Republic Act 6031
respondent Court, herein petitioner, as the private respondent therein, failed to provide for the procedure or mode of appeal in the cases
raised a third unresolved issue that the petition for review therein therein contemplated, the Court of Appeals en banc provided thereof
should have been dismissed for lack of jurisdiction since the lower in its Resolution of August 12, 1971, by requiring a petition for
Court's decision did not affirm in full the judgment of the City Court review but which also did not require for its availability that the
of Dipolog, and which he claimed was a sine qua non for such a judgment of the court of first instance had affirmed in full that of the
petition under the law then in force. He raises the same point in his lower court. Said mode of appeal and the procedural requirements
present appeal and We will waive the procedural technicalities in thereof governed the appeal taken in this case from the aforesaid
order to put this issue at rest. Court of First Instance to the Court of Appeals in 1977. 10 Herein
Parenthetically, in that same motion for reconsideration he had petitioner's plaint on this issue is, therefore, devoid of merit.
sought affirmative relief from the respondent Court praying that it WHEREFORE, the judgment of the respondent Court of Appeals is
sustain the decision of the trial Court, thereby invoking and AFFIRMED, with costs against herein petitioner.
submitting to its jurisdiction which he would now assail. SO ORDERED.
Furthermore, the objection that he raises is actually not one of Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ.,
jurisdiction but of procedure. 9 concur.
At any rate, it will be noted that petitioner anchors his said objection

44
THIRD DIVISION ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
G.R. No. 75875 December 15, 1989 BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. COURT OF APPEALS, respondents.
WHITTINGHAM and CHARLES CHAMSAY, petitioners, Belo, Abiera & Associates for petitioners in 75875.
vs. Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., GUTIERREZ, JR., J.:
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. These consolidated petitions seek the review of the amended
BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
respondents. 05617 which set aside the earlier decision dated June 5, 1986, of the
G.R. No. 75951 December 15, 1989 then Intermediate Appellate Court and directed that in all subsequent
SANITARY WARES MANUFACTURING CORPORATION, elections for directors of Sanitary Wares Manufacturing Corporation
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, (Saniwares), American Standard Inc. (ASI) cannot nominate more
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG than three (3) directors; that the Filipino stockholders shall not
and AVELINO V. CRUX, petitioners, interfere in ASI's choice of its three (3) nominees; that, on the other
vs. hand, the Filipino stockholders can nominate only six (6) candidates
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN and in the event they cannot agree on the six (6) nominees, they shall
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES vote only among themselves to determine who the six (6) nominees
CHAMSAY and LUCIANO SALAZAR, respondents. will be, with cumulative voting to be allowed but without
G.R. Nos. 75975-76 December 15, 1989 interference from ASI.
LUCIANO E. SALAZAR, petitioner, The antecedent facts can be summarized as follows:
vs. In 1961, Saniwares, a domestic corporation was incorporated for the
SANITARY WARES MANUFACTURING CORPORATION, primary purpose of manufacturing and marketing sanitary wares.
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., One of the incorporators, Mr. Baldwin Young went abroad to look

45
for foreign partners, European or American who could help in its of the Corporation, three of the nine directors shall be designated by
expansion plans. On August 15, 1962, ASI, a foreign corporation American-Standard, and the other six shall be designated by the
domiciled in Delaware, United States entered into an Agreement other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
with Saniwares and some Filipino investors whereby ASI and the At the request of ASI, the agreement contained provisions designed
Filipino investors agreed to participate in the ownership of an to protect it as a minority group, including the grant of veto powers
enterprise which would engage primarily in the business of over a number of corporate acts and the right to designate certain
manufacturing in the Philippines and selling here and abroad vitreous officers, such as a member of the Executive Committee whose vote
china and sanitary wares. The parties agreed that the business was required for important corporate transactions.
operations in the Philippines shall be carried on by an incorporated Later, the 30% capital stock of ASI was increased to 40%. The
enterprise and that the name of the corporation shall initially be corporation was also registered with the Board of Investments for
"Sanitary Wares Manufacturing Corporation." availment of incentives with the condition that at least 60% of the
The Agreement has the following provisions relevant to the issues in capital stock of the corporation shall be owned by Philippine
these cases on the nomination and election of the directors of the nationals.
corporation: The joint enterprise thus entered into by the Filipino investors and
3. Articles of Incorporation the American corporation prospered. Unfortunately, with the
(a) The Articles of Incorporation of the Corporation shall be business successes, there came a deterioration of the initially
substantially in the form annexed hereto as Exhibit A and, insofar as harmonious relations between the two groups. According to the
permitted under Philippine law, shall specifically provide for Filipino group, a basic disagreement was due to their desire to
(1) Cumulative voting for directors: expand the export operations of the company to which ASI objected
xxx xxx xxx as it apparently had other subsidiaries of joint venture groups in the
5. Management countries where Philippine exports were contemplated. On March 8,
(a) The management of the Corporation shall be vested in a Board of 1983, the annual stockholders' meeting was held. The meeting was
Directors, which shall consist of nine individuals. As long as presided by Baldwin Young. The minutes were taken by the
American-Standard shall own at least 30% of the outstanding stock Secretary, Avelino Cruz. After disposing of the preliminary items in

46
the agenda, the stockholders then proceeded to the election of the decision of the Chairman and announced that all votes accruing to
members of the board of directors. The ASI group nominated three ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
persons namely; Wolfgang Aurbach, John Griffin and David P. 05617) were being cumulatively voted for the three ASI nominees
Whittingham. The Philippine investors nominated six, namely; and Charles Chamsay, and instructed the Secretary to so vote.
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., Luciano E. Salazar and other proxy holders announced that all the
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then votes owned by and or represented by them 467,197 shares (p. 27,
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in
Charles Chamsay. The chairman, Baldwin Young ruled the last two favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nominations out of order on the basis of section 5 (a) of the nevertheless instructed the Secretary to cast all votes equally in favor
Agreement, the consistent practice of the parties during the past of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
annual stockholders' meetings to nominate only nine persons as and David Whittingham and the six originally nominated by Rogelio
nominees for the nine-member board of directors, and the legal Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
advice of Saniwares' legal counsel. The following events then, Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin
transpired: Young. The Secretary then certified for the election of the following
... There were protests against the action of the Chairman and heated Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
arguments ensued. An appeal was made by the ASI representative to Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George
the body of stockholders present that a vote be taken on the ruling of F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI
the Chairman. The Chairman, Baldwin Young, declared the appeal then moved to recess the meeting which was duly seconded. There
out of order and no vote on the ruling was taken. The Chairman then was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
instructed the Corporate Secretary to cast all the votes present and This motion to adjourn was accepted by the Chairman, Baldwin
represented by proxy equally for the 6 nominees of the Philippine Young, who announced that the motion was carried and declared the
Investors and the 3 nominees of ASI, thus effectively excluding the 2 meeting adjourned. Protests against the adjournment were registered
additional persons nominated, namely, Luciano E. Salazar and and having been ignored, Mr. Jaqua the ASI representative, stated
Charles Chamsay. The ASI representative, Mr. Jaqua protested the that the meeting was not adjourned but only recessed and that the

47
meeting would be reconvened in the next room. The Chairman then David Whittingham, Luciano E. Salazar and Charles Chamsay
threatened to have the stockholders who did not agree to the decision against the group of Young and Lagdameo (petitioners in SEC Case
of the Chairman on the casting of votes bodily thrown out. The ASI No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case
Group, Luciano E. Salazar and other stockholders, allegedly No. 2718. Both sets of parties except for Avelino Cruz claimed to be
representing 53 or 54% of the shares of Saniwares, decided to the legitimate directors of the corporation.
continue the meeting at the elevator lobby of the American Standard The two petitions were consolidated and tried jointly by a hearing
Building. The continued meeting was presided by Luciano E. officer who rendered a decision upholding the election of the
Salazar, while Andres Gatmaitan acted as Secretary. On the basis of Lagdameo Group and dismissing the quo warranto petition of
the cumulative votes cast earlier in the meeting, the ASI Group Salazar and Chamsay. The ASI Group and Salazar appealed the
nominated its four nominees; Wolfgang Aurbach, John Griffin, decision to the SEC en banc which affirmed the hearing officer's
David Whittingham and Charles Chamsay. Luciano E. Salazar voted decision.
for himself, thus the said five directors were certified as elected The SEC decision led to the filing of two separate appeals with the
directors by the Acting Secretary, Andres Gatmaitan, with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin,
explanation that there was a tie among the other six (6) nominees for David Whittingham and Charles Chamsay (docketed as AC-G.R. SP
the four (4) remaining positions of directors and that the body No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No.
decided not to break the tie. (pp. 37-39, Rollo of 75975-76) 05617). The petitions were consolidated and the appellate court in its
These incidents triggered off the filing of separate petitions by the decision ordered the remand of the case to the Securities and
parties with the Securities and Exchange Commission (SEC). The Exchange Commission with the directive that a new stockholders'
first petition filed was for preliminary injunction by Saniwares, meeting of Saniwares be ordered convoked as soon as possible,
Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. under the supervision of the Commission.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Upon a motion for reconsideration filed by the appellees Lagdameo
Luciano Salazar and Charles Chamsay. The case was denominated as Group) the appellate court (Court of Appeals) rendered the
SEC Case No. 2417. The second petition was for quo warranto and questioned amended decision. Petitioners Wolfgang Aurbach, John
application for receivership by Wolfgang Aurbach, John Griffin, Griffin, David P. Whittingham and Charles Chamsay in G.R. No.

48
75875 assign the following errors: and guaranteed a continuing monopoly of the control of a
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE corporation. (pp. 14-15, Rollo-75975-76)
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS On the other hand, the petitioners in G.R. No. 75951 contend that:
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES I
WHEN IN FACT THERE WAS NO ELECTION AT ALL. THE AMENDED DECISION OF THE RESPONDENT COURT,
II. THE COURT OF APPEALS PROHIBITS THE WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
SANIWARES, THUS DEPRIVING PETITIONERS AND THE AND THE LAW.
CORPORATION THEY REPRESENT OF THEIR PROPERTY II
RIGHTS WITHOUT DUE PROCESS OF LAW. THE AMENDED DECISION DOES NOT CATEGORICALLY
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
READS PROVISIONS INTO THE AGREEMENT OF THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983
PARTIES WHICH WERE NOT THERE, WHICH ACTION IT ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P.
CANNOT LEGALLY DO. (p. 17, Rollo-75875) 24, Rollo-75951)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the The issues raised in the petitions are interrelated, hence, they are
amended decision on the following grounds: discussed jointly.
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of The main issue hinges on who were the duly elected directors of
binding contractual agreements entered into by stockholders and the Saniwares for the year 1983 during its annual stockholders' meeting
replacement of the conditions of such agreements with terms never held on March 8, 1983. To answer this question the following factors
contemplated by the stockholders but merely dictated by the CA . should be determined: (1) the nature of the business established by
11.2. The Amended decision would likewise sanction the deprivation the parties whether it was a joint venture or a corporation and (2)
of the property rights of stockholders without due process of law in whether or not the ASI Group may vote their additional 10% equity
order that a favored group of stockholders may be illegally benefitted during elections of Saniwares' board of directors.

49
The rule is that whether the parties to a particular contract have express the true intent of the parties.
thereby established among themselves a joint venture or some other The parol evidence Rule under Rule 130 provides:
relation depends upon their actual intention which is determined in Evidence of written agreements-When the terms of an agreement
accordance with the rules governing the interpretation and have been reduced to writing, it is to be considered as containing all
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and such terms, and therefore, there can be, between the parties and their
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. successors in interest, no evidence of the terms of the agreement
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) other than the contents of the writing, except in the following cases:
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend (a) Where a mistake or imperfection of the writing, or its failure to
that the actual intention of the parties should be viewed strictly on express the true intent and agreement of the parties or the validity of
the "Agreement" dated August 15,1962 wherein it is clearly stated the agreement is put in issue by the pleadings.
that the parties' intention was to form a corporation and not a joint (b) When there is an intrinsic ambiguity in the writing.
venture. Contrary to ASI Group's stand, the Lagdameo and Young Group
They specifically mention number 16 under Miscellaneous pleaded in their Reply and Answer to Counterclaim in SEC Case No.
Provisions which states: 2417 that the Agreement failed to express the true intent of the
xxx xxx xxx parties, to wit:
c) nothing herein contained shall be construed to constitute any of xxx xxx xxx
the parties hereto partners or joint venturers in respect of any 4. While certain provisions of the Agreement would make it appear
transaction hereunder. (At P. 66, Rollo-GR No. 75875) that the parties thereto disclaim being partners or joint venturers such
They object to the admission of other evidence which tends to show disclaimer is directed at third parties and is not inconsistent with, and
that the parties' agreement was to establish a joint venture presented does not preclude, the existence of two distinct groups of
by the Lagdameo and Young Group on the ground that it contravenes stockholders in Saniwares one of which (the Philippine Investors)
the parol evidence rule under section 7, Rule 130 of the Revised shall constitute the majority, and the other ASI shall constitute the
Rules of Court. According to them, the Lagdameo and Young Group minority stockholder. In any event, the evident intention of the
never pleaded in their pleading that the "Agreement" failed to Philippine Investors and ASI in entering into the Agreement is to

50
enter into ajoint venture enterprise, and if some words in the and not with an ordinary corporation. As stated by the SEC:
Agreement appear to be contrary to the evident intention of the According to the unrebutted testimony of Mr. Baldwin Young, he
parties, the latter shall prevail over the former (Art. 1370, New Civil negotiated the Agreement with ASI in behalf of the Philippine
Code). The various stipulations of a contract shall be interpreted nationals. He testified that ASI agreed to accept the role of minority
together attributing to the doubtful ones that sense which may result vis-a-vis the Philippine National group of investors, on the condition
from all of them taken jointly (Art. 1374, New Civil Code). that the Agreement should contain provisions to protect ASI as the
Moreover, in order to judge the intention of the contracting parties, minority.
their contemporaneous and subsequent acts shall be principally An examination of the Agreement shows that certain provisions were
considered. (Art. 1371, New Civil Code). (Part I, Original Records, included to protect the interests of ASI as the minority. For example,
SEC Case No. 2417) the vote of 7 out of 9 directors is required in certain enumerated
It has been ruled: corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is
In an action at law, where there is evidence tending to prove that the contractually entitled to designate a member of the Executive
parties joined their efforts in furtherance of an enterprise for their Committee and the vote of this member is required for certain
joint profit, the question whether they intended by their agreement to transactions [Sec. 3 (b) (i)].
create a joint adventure, or to assume some other relation is a The Agreement also requires a 75% super-majority vote for the
question of fact for the jury. (Binder v. Kessler v 200 App. Div. amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv)
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; and (b) (iii)]. ASI is also given the right to designate the president
Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) and plant manager [Sec. 5 (6)]. The Agreement further provides that
In the instant cases, our examination of important provisions of the the sales policy of Saniwares shall be that which is normally
Agreement as well as the testimonial evidence presented by the followed by ASI [Sec. 13 (a)] and that Saniwares should not export
Lagdameo and Young Group shows that the parties agreed to "Standard" products otherwise than through ASI's Export Marketing
establish a joint venture and not a corporation. The history of the Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide
organization of Saniwares and the unusual arrangements which technology and know-how to Saniwares and the latter paid royalties
govern its policy making body are all consistent with a joint venture for the same. (At p. 2).

51
xxx xxx xxx Agreement that "Nothing herein contained shall be construed to
It is pertinent to note that the provisions of the Agreement requiring constitute any of the parties hereto partners or joint venturers in
a 7 out of 9 votes of the board of directors for certain actions, in respect of any transaction hereunder" was merely to obviate the
effect gave ASI (which designates 3 directors under the Agreement) possibility of the enterprise being treated as partnership for tax
an effective veto power. Furthermore, the grant to ASI of the right to purposes and liabilities to third parties.
designate certain officers of the corporation; the super-majority Quite often, Filipino entrepreneurs in their desire to develop the
voting requirements for amendments of the articles and by-laws; and industrial and manufacturing capacities of a local firm are
most significantly to the issues of tms case, the provision that ASI constrained to seek the technology and marketing assistance of huge
shall designate 3 out of the 9 directors and the other stockholders multinational corporations of the developed world. Arrangements are
shall designate the other 6, clearly indicate that there are two distinct formalized where a foreign group becomes a minority owner of a
groups in Saniwares, namely ASI, which owns 40% of the capital firm in exchange for its manufacturing expertise, use of its brand
stock and the Philippine National stockholders who own the balance names, and other such assistance. However, there is always a danger
of 60%, and that 2) ASI is given certain protections as the minority from such arrangements. The foreign group may, from the start,
stockholder. intend to establish its own sole or monopolistic operations and
Premises considered, we believe that under the Agreement there are merely uses the joint venture arrangement to gain a foothold or test
two groups of stockholders who established a corporation with the Philippine waters, so to speak. Or the covetousness may come
provisions for a special contractual relationship between the parties, later. As the Philippine firm enlarges its operations and becomes
i.e., ASI and the other stockholders. (pp. 4-5) profitable, the foreign group undermines the local majority
Section 5 (a) of the agreement uses the word "designated" and not ownership and actively tries to completely or predominantly take
"nominated" or "elected" in the selection of the nine directors on a over the entire company. This undermining of joint ventures is not
six to three ratio. Each group is assured of a fixed number of consistent with fair dealing to say the least. To the extent that such
directors in the board. subversive actions can be lawfully prevented, the courts should
Moreover, ASI in its communications referred to the enterprise as extend protection especially in industries where constitutional and
joint venture. Baldwin Young also testified that Section 16(c) of the legal requirements reserve controlling ownership to Filipino citizens.

52
The Lagdameo Group stated in their appellees' brief in the Court of submitted, they should be for purposes of determining how closely
Appeal held Saniwares is there were as of 8 March 1983, practically only 17
In fact, the Philippine Corporation Code itself recognizes the right of stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
stockholders to enter into agreements regarding the exercise of their appellees' Rejoinder Memorandum dated 11 December 1984 and
voting rights. Annex "A" thereof).
Sec. 100. Agreements by stockholders.- Secondly, even assuming that Saniwares is technically not a close
xxx xxx xxx corporation because it has more than 20 stockholders, the undeniable
2. An agreement between two or more stockholders, if in writing and fact is that it is a close-held corporation. Surely, appellants cannot
signed by the parties thereto, may provide that in exercising any honestly claim that Saniwares is a public issue or a widely held
voting rights, the shares held by them shall be voted as therein corporation.
provided, or as they may agree, or as determined in accordance with In the United States, many courts have taken a realistic approach to
a procedure agreed upon by them. joint venture corporations and have not rigidly applied principles of
Appellants contend that the above provision is included in the corporation law designed primarily for public issue corporations.
Corporation Code's chapter on close corporations and Saniwares These courts have indicated that express arrangements between
cannot be a close corporation because it has 95 stockholders. Firstly, corporate joint ventures should be construed with less emphasis on
although Saniwares had 95 stockholders at the time of the disputed the ordinary rules of law usually applied to corporate entities and
stockholders meeting, these 95 stockholders are not separate from with more consideration given to the nature of the agreement
each other but are divisible into groups representing a single between the joint venturers (Please see Wabash Ry v. American
Identifiable interest. For example, ASI, its nominees and lawyers Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des
count for 13 of the 95 stockholders. The YoungYutivo family count Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
for another 13 stockholders, the Chamsay family for 8 stockholders, Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
the Santos family for 9 stockholders, the Dy family for 7 Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool,
stockholders, etc. If the members of one family and/or business or Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138
interest group are considered as one (which, it is respectfully U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand

53
Law Rev. p. 680,1958). These American cases dealt with legal Does this provision necessarily imply that these agreements can be
questions as to the extent to which the requirements arising from the valid only in close corporations as defined by the Code? Suppose
corporate form of joint venture corporations should control, and the that a corporation has twenty five stockholders, and therefore cannot
courts ruled that substantial justice lay with those litigants who relied qualify as a close corporation under section 96, can some of them
on the joint venture agreement rather than the litigants who relied on enter into an agreement to vote as a unit in the election of directors?
the orthodox principles of corporation law. It is submitted that there is no reason for denying stockholders of
As correctly held by the SEC Hearing Officer: corporations other than close ones the right to enter into not voting or
It is said that participants in a joint venture, in organizing the joint pooling agreements to protect their interests, as long as they do not
venture deviate from the traditional pattern of corporation intend to commit any wrong, or fraud on the other stockholders not
management. A noted authority has pointed out that just as in close parties to the agreement. Of course, voting or pooling agreements are
corporations, shareholders' agreements in joint venture corporations perhaps more useful and more often resorted to in close corporations.
often contain provisions which do one or more of the following: (1) But they may also be found necessary even in widely held
require greater than majority vote for shareholder and director action; corporations. Moreover, since the Code limits the legal meaning of
(2) give certain shareholders or groups of shareholders power to close corporations to those which comply with the requisites laid
select a specified number of directors; (3) give to the shareholders down by section 96, it is entirely possible that a corporation which is
control over the selection and retention of employees; and (4) set up in fact a close corporation will not come within the definition. In
a procedure for the settlement of disputes by arbitration (See I O' such case, its stockholders should not be precluded from entering
Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) into contracts like voting agreements if these are otherwise valid.
(Decision of SEC Hearing Officer, P. 16) (Campos & Lopez-Campos, op cit, p. 405)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not In short, even assuming that sec. 5(a) of the Agreement relating to
necessarily imply that agreements regarding the exercise of voting the designation or nomination of directors restricts the right of the
rights are allowed only in close corporations. As Campos and Lopez- Agreement's signatories to vote for directors, such contractual
Campos explain: provision, as correctly held by the SEC, is valid and binding upon
Paragraph 2 refers to pooling and voting agreements in particular. the signatories thereto, which include appellants. (Rollo No. 75951,

54
pp. 90-94) into special relationships with each other to pursue and implement
In regard to the question as to whether or not the ASI group may specific purposes, as in joint venture relationships between foreign
vote their additional equity during elections of Saniwares' board of and local stockholders, so long as such agreements do not adversely
directors, the Court of Appeals correctly stated: affect third parties.
As in other joint venture companies, the extent of ASI's participation In any event, it is believed that we are not here called upon to make a
in the management of the corporation is spelled out in the general rule on this question. Rather, all that needs to be done is to
Agreement. Section 5(a) hereof says that three of the nine directors give life and effect to the particular contractual rights and obligations
shall be designated by ASI and the remaining six by the other which the parties have assumed for themselves.
stockholders, i.e., the Filipino stockholders. This allocation of board On the one hand, the clearly established minority position of ASI and
seats is obviously in consonance with the minority position of ASI. the contractual allocation of board seats Cannot be disregarded. On
Having entered into a well-defined contractual relationship, it is the other hand, the rights of the stockholders to cumulative voting
imperative that the parties should honor and adhere to their should also be protected.
respective rights and obligations thereunder. Appellants seem to In our decision sought to be reconsidered, we opted to uphold the
contend that any allocation of board seats, even in joint venture second over the first. Upon further reflection, we feel that the proper
corporations, are null and void to the extent that such may interfere and just solution to give due consideration to both factors suggests
with the stockholder's rights to cumulative voting as provided in itself quite clearly. This Court should recognize and uphold the
Section 24 of the Corporation Code. This Court should not be division of the stockholders into two groups, and at the same time
prepared to hold that any agreement which curtails in any way uphold the right of the stockholders within each group to cumulative
cumulative voting should be struck down, even if such agreement voting in the process of determining who the group's nominees
has been freely entered into by experienced businessmen and do not would be. In practical terms, as suggested by appellant Luciano E.
prejudice those who are not parties thereto. It may well be that it Salazar himself, this means that if the Filipino stockholders cannot
would be more cogent to hold, as the Securities and Exchange agree who their six nominees will be, a vote would have to be taken
Commission has held in the decision appealed from, that cumulative among the Filipino stockholders only. During this voting, each
voting rights may be voluntarily waived by stockholders who enter Filipino stockholder can cumulate his votes. ASI, however, should

55
not be allowed to interfere in the voting within the Filipino group. such entities. (amendments introduced by Presidential Decree 715,
Otherwise, ASI would be able to designate more than the three section 1, promulgated May 28, 1975)
directors it is allowed to designate under the Agreement, and may The ASI Group's argument is correct within the context of Section 24
even be able to get a majority of the board seats, a result which is of the Corporation Code. The point of query, however, is whether or
clearly contrary to the contractual intent of the parties. not that provision is applicable to a joint venture with clearly defined
Such a ruling will give effect to both the allocation of the board seats agreements:
and the stockholder's right to cumulative voting. Moreover, this The legal concept of ajoint venture is of common law origin. It has
ruling will also give due consideration to the issue raised by the no precise legal definition but it has been generally understood to
appellees on possible violation or circumvention of the Anti-Dummy mean an organization formed for some temporary purpose. (Gates v.
Law (Com. Act No. 108, as amended) and the nationalization Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable
requirements of the Constitution and the laws if ASI is allowed to from the partnership, since their elements are similar community of
nominate more than three directors. (Rollo-75875, pp. 38-39) interest in the business, sharing of profits and losses, and a mutual
The ASI Group and petitioner Salazar, now reiterate their theory that right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
the ASI Group has the right to vote their additional equity pursuant Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
to Section 24 of the Corporation Code which gives the stockholders Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]).
of a corporation the right to cumulate their votes in electing The main distinction cited by most opinions in common law
directors. Petitioner Salazar adds that this right if granted to the ASI jurisdictions is that the partnership contemplates a general business
Group would not necessarily mean a violation of the Anti-Dummy with some degree of continuity, while the joint venture is formed for
Act (Commonwealth Act 108, as amended). He cites section 2-a the execution of a single transaction, and is thus of a temporary
thereof which provides: nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
And provided finally that the election of aliens as members of the Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
board of directors or governing body of corporations or associations Megargel 266 Fed. 811 [1920]). This observation is not entirely
engaging in partially nationalized activities shall be allowed in accurate in this jurisdiction, since under the Civil Code, a partnership
proportion to their allowable participation or share in the capital of may be particular or universal, and a particular partnership may have

56
for its object a specific undertaking. (Art. 1783, Civil Code). It voting for these nominees.
would seem therefore that under Philippine law, a joint venture is a This is the proper interpretation of the Agreement of the parties as
form of partnership and should thus be governed by the law of regards the election of members of the board of directors.
partnerships. The Supreme Court has however recognized a To allow the ASI Group to vote their additional equity to help elect
distinction between these two business forms, and has held that even a Filipino director who would be beholden to them would
although a corporation cannot enter into a partnership contract, it obliterate their minority status as agreed upon by the parties. As
may however engage in a joint venture with others. (At p. 12, aptly stated by the appellate court:
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez- ... ASI, however, should not be allowed to interfere in the voting
Campos Comments, Notes and Selected Cases, Corporation Code within the Filipino group. Otherwise, ASI would be able to designate
1981) more than the three directors it is allowed to designate under the
Moreover, the usual rules as regards the construction and operations Agreement, and may even be able to get a majority of the board
of contracts generally apply to a contract of joint venture. (O' Hara v. seats, a result which is clearly contrary to the contractual intent of the
Harman 14 App. Dev. (167) 43 NYS 556). parties.
Bearing these principles in mind, the correct view would be that the Such a ruling will give effect to both the allocation of the board seats
resolution of the question of whether or not the ASI Group may vote and the stockholder's right to cumulative voting. Moreover, this
their additional equity lies in the agreement of the parties. ruling will also give due consideration to the issue raised by the
Necessarily, the appellate court was correct in upholding the appellees on possible violation or circumvention of the Anti-Dummy
agreement of the parties as regards the allocation of director seats Law (Com. Act No. 108, as amended) and the nationalization
under Section 5 (a) of the "Agreement," and the right of each group requirements of the Constitution and the laws if ASI is allowed to
of stockholders to cumulative voting in the process of determining nominate more than three directors. (At p. 39, Rollo, 75875)
who the group's nominees would be under Section 3 (a) (1) of the Equally important as the consideration of the contractual intent of the
"Agreement." As pointed out by SEC, Section 5 (a) of the parties is the consideration as regards the possible domination by the
Agreement relates to the manner of nominating the members of the foreign investors of the enterprise in violation of the nationalization
board of directors while Section 3 (a) (1) relates to the manner of requirements enshrined in the Constitution and circumvention of the

57
Anti-Dummy Act. In this regard, petitioner Salazar's position is that and submits that the six (6) directors allotted the Filipino
the Anti-Dummy Act allows the ASI group to elect board directors in stockholders should be selected by consensus pursuant to section 5
proportion to their share in the capital of the entity. It is to be noted, (a) of the Agreement which uses the word "designate" meaning
however, that the same law also limits the election of aliens as "nominate, delegate or appoint."
members of the board of directors in proportion to their allowance They also stress the possibility that the ASI Group might take control
participation of said entity. In the instant case, the foreign Group of the enterprise if the Filipino stockholders are allowed to select
ASI was limited to designate three directors. This is the allowable their nominees separately and not as a common slot determined by
participation of the ASI Group. Hence, in future dealings, this the majority of their group.
limitation of six to three board seats should always be maintained as Section 5 (a) of the Agreement which uses the word designates in the
long as the joint venture agreement exists considering that in limiting allocation of board directors should not be interpreted in isolation.
3 board seats in the 9-man board of directors there are provisions This should be construed in relation to section 3 (a) (1) of the
already y agreed upon and embodied in the parties' Agreement Agreement. As we stated earlier, section 3(a) (1) relates to the
to protect the interests arising from the minority status of the foreign manner of voting for these nominees which is cumulative voting
invesutors. while section 5(a) relates to the manner of nominating the members
With these findings, we the decisions of the SEC Hearing Officer of the board of directors. The petitioners in G.R. No. 75951 agreed to
and SEC which were impliedly affirmed by the appellate court this procedure, hence, they cannot now impugn its legality.
declaring Messrs. Wolfgang Aurbach, John Griffin, David P The insinuation that the ASI Group may be able to control the
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. enterprise under the cumulative voting procedure cannot, however,
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George be ignored. The validity of the cumulative voting procedure is
F. Lee as the duly elected directors of Saniwares at the March 8,1983 dependent on the directors thus elected being genuine members of
annual stockholders' meeting. the Filipino group, not voters whose interest is to increase the ASI
On the other hand, the Lagdameo and Young Group (petitioners in share in the management of Saniwares. The joint venture character of
G.R. No. 75951) object to a cumulative voting during the election of the enterprise must always be taken into account, so long as the
the board of directors of the enterprise as ruled by the appellate court company exists under its original agreement. Cumulative voting may

58
not be used as a device to enable ASI to achieve stealthily or FIRST DIVISION
indirectly what they cannot accomplish openly. There are substantial G.R. No. 127405 September 20, 2001
safeguards in the Agreement which are intended to preserve the MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
majority status of the Filipino investors as well as to maintain the vs.
minority status of the foreign investors group as earlier discussed. COURT OF APPEALS and NENITA A. ANAY, respondent.
They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. RESOLUTION
75875 are DISMISSED and the petition in G.R. No. 75951 is partly YNARES-SANTIAGO, J.:
GRANTED. The amended decision of the Court of Appeals is The inherent powers of a Court to amend and control its processes
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David and orders so as to make them conformable to law and justice
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. includes the right to reverse itself, especially when in its honest
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George opinion it has committed an error or mistake in judgment, and that to
F. Lee are declared as the duly elected directors of Saniwares at the adhere to its decision will cause injustice to a party litigant.1
March 8,1983 annual stockholders' meeting. In all other respects, the On November 14, 2001, petitioners Marjorie Tocao and William T.
questioned decision is AFFIRMED. Costs against the petitioners in Belo filed a Motion for Reconsideration `of our Decision dated
G.R. Nos. 75975-76 and G.R. No. 75875. October 4, 2000. They maintain that there was no partnership
SO ORDERED. between petitioner Belo, on the one hand, and respondent Nenita A.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Anay, on the other hand; and that the latter being merely an
Feliciano, J., took no part. employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced
that, indeed, petitioner Belo acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by respondent's own
witness, Elizabeth Bantilan, during her cross-examination.
Furthermore, Bantilan testified that it was Peter Lo who was the

59
company's financier. Thus: would occasionally participate in the affairs of the business, although
Q - You mentioned a while ago the name William Belo. Now, never in a formal or official capacity.3 Again, respondent's witness,
what is the role of William Belo with Geminesse Enterprise? Elizabeth Bantilan, confirmed that petitioner Belo's presence in
A - William Belo is the friend of Marjorie Tocao and he was the Geminesse Enterprise's meetings was merely as guarantor of the
guarantor of the company. company and to help petitioner Tocao.4
Q - What do you mean by guarantor? Furthermore, no evidence was presented to show that petitioner Belo
A - He guarantees the stocks that she owes somebody who is participated in the profits of the business enterprise. Respondent
Peter Lo and he acts as guarantor for us. We can borrow money from herself professed lack of knowledge that petitioner Belo received any
him. share in the net income of the partnership.5 On the other hand,
Q - You mentioned a certain Peter Lo. Who is this Peter Lo? petitioner Tocao declared that petitioner Belo was not entitled to any
A - Peter Lo is based in Singapore. share in the profits of Geminesse Enterprise.6 With no participation
Q - What is the role of Peter Lo in the Geminesse Enterprise? in the profits, petitioner Belo cannot be deemed a partner since the
A - He is the one fixing our orders that open the L/C. essence of a partnership is that the partners share in the profits and
Q - You mean Peter Lo is the financier? losses.7
A - Yes, he is the financier. Consequently, inasmuch as petitioner Belo was not a partner in
Q - And the defendant William Belo is merely the guarantor of Geminesse Enterprise, respondent had no cause of action against him
Geminesse Enterprise, am I correct? and her complaint against him should accordingly be dismissed.
A - Yes, sir2 As regards the award of damages, petitioners argue that respondent
The foregoing was neither refuted nor contradicted by respondent's should be deemed in bad faith for failing to account for stocks of
evidence. It should be recalled that the business relationship created Geminesse Enterprise amounting to P208,250.00 and that,
between petitioner Tocao and respondent Anay was an informal accordingly, her claim for damages should be barred to that extent.
partnership, which was not even recorded with the Securities and We do not agree. Given the circumstances surrounding private
Exchange Commission. As such, it was understandable that Belo, respondent's sudden ouster from the partnership by petitioner Tocao,
who was after all petitioner Tocao's good friend and confidante, her act of withholding whatever stocks were in her possession and

60
control was justified, if only to serve as security for her claims FIRST DIVISION
against the partnership. However, while we do not agree that the G.R. No. 127405 October 4, 2000
same renders private respondent in bad faith and should bar her MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
claim for damages, we find that the said sum of P208,250.00 should vs.
be deducted from whatever amount is finally adjudged in her favor COURT OF APPEALS and NENITA A. ANAY, respondents.
on the basis of the formal account of the partnership affairs to be
submitted to the Regional Trial Court. DECISION
WHEREFORE, based on the foregoing, the Motion for YNARES-SANTIAGO, J.:
Reconsideration of petitioners is PARTIALLY GRANTED. The This is a petition for review of the Decision of the Court of Appeals
Regional Trial Court of Makati is hereby ordered to DISMISS the in CA-G.R. CV No. 41616,1 affirming the Decision of the Regional
complaint, docketed as Civil Case No. 88-509, as against petitioner Trial Court of Makati, Branch 140, in Civil Case No. 88-509.2
William T. Belo only. The sum of P208,250.00 shall be deducted Fresh from her stint as marketing adviser of Technolux in Bangkok,
from whatever amount petitioner Marjorie Tocao shall be held liable Thailand, private respondent Nenita A. Anay met petitioner William
to pay respondent after the normal accounting of the partnership T. Belo, then the vice-president for operations of Ultra Clean Water
affairs. Purifier, through her former employer in Bangkok. Belo introduced
SO ORDERED. Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
Davide, Jr., Kapunan, and Pardo; JJ., concur. into a joint venture with her for the importation and local distribution
Puno, J., on official leave. of kitchen cookwares. Belo volunteered to finance the joint venture
and assigned to Anay the job of marketing the product considering
her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A.
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing department
and later, vice-president for sales. Anay organized the administrative

61
staff and sales force while Tocao hired and fired employees, California, U.S.A., from July 25-26, 1987. Anay accepted the
determined commissions and/or salaries of the employees, and invitation with the consent of Marjorie Tocao who, as president and
assigned them to different branches. The parties agreed that Belo’s general manager of Geminesse Enterprise, even wrote a letter to the
name should not appear in any documents relating to their Visa Section of the U.S. Embassy in Manila on July 13, 1987. A
transactions with West Bend Company. Instead, they agreed to use portion of the letter reads:
Anay’s name in securing distributorship of cookware from that "Ms. Nenita D. Anay (sic), who has been patronizing and supporting
company. The parties agreed further that Anay would be entitled to: West Bend Co. for twenty (20) years now, acquired the
(1) ten percent (10%) of the annual net profits of the business; (2) distributorship of Royal Queen cookware for Geminesse Enterprise,
overriding commission of six percent (6%) of the overall weekly is the Vice President Sales Marketing and a business partner of our
production; (3) thirty percent (30%) of the sales she would make; company, will attend in response to the invitation." (Italics
and (4) two percent (2%) for her demonstration services. The supplied.)3
agreement was not reduced to writing on the strength of Belo’s Anay arrived from the U.S.A. in mid-August 1987, and immediately
assurances that he was sincere, dependable and honest when it came undertook the task of saving the business on account of the
to financial commitments. unsatisfactory sales record in the Makati and Cubao offices. On
Anay having secured the distributorship of cookware products from August 31, 1987, she received a plaque of appreciation from the
the West Bend Company and organized the administrative staff and administrative and sales people through Marjorie Tocao4 for her
the sales force, the cookware business took off successfully. They excellent job performance. On October 7, 1987, in the presence of
operated under the name of Geminesse Enterprise, a sole Anay, Belo signed a memo5 entitling her to a thirty-seven percent
proprietorship registered in Marjorie Tocao’s name, with office at (37%) commission for her personal sales "up Dec 31/87." Belo
712 Rufino Building, Ayala Avenue, Makati City. Belo made good explained to her that said commission was apart from her ten percent
his monetary commitments to Anay. Thereafter, Roger Muencheberg (10%) share in the profits. On October 9, 1987, Anay learned that
of West Bend Company invited Anay to the distributor/dealer Marjorie Tocao had signed a letter6 addressed to the Cubao sales
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 office to the effect that she was no longer the vice-president of
and to the southwestern regional convention in Pismo Beach, Geminesse Enterprise. The following day, October 10, she received a

62
note from Lina T. Cruz, marketing manager, that Marjorie Tocao had paid the five percent (5%) "overriding commission" on the remaining
barred her from holding office and conducting demonstrations in 150 West Bend cookware sets before her "dismissal."
7
both Makati and Cubao offices. Anay attempted to contact Belo. In their answer,9 Marjorie Tocao and Belo asserted that the "alleged
She wrote him twice to demand her overriding commission for the agreement" with Anay that was "neither reduced in writing, nor
period of January 8, 1988 to February 5, 1988 and the audit of the ratified," was "either unenforceable or void or inexistent." As far as
company to determine her share in the net profits. When her letters Belo was concerned, his only role was to introduce Anay to Marjorie
were not answered, Anay consulted her lawyer, who, in turn, wrote Tocao. There could not have been a partnership because, as Anay
Belo a letter. Still, that letter was not answered. herself admitted, Geminesse Enterprise was the sole proprietorship
Anay still received her five percent (5%) overriding commission up of Marjorie Tocao. Because Anay merely acted as marketing
to December 1987. The following year, 1988, she did not receive the demonstrator of Geminesse Enterprise for an agreed remuneration,
same commission although the company netted a gross sales of and her complaint referred to either her compensation or dismissal,
P13,300,360.00. such complaint should have been lodged with the Department of
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a Labor and not with the regular court.
complaint for sum of money with damages8 against Marjorie D. Petitioners (defendants therein) further alleged that Anay filed the
Tocao and William Belo before the Regional Trial Court of Makati, complaint on account of "ill-will and resentment" because Marjorie
Branch 140. Tocao did not allow her to "lord it over in the Geminesse
In her complaint, Anay prayed that defendants be ordered to pay her, Enterprise." Anay had acted like she owned the enterprise because of
jointly and severally, the following: (1) P32,00.00 as unpaid her experience and expertise. Hence, petitioners were the ones who
overriding commission from January 8, 1988 to February 5, 1988; suffered actual damages "including unreturned and unaccounted
(2) P100,000.00 as moral damages, and (3) P100,000.00 as stocks of Geminesse Enterprise," and "serious anxiety, besmirched
exemplary damages. The plaintiff also prayed for an audit of the reputation in the business world, and various damages not less than
finances of Geminesse Enterprise from the inception of its business P500,000.00." They also alleged that, to "vindicate their names,"
operation until she was "illegally dismissed" to determine her ten they had to hire counsel for a fee of P23,000.00.
percent (10%) share in the net profits. She further prayed that she be At the pre-trial conference, the issues were limited to: (a) whether or

63
not the plaintiff was an employee or partner of Marjorie Tocao and financier who loaned her the funds with interest. Because she treated
Belo, and (b) whether or not the parties are entitled to damages.10 Anay as her "co-equal," Marjorie received the same amounts of
In their defense, Belo denied that Anay was supposed to receive a commissions as her. However, Anay failed to account for stocks
share in the profit of the business. He, however, admitted that the valued at P200,000.00.
two had agreed that Anay would receive a three to four percent (3- On April 22, 1993, the trial court rendered a decision the dispositive
4%) share in the gross sales of the cookware. He denied contributing part of which is as follows:
capital to the business or receiving a share in its profits as he merely "WHEREFORE, in view of the foregoing, judgment is hereby
served as a guarantor of Marjorie Tocao, who was new in the rendered:
business. He attended and/or presided over business meetings of the 1. Ordering defendants to submit to the Court a formal account as to
venture in his capacity as a guarantor but he never participated in the partnership affairs for the years 1987 and 1988 pursuant to Art.
decision-making. He claimed that he wrote the memo granting the 1809 of the Civil Code in order to determine the ten percent (10%)
plaintiff thirty-seven percent (37%) commission upon her dismissal share of plaintiff in the net profits of the cookware business;
from the business venture at the request of Tocao, because Anay had 2. Ordering defendants to pay five percent (5%) overriding
no other income. commission for the one hundred and fifty (150) cookware sets
For her part, Marjorie Tocao denied having entered into an oral available for disposition when plaintiff was wrongfully excluded
partnership agreement with Anay. However, she admitted that Anay from the partnership by defendants;
was an expert in the cookware business and hence, they agreed to 3. Ordering defendants to pay plaintiff overriding commission on the
grant her the following commissions: thirty-seven percent (37%) on total production which for the period covering January 8, 1988 to
personal sales; five percent (5%) on gross sales; two percent (2%) on February 5, 1988 amounted to P32,000.00;
product demonstrations, and two percent (2%) for recruitment of 4. Ordering defendants to pay P100,000.00 as moral damages and
personnel. Marjorie denied that they agreed on a ten percent (10%) P100,000.00 as exemplary damages, and
commission on the net profits. Marjorie claimed that she got the 5. Ordering defendants to pay P50,000.00 as attorney’s fees and
capital for the business out of the sale of the sewing machines used P20,000.00 as costs of suit.
in her garments business and from Peter Lo, a Singaporean friend- SO ORDERED."

64
The trial court held that there was indeed an "oral partnership because Article 1771 of the Civil Code provides that a partnership
agreement between the plaintiff and the defendants," based on the may be "constituted in any form." The fact that Geminesse
following: (a) there was an intention to create a partnership; (b) a Enterprise was registered in Marjorie Tocao’s name is not
common fund was established through contributions consisting of determinative of whether or not the business was managed and
money and industry, and (c) there was a joint interest in the profits. operated by a sole proprietor or a partnership. What was registered
The testimony of Elizabeth Bantilan, Anay’s cousin and the with the Bureau of Domestic Trade was merely the business name or
administrative officer of Geminesse Enterprise from August 21, 1986 style of Geminesse Enterprise.
until it was absorbed by Royal International, Inc., buttressed the fact The trial court finally held that a partner who is excluded wrongfully
that a partnership existed between the parties. The letter of Roger from a partnership is an innocent partner. Hence, the guilty partner
Muencheberg of West Bend Company stating that he awarded the must give him his due upon the dissolution of the partnership as well
distributorship to Anay and Marjorie Tocao because he was as damages or share in the profits "realized from the appropriation of
convinced that with Marjorie’s financial contribution and Anay’s the partnership business and goodwill." An innocent partner thus
experience, the combination of the two would be invaluable to the possesses "pecuniary interest in every existing contract that was
partnership, also supported that conclusion. Belo’s claim that he was incomplete and in the trade name of the co-partnership and assets at
merely a "guarantor" has no basis since there was no written the time he was wrongfully expelled."
evidence thereof as required by Article 2055 of the Civil Code. Petitioners’ appeal to the Court of Appeals11 was dismissed, but the
Moreover, his acts of attending and/or presiding over meetings of amount of damages awarded by the trial court were reduced to
Geminesse Enterprise plus his issuance of a memo giving Anay 37% P50,000.00 for moral damages and P50,000.00 as exemplary
commission on personal sales belied this. On the contrary, it damages. Their Motion for Reconsideration was denied by the Court
demonstrated his involvement as a partner in the business. of Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao
The trial court further held that the payment of commissions did not are now before this Court on a petition for review on certiorari,
preclude the existence of the partnership inasmuch as such practice is asserting that there was no business partnership between them and
often resorted to in business circles as an impetus to bigger sales herein private respondent Nenita A. Anay who is, therefore, not
volume. It did not matter that the agreement was not in writing entitled to the damages awarded to her by the Court of Appeals.

65
Petitioners Tocao and Belo contend that the Court of Appeals matters is that the parties have complied with the requisites of a
erroneously held that a partnership existed between them and private partnership. The fact that there appears to be no record in the
respondent Anay because Geminesse Enterprise "came into being" Securities and Exchange Commission of a public instrument
exactly a year before the "alleged partnership" was formed, and that embodying the partnership agreement pursuant to Article 1772 of the
it was very unlikely that petitioner Belo would invest the sum of Civil Code17 did not cause the nullification of the partnership. The
P2,500,000.00 with petitioner Tocao contributing nothing, without pertinent provision of the Civil Code on the matter states:
13
any "memorandum whatsoever regarding the alleged partnership." Art. 1768. The partnership has a juridical personality separate and
The issue of whether or not a partnership exists is a factual matter distinct from that of each of the partners, even in case of failure to
which are within the exclusive domain of both the trial and appellate comply with the requirements of article 1772, first paragraph.
courts. This Court cannot set aside factual findings of such courts Petitioners admit that private respondent had the expertise to engage
absent any showing that there is no evidence to support the in the business of distributorship of cookware. Private respondent
conclusion drawn by the court a quo.14 In this case, both the trial contributed such expertise to the partnership and hence, under the
court and the Court of Appeals are one in ruling that petitioners and law, she was the industrial or managing partner. It was through her
private respondent established a business partnership. This Court reputation with the West Bend Company that the partnership was
finds no reason to rule otherwise. able to open the business of distributorship of that company’s
To be considered a juridical personality, a partnership must fulfill cookware products; it was through the same efforts that the business
these requisites: (1) two or more persons bind themselves to was propelled to financial success. Petitioner Tocao herself admitted
contribute money, property or industry to a common fund; and (2) private respondent’s indispensable role in putting up the business
intention on the part of the partners to divide the profits among when, upon being asked if private respondent held the positions of
themselves.15 It may be constituted in any form; a public instrument marketing manager and vice-president for sales, she testified thus:
is necessary only where immovable property or real rights are "A: No, sir at the start she was the marketing manager because there
contributed thereto.16 This implies that since a contract of partnership were no one to sell yet, it’s only me there then her and then two (2)
is consensual, an oral contract of partnership is as good as a written people, so about four (4). Now, after that when she recruited already
one. Where no immovable property or real rights are involved, what Oscar Abella and Lina Torda-Cruz these two (2) people were given

66
the designation of marketing managers of which definitely Nita as guarantor of future debts of petitioner Tocao under Article 2053 of
superior to them would be the Vice President."18 the Civil Code,20 he should have presented documentary evidence
By the set-up of the business, third persons were made to believe that therefor. While Article 2055 of the Civil Code simply provides that
a partnership had indeed been forged between petitioners and private guaranty must be "express," Article 1403, the Statute of Frauds,
respondents. Thus, the communication dated June 4, 1986 of Missy requires that "a special promise to answer for the debt, default or
Jagler of West Bend Company to Roger Muencheberg of the same miscarriage of another" be in writing.21
company states: Petitioner Tocao, a former ramp model,22 was also a capitalist in the
"Marge Tocao is president of Geminesse Enterprises. Geminesse will partnership. She claimed that she herself financed the business. Her
finance the operations. Marge does not have cookware experience. and petitioner Belo’s roles as both capitalists to the partnership with
Nita Anay has started to gather former managers, Lina Torda and private respondent are buttressed by petitioner Tocao’s admissions
Dory Vista. She has also gathered former demonstrators, Betty that petitioner Belo was her boyfriend and that the partnership was
Bantilan, Eloisa Lamela, Menchu Javier. They will continue to not their only business venture together. They also established a firm
gather other key people and build up the organization. All they need that they called "Wiji," the combination of petitioner Belo’s first
is the finance and the products to sell."19 name, William, and her nickname, Jiji.23 The special relationship
On the other hand, petitioner Belo’s denial that he financed the between them dovetails with petitioner Belo’s claim that he was
partnership rings hollow in the face of the established fact that he acting in behalf of petitioner Tocao. Significantly, in the early stage
presided over meetings regarding matters affecting the operation of of the business operation, petitioners requested West Bend Company
the business. Moreover, his having authorized in writing on October to allow them to "utilize their banking and trading facilities in
7, 1987, on a stationery of his own business firm, Wilcon Builders Singapore" in the matter of importation and payment of the
Supply, that private respondent should receive thirty-seven (37%) of cookware products.24 The inevitable conclusion, therefore, was that
the proceeds of her personal sales, could not be interpreted otherwise petitioners merged their respective capital and infused the amount
than that he had a proprietary interest in the business. His claim that into the partnership of distributing cookware with private respondent
he was merely a guarantor is belied by that personal act of as the managing partner.
proprietorship in the business. Moreover, if he was indeed a The business venture operated under Geminesse Enterprise did not

67
result in an employer-employee relationship between petitioners and P21,410.50’ this means that you have received this amount?
private respondent. While it is true that the receipt of a percentage of A: Oh yes, sir.
net profits constitutes only prima facie evidence that the recipient is Q: I see. And, by way of amplification this is what you are saying as
a partner in the business,25 the evidence in the case at bar controverts one representing commission, representation, advertising and
an employer-employee relationship between the parties. In the first promotion?
place, private respondent had a voice in the management of the A: Yes, sir.
affairs of the cookware distributorship, 26
including selection of Q: I see. Below your name is the words and figure and I quote ‘Nita
people who would constitute the administrative staff and the sales D. Anay P21,410.50’, what is this?
force. Secondly, petitioner Tocao’s admissions militate against an A: That’s her overriding commission.
employer-employee relationship. She admitted that, like her who Q: Overriding commission, I see. Of course, you are telling this
27
owned Geminesse Enterprise, private respondent received only Honorable Court that there being the same P21,410.50 is merely by
commissions and transportation and representation allowances28 and coincidence?
not a fixed salary.29 Petitioner Tocao testified: A: No, sir, I made it a point that we were equal because the way I
"Q: Of course. Now, I am showing to you certain documents already look at her kasi, you know in a sense because of her expertise in the
marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is business she is vital to my business. So, as part of the incentive I
denominated `Cubao overrides’ 8-21-87 with ending August 21, offer her the same thing.
1987, will you please go over this and tell the Honorable Court Q: So, in short you are saying that this you have shared together, I
whether you ever came across this document and know of your own mean having gotten from the company P21,140.50 is your way of
knowledge the amount --- indicating that you were treating her as an equal?
A: Yes, sir this is what I am talking about earlier. That’s the one I am A: As an equal.
telling you earlier a certain percentage for promotions, advertising, Q: As an equal, I see. You were treating her as an equal?
incentive. A: Yes, sir.
Q: I see. Now, this promotion, advertising, incentive, there is a figure Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati
here and words which I quote: ‘Overrides Marjorie Ann Tocao the other one is ---

68
A: That is the same thing, sir. moment. What was registered with the Bureau of Domestic Trade on
Q: With ending August 21, words and figure ‘Overrides Marjorie August 19, 1987 was merely the name of that enterprise.33 While it is
Ann Tocao P15,314.25’ the amount there you will acknowledge you true that in her undated application for renewal of registration of that
have received that? firm name, petitioner Tocao indicated that it would be engaged in
A: Yes, sir. retail of "kitchenwares, cookwares, utensils, skillet,"34 she also
Q: Again in concept of commission, representation, promotion, etc.? admitted that the enterprise was only "60% to 70% for the cookware
A: Yes, sir. business," while 20% to 30% of its business activity was devoted to
Q: Okey. Below your name is the name of Nita Anay P15,314.25 the sale of water sterilizer or purifier.35 Indubitably then, the business
that is also an indication that she received the same amount? name Geminesse Enterprise was used only for practical reasons - it
A: Yes, sir. was utilized as the common name for petitioner Tocao’s various
Q: And, as in your previous statement it is not by coincidence that business activities, which included the distributorship of cookware.
these two (2) are the same? Petitioners underscore the fact that the Court of Appeals did not
A: No, sir. return the "unaccounted and unremitted stocks of Geminesse
Q: It is again in concept of you treating Miss Anay as your equal? Enterprise amounting to P208,250.00."36 Obviously a ploy to offset
A: Yes, sir." (Italics supplied.)30 the damages awarded to private respondent, that claim, more than
If indeed petitioner Tocao was private respondent’s employer, it is anything else, proves the existence of a partnership between them. In
difficult to believe that they shall receive the same income in the Idos v. Court of Appeals, this Court said:
business. In a partnership, each partner must share in the profits and "The best evidence of the existence of the partnership, which was not
losses of the venture, except that the industrial partner shall not be yet terminated (though in the winding up stage), were the unsold
liable for the losses.31 As an industrial partner, private respondent goods and uncollected receivables, which were presented to the trial
had the right to demand for a formal accounting of the business and court. Since the partnership has not been terminated, the petitioner
to receive her share in the net profit.32 and private complainant remained as co-partners. x x x."37
The fact that the cookware distributorship was operated under the It is not surprising then that, even after private respondent had been
name of Geminesse Enterprise, a sole proprietorship, is of no unceremoniously booted out of the partnership in October 1987, she

69
still received her overriding commission until December 1987. dissolution of the partnership at will. He must, however, act in good
Undoubtedly, petitioner Tocao unilaterally excluded private faith, not that the attendance of bad faith can prevent the dissolution
respondent from the partnership to reap for herself and/or for of the partnership but that it can result in a liability for damages."41
petitioner Belo financial gains resulting from private respondent’s An unjustified dissolution by a partner can subject him to action for
efforts to make the business venture a success. Thus, as petitioner damages because by the mutual agency that arises in a partnership,
Tocao became adept in the business operation, she started to assert the doctrine of delectus personae allows the partners to have the
herself to the extent that she would even shout at private respondent power, although not necessarily the right to dissolve the
in front of other people.38 Her instruction to Lina Torda Cruz, partnership.42
marketing manager, not to allow private respondent to hold office in In this case, petitioner Tocao’s unilateral exclusion of private
both the Makati and Cubao sales offices concretely spoke of her respondent from the partnership is shown by her memo to the Cubao
perception that private respondent was no longer necessary in the office plainly stating that private respondent was, as of October 9,
business operation,39 and resulted in a falling out between the two. 1987, no longer the vice-president for sales of Geminesse
However, a mere falling out or misunderstanding between partners Enterprise.43 By that memo, petitioner Tocao effected her own
does not convert the partnership into a sham organization.40 The withdrawal from the partnership and considered herself as having
partnership exists until dissolved under the law. Since the partnership ceased to be associated with the partnership in the carrying on of the
created by petitioners and private respondent has no fixed term and is business. Nevertheless, the partnership was not terminated thereby; it
therefore a partnership at will predicated on their mutual desire and continues until the winding up of the business.44
consent, it may be dissolved by the will of a partner. Thus: The winding up of partnership affairs has not yet been undertaken by
"x x x. The right to choose with whom a person wishes to associate the partnership.1âwphi1 This is manifest in petitioners’ claim for
himself is the very foundation and essence of that partnership. Its stocks that had been entrusted to private respondent in the pursuit of
continued existence is, in turn, dependent on the constancy of that the partnership business.
mutual resolve, along with each partner’s capability to give it, and The determination of the amount of damages commensurate with the
the absence of cause for dissolution provided by the law itself. factual findings upon which it is based is primarily the task of the
Verily, any one of the partners may, at his sole pleasure, dictate a trial court.45 The Court of Appeals may modify that amount only

70
when its factual findings are diametrically opposed to that of the profits of the partnership;
lower court,46 or the award is palpably or scandalously and 2. Petitioners are ordered, jointly and severally, to pay private
47
unreasonably excessive. However, exemplary damages that are respondent five percent (5%) overriding commission for the one
awarded "by way of example or correction for the public good," 48 hundred and fifty (150) cookware sets available for disposition since
should be reduced to P50,000.00, the amount correctly awarded by the time private respondent was wrongfully excluded from the
the Court of Appeals. Concomitantly, the award of moral damages of partnership by petitioners;
P100,000.00 was excessive and should be likewise reduced to 3. Petitioners are ordered, jointly and severally, to pay private
P50,000.00. Similarly, attorney’s fees that should be granted on respondent overriding commission on the total production which, for
account of the award of exemplary damages and petitioners’ evident the period covering January 8, 1988 to February 5, 1988, amounted
bad faith in refusing to satisfy private respondent’s plainly valid, just to P32,000.00;
49
and demandable claims, appear to have been excessively granted 4. Petitioners are ordered, jointly and severally, to pay private
by the trial court and should therefore be reduced to P25,000.00. respondent moral damages in the amount of P50,000.00, exemplary
WHEREFORE, the instant petition for review on certiorari is damages in the amount of P50,000.00 and attorney’s fees in the
DENIED. The partnership among petitioners and private respondent amount of P25,000.00.
is ordered dissolved, and the parties are ordered to effect the winding SO ORDERED.
up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional
Trial Court for proper proceedings relative to said dissolution. The
appealed decisions of the Regional Trial Court and the Court of
Appeals are AFFIRMED with MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a
formal account of the partnership affairs for the years 1987 and
1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondent’s ten percent (10%) share in the net

71
ARTICLE 1768 Attachment" with the Regional Trial Court, Branch 11, Sindangan,
PARTNERSHIP AS A JURIDICAL PERSON Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a
THIRD DIVISION partnership with Jacinto in the distribution of Shellane Liquefied
G.R. No. 143340 August 15, 2001 Petroleum Gas (LPG) in Manila. For business convenience,
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, respondent and Jacinto allegedly agreed to register the business name
vs. of their partnership, SHELLITE GAS APPLIANCE CENTER
LAMBERTO T. CHUA, respondent. (hereafter Shellite), under the name of Jacinto as a sole
proprietorship. Respondent allegedly delivered his initial capital
GONZAGA-REYES, J.: contribution of P100,000.00 to Jacinto while the latter in turn
Before us is a petition for review on certiorari under Rule 45 of the produced P100,000.00 as his counterpart contribution, with the
Rules of Court of the Decision1 of the Court of Appeals dated intention that the profits would be equally divided between them.
January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth The partnership allegedly had Jacinto as manager, assisted by
Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, Josephine Sy (hereafter Josephine), a sister of the wife respondent,
2000 denying the motion for reconsideration of herein petitioners Erlinda Sy. As compensation, Jacinto would receive a manager's fee
Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred to or remuneration of 10% of the gross profit and Josephine would
as petitioners). receive 10% of the net profits, in addition to her wages and other
The pertinent facts of this case are as follows: remuneration from the business.
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a Allegedly, from the time that Shellite opened for business on July 8,
complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) 1977, its business operation went quite and was profitable.
and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, Respondent claimed that he could attest to success of their business
respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for because of the volume of orders and deliveries of filled Shellane
"Winding Up of Partnership Affairs, Accounting, Appraisal and cylinder tanks supplied by Pilipinas Shell Petroleum Corporation.
Recovery of Shares and Damages with Writ of Preliminary While Jacinto furnished respondent with the merchandise

72
inventories, balance sheets and net worth of Shellite from 1977 to On December 19, 1992, petitioners filed a Motion to Dismiss on the
1989, respondent however suspected that the amount indicated in ground that the Securities and Exchange Commission (SEC) in
these documents were understated and undervalued by Jacinto and Manila, not the Regional Trial Court in Zamboanga del Norte had
Josephine for their own selfish reasons and for tax avoidance. jurisdiction over the action. Respondent opposed the motion to
Upon Jacinto's death in the later part of 1989, his surviving wife, dismiss.
petitioner Cecilia and particularly his daughter, petitioner Lilibeth, On January 12, 1993, the trial court finding the complaint sufficient
took over the operations, control, custody, disposition and in from and substance denied the motion to dismiss.
management of Shellite without respondent's consent. Despite On January 30, 1993, petitioners filed their Answer with Compulsory
respondent's repeated demands upon petitioners for accounting, Counter-claims, contending that they are not liable for partnership
inventory, appraisal, winding up and restitution of his net shares in shares, unreceived income/profits, interests, damages and attorney's
the partnership, petitioners failed to comply. Petitioner Lilibeth fees, that respondent does not have a cause of action against them,
allegedly continued the operations of Shellite, converting to her own and that the trial court has no jurisdiction over the nature of the
use and advantage its properties. action, the SEC being the agency that has original and exclusive
On March 31, 1991, respondent claimed that after petitioner Lilibeth jurisdiction over the case. As counterclaim, petitioner sought
ran out the alibis and reasons to evade respondent's demands, she attorney's fees and expenses of litigation.
disbursed out of the partnership funds the amount of P200,000.00 On August 2, 1993, petitioner filed a second Motion to Dismiss this
and partially paid the same to respondent. Petitioner Lilibeth time on the ground that the claim for winding up of partnership
allegedly informed respondent that the P200,000.00 represented affairs, accounting and recovery of shares in partnership affairs,
partial payment of the latter's share in the partnership, with a promise accounting and recovery of shares in partnership assets/properties
that the former would make the complete inventory and winding up should be dismissed and prosecuted against the estate of deceased
of the properties of the business establishment. Despite such Jacinto in a probate or intestate proceeding.
commitment, petitioners allegedly failed to comply with their duty to On August 16, 1993, the trial denied the second motion to dismiss
account, and continued to benefit from the assets and income of for lack of merit.
Shellite to the damage and prejudice of respondent. On November 26, 1993, petitioners filed their Petition for Certiorari,

73
Prohibition and Mandamus with the Court of Appeals docketed as under accounting procedures and standards of the properties, assets,
CA-G.R. SP No. 32499 questioning the denial of the motion to income and profits of the Shellite Gas Appliance Center Since the
dismiss. time of death of Jacinto L. Sunga, from whom they continued the
On November 29, 1993, petitioners filed with the trial court a Motion business operations including all businesses derived from Shellite
to Suspend Pre-trial Conference. Gas Appliance Center, submit an inventory, and appraisal of all these
On December 13, 1993, the trial court granted the motion to suspend properties, assets, income, profits etc. to the Court and to plaintiff for
pre-trial conference. approval or disapproval;
On November 15, 1994, the Court of Appeals denied the petition for (2) ORDERING them to return and restitute to the partnership any
lack of merit. and all properties, assets, income and profits they misapplied and
On January 16, 1995, this Court denied the petition for review on converted to their own use and advantage the legally pertain to the
certiorari filed by petitioner, "as petitioners failed to show that a plaintiff and account for the properties mentioned in pars. A and B
reversible error was committed by the appellate court."2 on pages 4-5 of this petition as basis;
On February 20, 1995, entry of judgment was made by the Clerk of (3) DIRECTING them to restitute and pay to the plaintiff ½ shares
Court and the case was remanded to the trial court on April 26, 1995. and interest of the plaintiff in the partnership of the listed properties,
On September 25, 1995, the trial court terminated the pre-trial assets and good will (sic) in schedules A, B and C, on pages 4-5 of
conference and set the hearing of the case of January 17, 1996. the petition;
Respondent presented his evidence while petitioners were considered (4) ORDERING them to pay the plaintiff earned but unreceived
to have waived their right to present evidence for their failure to income and profits from the partnership from 1988 to May 30, 1992,
attend the scheduled date for reception of evidence despite notice. when the plaintiff learned of the closure of the store the sum of
On October 7, 1997, the trial court rendered its Decision ruling for P35,000.00 per month, with legal rate of interest until fully paid;
respondent. The dispositive of the Decision reads: (5) ORDERING them to wind up the affairs of the partnership and
"WHEREFORE, judgment is hereby rendered in favor of the terminate its business activities pursuant to law, after delivering to
plaintiff and against the defendants, as follows: the plaintiff all the ½ interest, shares, participation and equity in the
(1) DIRECTING them to render an accounting in acceptable form partnership, or the value thereof in money or money's worth, if the

74
properties are not physically divisible; laches and/or prescription did not apply in the instant case.
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach 3. The Court of Appeals erred in making the legal conclusion that
of trust and in bad faith and hold them liable to the plaintiff the sum there was competent and credible evidence to warrant the finding of
of P50,000.00 as moral and exemplary damages; and, a partnership, and assuming arguendo that indeed there was a
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 partnership, the finding of highly exaggerated amounts or values in
as attorney's (sic) and P25,000.00 as litigation expenses. the partnership assets and profits."5
NO special pronouncements as to COSTS. Petitioners question the correctness of the finding of the trial court
SO ORDERED."3 and the Court of Appeals that a partnership existed between
On October 28, 1997, petitioners filed a Notice of Appeal with the respondent and Jacinto from 1977 until Jacinto's death. In the
trial court, appealing the case to the Court of Appeals. absence of any written document to show such partnership between
On January 31, 2000, the Court of Appeals dismissed the appeal. The respondent and Jacinto, petitioners argues that these courts were
dispositive portion of the Decision reads: proscribes from hearing the testimonies of respondent and his
"WHEREFORE, the instant appeal is dismissed. The appealed witness, Josephine, to prove the alleged partnership three years after
decision is AFFIRMED in all respects."4 Jacinto's death. To support this argument, petitioners invoke the
On May 23, 2000, the Court of Appeals denied the motion for "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule
reconsideration filed by petitioner. 130 of the Rules of Court that provides:
Hence, this petition wherein petitioner relies upon following "SEC. 23. Disqualification by reason of death or insanity of adverse
grounds: party. – Parties or assignors of parties to a case, or persons in whose
"1. The Court of Appeals erred in making a legal conclusion that behalf a case is prosecuted, against an executor or administrator or
there existed a partnership between respondent Lamberto T. Chua other representative of a deceased person, or against a person of
and the late Jacinto L. Sunga upon the latter'' invitation and offer and unsound mind, upon a claim or demand against the estate of such
that upon his death the partnership assets and business were taken deceased person, or against such person of unsound mind, cannot
over by petitioners. testify as to any matter of fact occurring before the death of such
2. The Court of Appeals erred in making the legal conclusion that deceased person or before such person became of unsound mind."

75
Petitioners thus implore this Court to rule that the testimonies of to bar the introduction of testimonial evidence, it is necessary that:
respondent and his alter ego, Josephine, should not have been "1. The witness is a party or assignor of a party to case or persons in
admitted to prove certain claims against a deceased person (Jacinto), whose behalf a case in prosecuted.
now represented by petitioners. 2. The action is against an executor or administrator or other
We are not persuaded. representative of a deceased person or a person of unsound mind;
A partnership may be constituted in any form, except where 3. The subject-matter of the action is a claim or demand against the
immovable property of real rights are contributed thereto, in which estate of such deceased person or against person of unsound mind;
case a public instrument shall necessary.6 Hence, based on the 4. His testimony refers to any matter of fact of which occurred before
intention of the parties, as gathered from the facts and ascertained the death of such deceased person or before such person became of
from their language and conduct, a verbal contract of partnership unsound mind."10
may arise.7 The essential profits that must be proven to that a Two reasons forestall the application of the "Dead Man's Statute" to
partnership was agreed upon are (1) mutual contribution to a this case.
common stock, and (2) a joint interest in the profits.8 Understandably First, petitioners filed a compulsory counterclaim11 against
so, in view of the absence of the written contract of partnership respondents in their answer before the trial court, and with the filing
between respondent and Jacinto, respondent resorted to the of their counterclaim, petitioners themselves effectively removed this
introduction of documentary and testimonial evidence to prove said case from the ambit of the "Dead Man's Statute".12 Well entrenched
partnership. The crucial issue to settle then is to whether or not the is the rule that when it is the executor or administrator or
"Dead Man's Statute" applies to this case so as to render inadmissible representatives of the estates that sets up the counterclaim, the
respondent's testimony and that of his witness, Josephine. plaintiff, herein respondent, may testify to occurrences before the
The "Dead Man's Statute" provides that if one party to the alleged death of the deceased to defeat the counterclaim.13 Moreover, as
transaction is precluded from testifying by death, insanity, or other defendant in the counterclaim, respondent is not disqualified from
mental disabilities, the surviving party is not entitled to the undue testifying as to matters of facts occurring before the death of the
advantage of giving his own uncontradicted and unexplained account deceased, said action not having been brought against but by the
of the transaction.9 But before this rule can be successfully invoked estate or representatives of the deceased.14

76
Second, the testimony of Josephine is not covered by the "Dead respondent's claim cannot prevail over the factual findings of the trial
Man's Statute" for the simple reason that she is not "a party or court and the Court of Appeals that a partnership was established
assignor of a party to a case or persons in whose behalf a case is between respondent and Jacinto. Based not only on the testimonial
prosecuted." Records show that respondent offered the testimony of evidence, but the documentary evidence as well, the trial court and
Josephine to establish the existence of the partnership between the Court of Appeals considered the evidence for respondent as
respondent and Jacinto. Petitioners' insistence that Josephine is the sufficient to prove the formation of partnership, albeit an informal
alter ego of respondent does not make her an assignor because the one.
term "assignor" of a party means "assignor of a cause of action Notably, petitioners did not present any evidence in their favor
which has arisen, and not the assignor of a right assigned before any during trial. By the weight of judicial precedents, a factual matter
cause of action has arisen."15 Plainly then, Josephine is merely a like the finding of the existence of a partnership between respondent
witness of respondent, the latter being the party plaintiff. and Jacinto cannot be inquired into by this Court on review.17 This
We are not convinced by petitioners' allegation that Josephine's Court can no longer be tasked to go over the proofs presented by the
testimony lacks probative value because she was allegedly coerced parties and analyze, assess and weigh them to ascertain if the trial
by respondent, her brother-in-law, to testify in his favor, Josephine court and the appellate court were correct in according superior
merely declared in court that she was requested by respondent to credit to this or that piece of evidence of one party or the other.18 It
testify and that if she were not requested to do so she would not have must be also pointed out that petitioners failed to attend the
testified. We fail to see how we can conclude from this candid presentation of evidence of respondent. Petitioners cannot now turn
admission that Josephine's testimony is involuntary when she did not to this Court to question the admissibility and authenticity of the
in any way categorically say that she was forced to be a witness of documentary evidence of respondent when petitioners failed to
respondent. object to the admissibility of the evidence at the time that such
Also, the fact that Josephine is the sister of the wife of respondent evidence was offered.19
does not diminish the value of her testimony since relationship per With regard to petitioners' insistence that laches and/or prescription
16
se, without more, does not affect the credibility of witnesses. should have extinguished respondent's claim, we agree with the trial
Petitioners' reliance alone on the "Dead Man's Statute" to defeat court and the Court of Appeals that the action for accounting filed by

77
respondents three (3) years after Jacinto's death was well within the contract of partnership does not invalidate the same as among the
prescribed period. The Civil Code provides that an action to enforce partners, so long as the contract has the essential requisites, because
20
an oral contract prescribes in six (6) years while the right to the main purpose of registration is to give notice to third parties, and
demand an accounting for a partner's interest as against the person it can be assumed that the members themselves knew of the contents
continuing the business accrues at the date of dissolution, in the of their contract.26 In the case at bar, non-compliance with this
absence of any contrary agreement.21 Considering that the death of a directory provision of the law will not invalidate the partnership
22
partner results in the dissolution of the partnership , in this case, it considering that the totality of the evidence proves that respondent
was Jacinto's death that respondent as the surviving partner had the and Jacinto indeed forged the partnership in question.
right to an account of his interest as against petitioners. It bears WHEREFORE, in view of the foregoing, the petition is DENIED
stressing that while Jacinto's death dissolved the partnership, the and the appealed decision is AFFIRMED.
dissolution did not immediately terminate the partnership. The Civil SO ORDERED.1âwphi1.nêt
Code23 expressly provides that upon dissolution, the partnership Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.
continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.24
In a desperate bid to cast doubt on the validity of the oral partnership THIRD DIVISION
between respondent and Jacinto, petitioners maintain that said G.R. No. 144214 July 14, 2003
partnership that had initial capital of P200,000.00 should have been LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
registered with the Securities and Exchange Commission (SEC) CARMELITO JOSE, petitioners,
since registration is mandated by the Civil Code, True, Article 1772 vs.
of the Civil Code requires that partnerships with a capital of DONALDO EFREN C. RAMIREZ and Spouses CESAR G.
P3,000.00 or more must register with the SEC, however, this RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
registration requirement is not mandatory. Article 1768 of the Civil
Code25 explicitly provides that the partnership retains its juridical PANGANIBAN, J.:
personality even if it fails to register. The failure to register the A share in a partnership can be returned only after the completion of

78
the latter's dissolution, liquidation and winding up of the business. agreement of the partners.7
The Case In the same month, without prior knowledge of respondents,
The Petition for Review on Certiorari before us challenges the March petitioners closed down the restaurant, allegedly because of
23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of increased rental. The restaurant furniture and equipment were
Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision deposited in the respondents' house for storage.8
disposed as follows: On March 1, 1987, respondent spouses wrote petitioners, saying that
"WHEREFORE, foregoing premises considered, the Decision dated they were no longer interested in continuing their partnership or in
July 21, 1992 rendered by the Regional Trial Court, Branch 148, reopening the restaurant, and that they were accepting the latter's
Makati City is hereby SET ASIDE and NULLIFIED and in lieu offer to return their capital contribution.9
thereof a new decision is rendered ordering the [petitioners] jointly On October 13, 1987, Carmelita Ramirez wrote another letter
and severally to pay and reimburse to respondents the amount of informing petitioners of the deterioration of the restaurant furniture
P253,114.00. No pronouncement as to costs."4 and equipment stored in their house. She also reiterated the request
Reconsideration was denied in the impugned Resolution. for the return of their one-third share in the equity of the partnership.
The Facts The repeated oral and written requests were, however, left
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus unheeded.10
Jose formed a partnership with a capital of P750,000 for the Before the Regional Trial Court (RTC) of Makati, Branch 59,
operation of a restaurant and catering business under the name respondents subsequently filed a Complaint11 dated November 10,
"Aquarius Food House and Catering Services."5 Villareal was 1987, for the collection of a sum of money from petitioners.
appointed general manager and Carmelito Jose, operations manager. In their Answer, petitioners contended that respondents had
Respondent Donaldo Efren C. Ramirez joined as a partner in the expressed a desire to withdraw from the partnership and had called
business on September 5, 1984. His capital contribution of P250,000 for its dissolution under Articles 1830 and 1831 of the Civil Code;
was paid by his parents, Respondents Cesar and Carmelita Ramirez.6 that respondents had been paid, upon the turnover to them of
After Jesus Jose withdrew from the partnership in January 1987, his furniture and equipment worth over P400,000; and that the latter had
capital contribution of P250,000 was refunded to him in cash by no right to demand a return of their equity because their share,

79
together with the rest of the capital of the partnership, had been spent jointly and severally the following:
as a result of irreversible business losses.12 (a) Actual damages in the amount of P250,000.00
In their Reply, respondents alleged that they did not know of any (b) Attorney's fee in the amount of P30,000.00
loan encumbrance on the restaurant. According to them, if such (c) Costs of suit."
allegation were true, then the loans incurred by petitioners should be The CA Ruling
regarded as purely personal and, as such, not chargeable to the The CA held that, although respondents had no right to demand the
partnership. The former further averred that they had not received return of their capital contribution, the partnership was nonetheless
any regular report or accounting from the latter, who had solely dissolved when petitioners lost interest in continuing the restaurant
managed the business. Respondents also alleged that they expected business with them. Because petitioners never gave a proper
the equipment and the furniture stored in their house to be removed accounting of the partnership accounts for liquidation purposes, and
by petitioners as soon as the latter found a better location for the because no sufficient evidence was presented to show financial
restaurant.13 losses, the CA. computed their liability as follows:
Respondents filed an Urgent Motion for Leave to Sell or Otherwise "Consequently, since what has been proven is only the outstanding
Dispose of Restaurant Furniture and Equipment14 on July 8, 1988. obligation of the partnership in the amount of P240,658.00, although
The furniture and the equipment stored in their house were contracted by the partnership before respondents have joined the
inventoried and appraised at P29,000.15 The display freezer was sold partnership but in accordance with Article 1826 of the New Civil
for P5,000 and the proceeds were paid to them.16 Code, they are liable which must have to be deducted from the
After trial, the RTC 17 ruled that the parties had voluntarily entered remaining capitalization of the said partnership which is in the
into a partnership, which could be dissolved at any time. Petitioners amount of P1,000,000.00 resulting in the amount of P759,342.00,
clearly intended to dissolve it when they stopped operating the and in order to get the share of respondents this amount of
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held P759,342.00 must be divided into three (3) shares or in the amount
there liable as follows:18 of P253,114.00 for each share and which is the only amount which
"WHEREFORE, judgment is hereby rendered in favor of petitioner will return to respondents' representing the contribution to
respondents and against the petitioners ordering the petitioners to pay the partnership minus the outstanding debt thereof."19

80
Hence, this Petition.20 indeed existed, and that it was dissolved on March 1, 1987. They
Issues found that the dissolution took place when respondents informed
21
In their Memorandum, petitioners submit the following issues for petitioners of the intention to discontinue it because of the former's
our consideration: dissatisfaction with, and loss of trust in, the latter's management of
"9.1. Whether the Honorable Court of Appeals' decision ordering the the partnership affairs. These findings were amply supported by the
distribution of the capital contribution, instead of the net capital after evidence on record. Respondents consequently demanded from
the dissolution and liquidation of a partnership, thereby treating the petitioners the return of their one-third equity in the partnership.
capital contribution like a loan, is in accordance with law and We hold that respondents have no right to demand from petitioners
jurisprudence; the return of their equity share. Except as managers of the
"9.2. Whether the Honorable Court of Appeals' decision ordering the partnership, petitioners did not personally hold its equity or assets.
petitioners to jointly and severally pay and reimburse the amount of "The partnership has a juridical personality separate and distinct
P 253,114.00 is supported by the evidence on record; and from that of each of the partners."23 Since the capital was contributed
"9.3. Whether the Honorable Court of Appeals was correct in making to the partnership, not to petitioners, it is the partnership that must
no pronouncement as to costs."22 refund the equity of the retiring partners.24
On closer scrutiny, the issues are as follows: (1) whether petitioners Second Issue:
are liable to respondents for the latter's share in the partnership; (2) What Must Be Returned?
whether the CA's computation of P253,114 as respondents' share is Since it is the partnership, as a separate and distinct entity, that must
correct; and (3) whether the CA was likewise correct in not assessing refund the shares of the partners, the amount to be refunded is
costs. necessarily limited to its total resources. In other words, it can only
This Court's Ruling pay out what it has in its coffers, which consists of all its assets.
The Petition has merit. However, before the partners can be paid their shares, the creditors
First Issue: of the partnership must first be compensated.25 After all the creditors
Share in Partnership have been paid, whatever is left of the partnership assets becomes
Both the trial and the appellate courts found that a partnership had available for the payment of the partners' shares.

81
Evidently, in the present case, the exact amount of refund equivalent substantial losses, which consequently decreased the capital of the
to respondents' one-third share in the partnership cannot be partnership. Both the trial and the appellate courts in fact recognized
determined until all the partnership assets will have been liquidated the decrease of the partnership assets to almost nil, but the latter
— in other words, sold and converted to cash — and all partnership failed to recognize the consequent corresponding decrease of the
creditors, if any, paid. The CA's computation of the amount to be capital.
refunded to respondents as their share was thus erroneous. Second, the CA's finding that the partnership had an outstanding
First, it seems that the appellate court was under the misapprehension obligation in the amount of P240,658 was not supported by evidence.
that the total capital contribution was equivalent to the gross assets to We sustain the contrary finding of the RTC, which had rejected the
be distributed to the partners at the time of the dissolution of the contention that the obligation belonged to the partnership for the
partnership. We cannot sustain the underlying idea that the capital following reason:
contribution at the beginning of the partnership remains intact, "x x x Evidence on record failed to show the exact loan owed by the
unimpaired and available for distribution or return to the partners. partnership to its creditors. The balance sheet (Exh. '4') does not
Such idea is speculative, conjectural and totally without factual or reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an
legal support. outstanding obligation of P240,055.00 which the partnership owes to
Generally, in the pursuit of a partnership business, its capital is either different creditors, while the Certification issued by Mercator
increased by profits earned or decreased by losses sustained. It does Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
not remain static and unaffected by the changing fortunes of the Luzviminda J. Villareal, the former being the nominal party
business. In the present case, the financial statements presented defendant in the instant case, who obtained a loan of P355,000.00 on
before the trial court showed that the business had made meager Oct. 1983, when the original partnership was not yet formed."
profits.26 However, notable therefrom is the omission of any Third, the CA failed to reduce the capitalization by P250,000, which
provision for the depreciation27 of the furniture and the equipment. was the amount paid by the partnership to Jesus Jose when he
The amortization of the goodwill28 (initially valued at P500,000) is withdrew from the partnership.
not reflected either. Properly taking these non-cash items into Because of the above-mentioned transactions, the partnership capital
account will show that the partnership was actually sustaining was actually reduced. When petitioners and respondents ventured

82
into business together, they should have prepared for the fact that the stored items to recover their capital investment.
their investment would either grow or shrink. In the present case, the Third Issue:
investment of respondents substantially dwindled. The original Costs
amount of P250,000 which they had invested could no longer be Section 1, Rule 142, provides:
returned to them, because one third of the partnership properties at "SECTION 1. Costs ordinarily follow results of suit. — Unless
the time of dissolution did not amount to that much. otherwise provided in these rules, costs shall be allowed to the
It is a long established doctrine that the law does not relieve parties prevailing party as a matter of course, but the court shall have power,
from the effects of unwise, foolish or disastrous contracts they have for special reasons, to adjudge that either party shall pay the costs of
entered into with all the required formalities and with full awareness an action, or that the same be divided, as may be equitable. No costs
of what they were doing. Courts have no power to relieve them from shall be allowed against the Republic of the Philippines unless
obligations they have voluntarily assumed, simply because their otherwise provided by law."
contracts turn out to be disastrous deals or unwise investments.29 Although, as a rule, costs are adjudged against the losing party,
Petitioners further argue that respondents acted negligently by courts have discretion, "for special reasons," to decree otherwise.
permitting the partnership assets in their custody to deteriorate to the When a lower court is reversed, the higher court normally does not
point of being almost worthless. Supposedly, the latter should have award costs, because the losing party relied on the lower court's
liquidated these sole tangible assets of the partnership and considered judgment which is presumed to have been issued in good faith, even
the proceeds as payment of their net capital. Hence, petitioners argue if found later on to be erroneous. Unless shown to be patently
that the turnover of the remaining partnership assets to respondents capricious, the award shall not be disturbed by a reviewing tribunal.
was precisely the manner of liquidating the partnership and fully WHEREFORE, the Petition is GRANTED, and the assailed Decision
settling the latter's share in the partnership. and Resolution SET ASIDE. This disposition is without prejudice to
We disagree. The delivery of the store furniture and equipment to proper proceedings for the accounting, the liquidation and the
private respondents was for the purpose of storage. They were distribution of the remaining partnership assets, if any. No
unaware that the restaurant would no longer be reopened by pronouncement as to costs.
petitioners. Hence, the former cannot be faulted for not disposing of SO ORDERED.

83
Puno, Corona and Carpio-Morales, JJ ., concur. Marikina, Metro Manila. On April 18, 1991, private respondent, with
Sandoval-Gutierrez, J ., on official leave. the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of
Agreement, which provided:
SECOND DIVISION (1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy
G.R. No. 127347 November 25, 1999 the above-described property from the FIRST PARTY [Felicidad S.
ALFREDO N. AGUILA, JR., petitioner, Vda. de Abrogar], and pursuant to this agreement, a Deed of
vs. Absolute Sale shall be executed by the FIRST PARTY conveying
HONORABLE COURT OF APPEALS and FELICIDAD S. the property to the SECOND PARTY for and in consideration of the
VDA. DE ABROGAR, respondents. sum of Two Hundred Thousand Pesos (P200,000.00), Philippine
Currency;
MENDOZA, J.: (2) The FIRST PARTY is hereby given by the SECOND PARTY the
1
This is a petition for review on certiorari of the decision of the option to repurchase the said property within a period of ninety (90)
Court of Appeals, dated November 29, 1990, which reversed the days from the execution of this memorandum of agreement effective
decision of the Regional Trial Court, Branch 273, Marikina, Metro April 18, 1991, for the amount of TWO HUNDRED THIRTY
Manila, dated April 11, 1995. The trial court dismissed the petition THOUSAND PESOS (P230,000.00);
for declaration of nullity of a deed of sale filed by private respondent (3) In the event that the FIRST PARTY fail to exercise her option to
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, repurchase the said property within a period of ninety (90) days, the
Jr. FIRST PARTY is obliged to deliver peacefully the possession of the
The facts are as follows: property to the SECOND PARTY within fifteen (15) days after the
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership expiration of the said 90 day grace period;
engaged in lending activities. Private respondent and her late (4) During the said grace period, the FIRST PARTY obliges herself
husband, Ruben M. Abrogar, were the registered owners of a house not to file any lis pendens or whatever claims on the property nor
and lot, covered by Transfer Certificate of Title No. 195101, in shall be cause the annotation of say claim at the back of the title to

84
the said property; property to A.C. Aguila & Sons, Co., represented by petitioner, for
(5) With the execution of the deed of absolute sale, the FIRST P200,000,00. In a special power of attorney dated the same day,
PARTY warrants her ownership of the property and shall defend the April 18, 1991, private respondent authorized petitioner to cause the
rights of the SECOND PARTY against any party whom may have cancellation of TCT No. 195101 and the issuance of a new certificate
any interests over the property; of title in the name of A.C. Aguila and Sons, Co., in the event she
(6) All expenses for documentation and other incidental expenses failed to redeem the subject property as provided in the
shall be for the account of the FIRST PARTY; Memorandum of Agreement. 4
(7) Should the FIRST PARTY fail to deliver peaceful possession of Private respondent failed to redeem the property within the 90-day
the property to the SECOND PARTY after the expiration of the 15- period as provided in the Memorandum of Agreement. Hence,
day grace period given in paragraph 3 above, the FIRST PARTY pursuant to the special power of attorney mentioned above, petitioner
shall pay an amount equivalent to Five Percent of the principal caused the cancellation of TCT No. 195101 and the issuance of a
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per new certificate of title in the name of A.C. Aguila and Sons, Co. 5
month of delay as and for rentals and liquidated damages; Private respondent then received a letter dated August 10, 1991 from
(8) Should the FIRST PARTY fail to exercise her option to Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co.,
repurchase the property within ninety (90) days period above- demanding that she vacate the premises within 15 days after receipt
mentioned, this memorandum of agreement shall be deemed of the letter and surrender its possession peacefully to A.C. Aguila &
cancelled and the Deed of Absolute Sale, executed by the parties Sons, Co. Otherwise, the latter would bring the appropriate action in
shall be the final contract considered as entered between the parties court. 6
and the SECOND PARTY shall proceed to transfer ownership of the Upon the refusal of private respondent to vacate the subject
property above described to its name free from lines and premises, A.C. Aguila & Sons, Co. filed an ejectment case against
encumbrances. 2 her in the Metropolitan Trial Court, Branch 76, Marikina, Metro
On the same day, April 18, 1991, the parties likewise executed a Manila. In a decision, dated April 3, 1992, the Metropolitan Trial
3
deed of absolute sale, dated June 11, 1991, wherein private Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that
respondent, with the consent of her late husband, sold the subject private respondent did not redeem the subject property before the

85
expiration of the 90-day period provided in the Memorandum of documents, to wit: the Memorandum of Agreement, the Special
Agreement. Private respondent appealed first to the Regional Trial Power of Attorney, and the Deed of Absolute Sale were all signed by
Court, Branch 163, Pasig, Metro Manila, then to the Court of the parties on the same date on April 18, 1991. It is a common and
Appeals, and later to this Court, but she lost in all the cases. accepted business practice of those engaged in money lending to
Private respondent then filed a petition for declaration of nullity of a prepare an undated absolute deed of sale in loans of money secured
deed of sale with the Regional Trial Court, Branch 273, Marikina, by real estate for various reasons, foremost of which is the evasion of
Metro Manila on December 4, 1993. She alleged that the signature of taxes and surcharges. The plaintiff never questioned receiving the
her husband on the deed of sale was a forgery because he was sum of P200,000.00 representing her loan from the defendant.
already dead when the deed was supposed to have been executed on Common sense dictates that an established lending and realty firm
June 11, 1991. like the Aguila & Sons, Co. would not part with P200,000.00 to the
It appears, however, that private respondent had filed a criminal Abrogar spouses, who are virtual strangers to it, without the
complaint for falsification against petitioner with the Office of the simultaneous accomplishment and signing of all the required
Prosecutor of Quezon City which was dismissed in a resolution, documents, more particularly the Deed of Absolute Sale, to protect
dated February 14, 1994. its interest.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its xxx xxx xxx
decision: WHEREFORE, foregoing premises considered, the case in caption is
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery hereby ORDERED DISMISSED, with costs against the plaintiff.
because they could not personally appear before Notary Public On appeal, the Court of Appeals reversed. It held:
Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben The facts and evidence show that the transaction between plaintiff-
Abrogar, died on May 8, 1991 or one month and 2 days before the appellant and defendant-appellee is indubitably an equitable
execution of the Deed of Absolute Sale, while the plaintiff was still mortgage. Article 1602 of the New Civil Code finds strong
in the Quezon City Medical Center recuperating from wounds which application in the case at bar in the light of the following
she suffered at the same vehicular accident on May 8, 1991, cannot circumstances.
be sustained. The Court is convinced that the three required First: The purchase price for the alleged sale with right to repurchase

86
is unusually inadequate. The property is a two hundred forty (240) It is well-settled that the presence of even one of the circumstances
sq. m. lot. On said lot, the residential house of plaintiff-appellant in Article 1602 of the New Civil Code is sufficient to declare a
stands. The property is inside a subdivision/village. The property is contract of sale with right to repurchase an equitable mortgage.
situated in Marikina which is already part of Metro Manila. The Considering that plaintiff-appellant, as vendor, was paid a price
alleged sale took place in 1991 when the value of the land had which is unusually inadequate, has retained possession of the subject
considerably increased. property and has continued paying the realty taxes over the subject
For this property, defendant-appellee pays only a measly property, (circumstances mentioned in par. (1) (2) and (5) of Article
P200,000.00 or P833.33 per square meter for both the land and for 1602 of the New Civil Code), it must be conclusively presumed that
the house. the transaction the parties actually entered into is an equitable
Second: The disputed Memorandum of Agreement specifically mortgage, not a sale with right to repurchase. The factors cited are in
provides that plaintiff-appellant is obliged to deliver peacefully the support to the finding that the Deed of Sale/Memorandum of
possession of the property to the SECOND PARTY within fifteen Agreement with right to repurchase is in actuality an equitable
(15) days after the expiration of the said ninety (90) day grace mortgage.
period. Otherwise stated, plaintiff-appellant is to retain physical Moreover, it is undisputed that the deed of sale with right of
possession of the thing allegedly sold. repurchase was executed by reason of the loan extended by
In fact, plaintiff-appellant retained possession of the property "sold" defendant-appellee to plaintiff-appellant. The amount of loan being
as if they were still the absolute owners. There was no provision for the same with the amount of the purchase price.
maintenance or expenses, much less for payment of rent. xxx xxx xxx
Third: The apparent vendor, plaintiff-appellant herein, continued to Since the real intention of the party is to secure the payment of debt,
pay taxes on the property "sold". It is well-known that payment of now deemed to be repurchase price: the transaction shall then be
taxes accompanied by actual possession of the land covered by the considered to be an equitable mortgage.
tax declaration, constitute evidence of great weight that a person Being a mortgage, the transaction entered into by the parties is in the
under whose name the real taxes were declared has a claim of right nature of a pactum commissorium which is clearly prohibited by
over the land. Article 2088 of the New Civil Code. Article 2088 of the New Civil

87
Code reads: xxx xxx xxx
Art. 2088. The creditor cannot appropriate the things given by way WHEREFORE, foregoing considered, the appealed decision is
of pledge or mortgage, or dispose of them. Any stipulation to the hereby REVERSED and SET ASIDE. The questioned Deed of Sale
contrary is null and void. and the cancellation of the TCT No. 195101 issued in favor of
The aforequoted provision furnishes the two elements for pactum plaintiff-appellant and the issuance of TCT No. 267073 issued in
commissorium to exist: (1) that there should be a pledge or mortgage favor of defendant-appellee pursuant to the questioned Deed of Sale
wherein a property is pledged or mortgaged by way of security for is hereby declared VOID and is hereby ANNULLED. Transfer
the payment of principal obligation; and (2) that there should be a Certificate of Title No. 195101 of the Registry of Marikina is hereby
stipulation for an automatic appropriation by the creditor of the thing ordered REINSTATED. The loan in the amount of P230,000.00 shall
pledged and mortgaged in the event of non-payment of the principal be paid within ninety (90) days from the finality of this decision. In
obligation within the stipulated period. case of failure to pay the amount of P230,000.00 from the period
In this case, defendant-appellee in reality extended a P200,000.00 therein stated, the property shall be sold at public auction to satisfy
loan to plaintiff-appellant secured by a mortgage on the property of the mortgage debt and costs and if there is an excess, the same is to
plaintiff-appellant. The loan was payable within ninety (90) days, the be given to the owner.
period within which plaintiff-appellant can repurchase the property. Petitioner now contends that: (1) he is not the real party in interest
Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the but A.C. Aguila & Co., against which this case should have been
P30,000.00 excess is the interest for the loan extended. Failure of brought; (2) the judgment in the ejectment case is a bar to the filing
plaintiff-appellee to pay the P230,000.00 within the ninety (90) days of the complaint for declaration of nullity of a deed of sale in this
period, the property shall automatically belong to defendant-appellee case; and (3) the contract between A.C. Aguila & Sons, Co. and
by virtue of the deed of sale executed. private respondent is a pacto de retro sale and not an equitable
Clearly, the agreement entered into by the parties is in the nature of mortgage as held by the appellate court.
pactum commissorium. Therefore, the deed of sale should be The petition is meritorious.
declared void as we hereby so declare to be invalid, for being Rule 3, §2 of the Rules of Court of 1964, under which the complaint
violative of law. in this case was filed, provided that "every action must be prosecuted

88
and defended in the name of the real party in interest." A real party in this issue when it was squarely raised before them by petitioner.
interest is one who would be benefited or injured by the judgment, or Our conclusion that petitioner is not the real party in interest against
7
who is entitled to the avails of the suit. This ruling is now embodied whom this action should be prosecuted makes it unnecessary to
in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any discuss the other issues raised by him in this appeal.
decision rendered against a person who is not a real party in interest WHEREFORE, the decision of the Court of Appeals is hereby
8
in the case cannot be executed. Hence, a complaint filed against REVERSED and the complaint against petitioner is DISMISSED.
such a person should be dismissed for failure to state a cause of SO ORDERED.
action. 9 Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.
Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the partners."
The partners cannot be held liable for the obligations of the ARTICLE 1769
partnership unless it is shown that the legal fiction of a different RULES TO DETERMINE THE EXISTENCE OF
juridical personality is being used for fraudulent, unfair, or illegal PARTNERSHIP
10
purposes. In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for SECOND DIVISION
fraudulent, unfair, or illegal purposes. Moreover, the title to the G.R. No. 126881 October 3, 2000
subject property is in the name of A.C. Aguila & Sons, Co. and the HEIRS OF TAN ENG KEE, petitioners,
Memorandum of Agreement was executed between private vs.
respondent, with the consent of her late husband, and A.C. Aguila & COURT OF APPEALS and BENGUET LUMBER COMPANY,
Sons, Co., represented by petitioner. Hence, it is the partnership, not represented by its President TAN ENG LAY, respondents.
its officers or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will DE LEON, JR., J.:
11
result in the dismissal of the complaint. We cannot understand why In this petition for review on certiorari, petitioners pray for the
both the Regional Trial Court and the Court of Appeals sidestepped reversal of the Decision1 dated March 13, 1996 of the former Fifth

89
Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the the business prospered due to the hard work and thrift of the alleged
dispositive portion of which states: partners. However, they claimed that in 1981, Tan Eng Lay and his
THE FOREGOING CONSIDERED, the appealed decision is hereby children caused the conversion of the partnership "Benguet Lumber"
set aside, and the complaint dismissed. into a corporation called "Benguet Lumber Company." The
The facts are: incorporation was purportedly a ruse to deprive Tan Eng Kee and his
Following the death of Tan Eng Kee on September 13, 1984, Matilde heirs of their rightful participation in the profits of the business.
Abubo, the common-law spouse of the decedent, joined by their Petitioners prayed for accounting of the partnership assets, and the
children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, dissolution, winding up and liquidation thereof, and the equal
collectively known as herein petitioners HEIRS OF TAN ENG KEE, division of the net assets of Benguet Lumber.
filed suit against the decedent's brother TAN ENG LAY on February After trial, Regional Trial Court of Baguio City, Branch 7 rendered
3
19, 1990. The complaint, docketed as Civil Case No. 1983-R in the judgment6 on April 12, 1995, to wit:
Regional Trial Court of Baguio City was for accounting, liquidation WHEREFORE, in view of all the foregoing, judgment is hereby
and winding up of the alleged partnership formed after World War II rendered:
between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the a) Declaring that Benguet Lumber is a joint venture which is akin to
4
petitioners filed an amended complaint impleading private a particular partnership;
respondent herein BENGUET LUMBER COMPANY, as b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are
represented by Tan Eng Lay. The amended complaint was admitted joint adventurers and/or partners in a business venture and/or
by the trial court in its Order dated May 3, 1991.5 particular partnership called Benguet Lumber and as such should
The amended complaint principally alleged that after the second share in the profits and/or losses of the business venture or particular
World War, Tan Eng Kee and Tan Eng Lay, pooling their resources partnership;
and industry together, entered into a partnership engaged in the c) Declaring that the assets of Benguet Lumber are the same assets
business of selling lumber and hardware and construction supplies. turned over to Benguet Lumber Co. Inc. and as such the heirs or
They named their enterprise "Benguet Lumber" which they jointly legal representatives of the deceased Tan Eng Kee have a legal right
managed until Tan Eng Kee's death. Petitioners herein averred that to share in said assets;

90
d) Declaring that all the rights and obligations of Tan Eng Kee as 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly
joint adventurer and/or as partner in a particular partnership have falsified documents in a judicial proceeding. Petitioners complained
descended to the plaintiffs who are his legal heirs. that Exhibits "4" to "4-U" offered by the defendants before the trial
e) Ordering the defendant Tan Eng Lay and/or the President and/or court, consisting of payrolls indicating that Tan Eng Kee was a mere
General Manager of Benguet Lumber Company Inc. to render an employee of Benguet Lumber, were fake, based on the discrepancy
accounting of all the assets of Benguet Lumber Company, Inc. so the in the signatures of Tan Eng Kee. They also filed Criminal Cases
plaintiffs know their proper share in the business; Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo,
f) Ordering the appointment of a receiver to preserve and/or Jean, Mary and Willy, all surnamed Tan, for alleged falsification of
administer the assets of Benguet Lumber Company, Inc. until such commercial documents by a private individual. On March 20, 1999,
time that said corporation is finally liquidated are directed to submit the Municipal Trial Court of Baguio City, Branch 1, wherein the
the name of any person they want to be appointed as receiver failing charges were filed, rendered judgment9 dismissing the cases for
in which this Court will appoint the Branch Clerk of Court or another insufficiency of evidence.
one who is qualified to act as such. In their assignment of errors, petitioners claim that:
g) Denying the award of damages to the plaintiffs for lack of proof I
except the expenses in filing the instant case. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
h) Dismissing the counter-claim of the defendant for lack of merit. THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE
SO ORDERED. TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE:
Private respondent sought relief before the Court of Appeals which, (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO
on March 13, 1996, rendered the assailed decision reversing the FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C)
judgment of the trial court. Petitioners' motion for reconsideration7 THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
was denied by the Court of Appeals in a Resolution8 dated October THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
11, 1996. AND (E) THERE WAS NO TIME FIXED FOR THE DURATION
Hence, the present petition. OF THE PARTNERSHIP (PAGE 13, DECISION).
As a side-bar to the proceedings, petitioners filed Criminal Case No. II

91
THE HONORABLE COURT OF APPEALS ERRED IN RELYING ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
SOLELY ON THE SELF-SERVING TESTIMONY OF DECISION).
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER IV
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
WAS ONLY AN EMPLOYEE THEREOF. THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE
III CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING VERONICA CHOI, TOGETHER WITH THEIR WITNESS
THAT THE FOLLOWING FACTS WHICH WERE DULY BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP (PAGE 16-17, DECISION).
DULY RECORDED BEFORE THE SECURITIES AND V
EXCHANGE COMMISSION: THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE
LAY WERE ALL LIVING AT THE BENGUET LUMBER TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE
COMPOUND; THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER; EXECUTION OF A PUBLIC INSTRUMENT CREATING A
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH
SUPERVISING THE EMPLOYEES THEREIN; PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE (PAGE 17, DECISION).
ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD As a premise, we reiterate the oft-repeated rule that findings of facts
TO THE PUBLIC; AND of the Court of Appeals will not be disturbed on appeal if such are
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE supported by the evidence.10 Our jurisdiction, it must be emphasized,

92
does not include review of factual issues. Thus: misapprehension of facts;
Filing of petition with Supreme Court. — A party desiring to appeal (7) when the Court of Appeals fails to notice certain relevant facts
by certiorari from a judgment or final order or resolution of the Court which, if properly considered, will justify a different conclusion;
of Appeals, the Sandiganbayan, the Regional Trial Court or other (8) when the findings of fact are themselves conflicting;
courts whenever authorized by law, may file with the Supreme Court (9) when the findings of fact are conclusions without citation of the
a verified petition for review on certiorari. The petition shall raise specific evidence on which they are based; and
11
only questions of law which must be distinctly set forth. [emphasis (10) when the findings of fact of the Court of Appeals are premised
supplied] on the absence of evidence but such findings are contradicted by the
Admitted exceptions have been recognized, though, and when evidence on record.12
present, may compel us to analyze the evidentiary basis on which the In reversing the trial court, the Court of Appeals ruled, to wit:
lower court rendered judgment. Review of factual issues is therefore We note that the Court a quo over extended the issue because while
warranted: the plaintiffs mentioned only the existence of a partnership, the Court
(1) when the factual findings of the Court of Appeals and the trial in turn went beyond that by justifying the existence of a joint
court are contradictory; venture.
(2) when the findings are grounded entirely on speculation, surmises, When mention is made of a joint venture, it would presuppose parity
or conjectures; of standing between the parties, equal proprietary interest and the
(3) when the inference made by the Court of Appeals from its exercise by the parties equally of the conduct of the business, thus:
findings of fact is manifestly mistaken, absurd, or impossible; xxx xxx xxx
(4) when there is grave abuse of discretion in the appreciation of We have the admission that the father of the plaintiffs was not a
facts; partner of the Benguet Lumber before the war. The appellees
(5) when the appellate court, in making its findings, goes beyond the however argued that (Rollo, p. 104; Brief, p. 6) this is because during
issues of the case, and such findings are contrary to the admissions of the war, the entire stocks of the pre-war Benguet Lumber were
both appellant and appellee; confiscated if not burned by the Japanese. After the war, because of
(6) when the judgment of the Court of Appeals is premised on a the absence of capital to start a lumber and hardware business, Lay

93
and Kee pooled the proceeds of their individual businesses earned The certification dated March 4, 1971, Exhibit "2", mentioned co-
from buying and selling military supplies, so that the common fund defendant Lay as the only registered owner of the Benguet Lumber
would be enough to form a partnership, both in the lumber and and Hardware. His application for registration, effective 1954, in fact
hardware business. That Lay and Kee actually established the mentioned that his business started in 1945 until 1985 (thereafter, the
Benguet Lumber in Baguio City, was even testified to by witnesses. incorporation). The deceased, Kee, on the other hand, was merely an
Because of the pooling of resources, the post-war Benguet Lumber employee of the Benguet Lumber Company, on the basis of his SSS
was eventually established. That the father of the plaintiffs and Lay coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to
were partners, is obvious from the fact that: (1) they conducted the "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed
affairs of the business during Kee's lifetime, jointly, (2) they were the only as an employee; precisely, he was on the payroll listing. In the
ones giving orders to the employees, (3) they were the ones Termination Notice, Exhibit "5", Lay was mentioned also as the
preparing orders from the suppliers, (4) their families stayed together proprietor.
at the Benguet Lumber compound, and (5) all their children were xxx xxx xxx
employed in the business in different capacities. We would like to refer to Arts. 771 and 772, NCC, that a partner
xxx xxx xxx [sic] may be constituted in any form, but when an immovable is
It is obvious that there was no partnership whatsoever. Except for a constituted, the execution of a public instrument becomes necessary.
firm name, there was no firm account, no firm letterheads submitted This is equally true if the capitalization exceeds P3,000.00, in which
as evidence, no certificate of partnership, no agreement as to profits case a public instrument is also necessary, and which is to be
and losses, and no time fixed for the duration of the partnership. recorded with the Securities and Exchange Commission. In this case
There was even no attempt to submit an accounting corresponding to at bar, we can easily assume that the business establishment, which
the period after the war until Kee's death in 1984. It had no business from the language of the appellees, prospered (pars. 5 & 9,
book, no written account nor any memorandum for that matter and Complaint), definitely exceeded P3,000.00, in addition to the
no license mentioning the existence of a partnership [citation accumulation of real properties and to the fact that it is now a
omitted]. compound. The execution of a public instrument, on the other hand,
Also, the exhibits support the establishment of only a proprietorship. was never established by the appellees.

94
And then in 1981, the business was incorporated and the the business venture for the purpose of obtaining profits thereafter to
incorporators were only Lay and the members of his family. There is be divided, must be established. We cannot see these elements from
no proof either that the capital assets of the partnership, assuming the testimonial evidence of the appellees.
them to be in existence, were maliciously assigned or transferred by As can be seen, the appellate court disputed and differed from the
Lay, supposedly to the corporation and since then have been treated trial court which had adjudged that TAN ENG KEE and TAN ENG
as a part of the latter's capital assets, contrary to the allegations in LAY had allegedly entered into a joint venture. In this connection,
pars. 6, 7 and 8 of the complaint. we have held that whether a partnership exists is a factual matter;
These are not evidences supporting the existence of a partnership: consequently, since the appeal is brought to us under Rule 45, we
1) That Kee was living in a bunk house just across the lumber store, cannot entertain inquiries relative to the correctness of the
and then in a room in the bunk house in Trinidad, but within the assessment of the evidence by the court a quo.13 Inasmuch as the
compound of the lumber establishment, as testified to by Tandoc; 2) Court of Appeals and the trial court had reached conflicting
that both Lay and Kee were seated on a table and were "commanding conclusions, perforce we must examine the record to determine if the
people" as testified to by the son, Elpidio Tan; 3) that both were reversal was justified.
supervising the laborers, as testified to by Victoria Choi; and 4) that The primordial issue here is whether Tan Eng Kee and Tan Eng Lay
Dionisio Peralta was supposedly being told by Kee that the proceeds were partners in Benguet Lumber. A contract of partnership is
of the 80 pieces of the G.I. sheets were added to the business. defined by law as one where:
Partnership presupposes the following elements [citation omitted]: 1) . . . two or more persons bind themselves to contribute money,
a contract, either oral or written. However, if it involves real property property, or industry to a common fund, with the intention of
or where the capital is P3,000.00 or more, the execution of a contract dividing the profits among themselves.
is necessary; 2) the capacity of the parties to execute the contract; 3) Two or more persons may also form a partnership for the exercise of
money property or industry contribution; 4) community of funds and a profession.14
interest, mentioning equality of the partners or one having a Thus, in order to constitute a partnership, it must be established that
proportionate share in the benefits; and 5) intention to divide the (1) two or more persons bound themselves to contribute money,
profits, being the true test of the partnership. The intention to join in property, or industry to a common fund, and (2) they intend to divide

95
the profits among themselves.15 The agreement need not be formally the joint co-ventures or partners, in which each party has an equal
reduced into writing, since statute allows the oral constitution of a proprietary interest in the capital or property contributed, and where
partnership, save in two instances: (1) when immovable property or each party exercises equal rights in the conduct of the business."22
real rights are contributed,16 and (2) when the partnership has a Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
capital of three thousand pesos or more.17 In both cases, a public Corporation, et. al.,23 we expressed the view that a joint venture may
instrument is required.18 An inventory to be signed by the parties and be likened to a particular partnership, thus:
attached to the public instrument is also indispensable to the validity The legal concept of a joint venture is of common law origin. It has
of the partnership whenever immovable property is contributed to the no precise legal definition, but it has been generally understood to
partnership.19 mean an organization formed for some temporary purpose. (Gates v.
The trial court determined that Tan Eng Kee and Tan Eng Lay had Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the
entered into a joint venture, which it said is akin to a particular partnership, since their elements are similar — community of interest
partnership.20 A particular partnership is distinguished from a joint in the business, sharing of profits and losses, and a mutual right of
adventure, to wit: control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau
(a) A joint adventure (an American concept similar to our joint v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d.
accounts) is a sort of informal partnership, with no firm name and no 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited
legal personality. In a joint account, the participating merchants can by most opinions in common law jurisdiction is that the partnership
transact business under their own name, and can be individually contemplates a general business with some degree of continuity,
liable therefor. while the joint venture is formed for the execution of a single
(b) Usually, but not necessarily a joint adventure is limited to a transaction, and is thus of a temporary nature. (Tufts v. Mann. 116
SINGLE TRANSACTION, although the business of pursuing to a Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595,
successful termination may continue for a number of years; a 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
partnership generally relates to a continuing business of various observation is not entirely accurate in this jurisdiction, since under
21
transactions of a certain kind. the Civil Code, a partnership may be particular or universal, and a
A joint venture "presupposes generally a parity of standing between particular partnership may have for its object a specific undertaking.

96
(Art. 1783, Civil Code). It would seem therefore that under he, aside from Tan Eng Lay, could have expounded on the precise
Philippine law, a joint venture is a form of partnership and should nature of the business relationship between them. In the absence of
thus be governed by the law of partnerships. The Supreme Court has evidence, we cannot accept as an established fact that Tan Eng Kee
however recognized a distinction between these two business forms, allegedly contributed his resources to a common fund for the purpose
and has held that although a corporation cannot enter into a of establishing a partnership. The testimonies to that effect of
partnership contract, it may however engage in a joint venture with petitioners' witnesses is directly controverted by Tan Eng Lay. It
others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos should be noted that it is not with the number of witnesses wherein
and Lopez-Campos Comments, Notes and Selected Cases, preponderance lies;24 the quality of their testimonies is to be
Corporation Code 1981). considered. None of petitioners' witnesses could suitably account for
Undoubtedly, the best evidence would have been the contract of the beginnings of Benguet Lumber Company, except perhaps for
partnership itself, or the articles of partnership but there is none. The Dionisio Peralta whose deceased wife was related to Matilde
alleged partnership, though, was never formally organized. In Abubo.25 He stated that when he met Tan Eng Kee after the
addition, petitioners point out that the New Civil Code was not yet in liberation, the latter asked the former to accompany him to get 80
effect when the partnership was allegedly formed sometime in 1945, pieces of G.I. sheets supposedly owned by both brothers.26 Tan Eng
although the contrary may well be argued that nothing prevented the Lay, however, denied knowledge of this meeting or of the
parties from complying with the provisions of the New Civil Code conversation between Peralta and his brother.27 Tan Eng Lay
when it took effect on August 30, 1950. But all that is in the past. consistently testified that he had his business and his brother had his,
The net effect, however, is that we are asked to determine whether a that it was only later on that his said brother, Tan Eng Kee, came to
partnership existed based purely on circumstantial evidence. A work for him. Be that as it may, co-ownership or co-possession
review of the record persuades us that the Court of Appeals correctly (specifically here, of the G.I. sheets) is not an indicium of the
reversed the decision of the trial court. The evidence presented by existence of a partnership.28
petitioners falls short of the quantum of proof required to establish a Besides, it is indeed odd, if not unnatural, that despite the forty years
partnership. the partnership was allegedly in existence, Tan Eng Kee never asked
Unfortunately for petitioners, Tan Eng Kee has passed away. Only for an accounting. The essence of a partnership is that the partners

97
share in the profits and losses.29 Each has the right to demand an supplied]
accounting as long as the partnership exists.30 We have allowed a A demand for periodic accounting is evidence of a partnership.34
scenario wherein "[i]f excellent relations exist among the partners at During his lifetime, Tan Eng Kee appeared never to have made any
the start of the business and all the partners are more interested in such demand for accounting from his brother, Tang Eng Lay.
seeing the firm grow rather than get immediate returns, a deferment This brings us to the matter of Exhibits "4" to "4-U" for private
of sharing in the profits is perfectly plausible."31 But in the situation respondents, consisting of payrolls purporting to show that Tan Eng
in the case at bar, the deferment, if any, had gone on too long to be Kee was an ordinary employee of Benguet Lumber, as it was then
plausible. A person is presumed to take ordinary care of his called. The authenticity of these documents was questioned by
concerns.32 As we explained in another case: petitioners, to the extent that they filed criminal charges against Tan
In the first place, plaintiff did not furnish the supposed P20,000.00 Eng Lay and his wife and children. As aforesaid, the criminal cases
capital. In the second place, she did not furnish any help or were dismissed for insufficiency of evidence. Exhibits "4" to "4-U"
intervention in the management of the theatre. In the third place, it in fact shows that Tan Eng Kee received sums as wages of an
does not appear that she has even demanded from defendant any employee. In connection therewith, Article 1769 of the Civil Code
accounting of the expenses and earnings of the business. Were she provides:
really a partner, her first concern should have been to find out how In determining whether a partnership exists, these rules shall apply:
the business was progressing, whether the expenses were legitimate, (1) Except as provided by Article 1825, persons who are not partners
whether the earnings were correct, etc. She was absolutely silent as to each other are not partners as to third persons;
with respect to any of the acts that a partner should have done; all (2) Co-ownership or co-possession does not of itself establish a
that she did was to receive her share of P3,000.00 a month, which partnership, whether such co-owners or co-possessors do or do not
cannot be interpreted in any manner than a payment for the use of the share any profits made by the use of the property;
premises which she had leased from the owners. Clearly, plaintiff (3) The sharing of gross returns does not of itself establish a
had always acted in accordance with the original letter of defendant partnership, whether or not the persons sharing them have a joint or
of June 17, 1945 (Exh. "A"), which shows that both parties common right or interest in any property which the returns are
considered this offer as the real contract between them.33 [emphasis derived;

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(4) The receipt by a person of a share of the profits of a business is a that both were supervising the employees; that both were the ones
prima facie evidence that he is a partner in the business, but no such who determined the price at which the stocks were to be sold; and
inference shall be drawn if such profits were received in payment: that both placed orders to the suppliers of the Benguet Lumber
(a) As a debt by installment or otherwise; Company. They also point out that the families of the brothers Tan
(b) As wages of an employee or rent to a landlord; Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company
(c) As an annuity to a widow or representative of a deceased partner; compound, a privilege not extended to its ordinary employees.
(d) As interest on a loan, though the amount of payment vary with However, private respondent counters that:
the profits of the business; Petitioners seem to have missed the point in asserting that the above
(e) As the consideration for the sale of a goodwill of a business or enumerated powers and privileges granted in favor of Tan Eng Kee,
other property by installments or otherwise. were indicative of his being a partner in Benguet Lumber for the
In the light of the aforequoted legal provision, we conclude that Tan following reasons:
Eng Kee was only an employee, not a partner. Even if the payrolls as (i) even a mere supervisor in a company, factory or store gives orders
evidence were discarded, petitioners would still be back to square and directions to his subordinates. So long, therefore, that an
one, so to speak, since they did not present and offer evidence that employee's position is higher in rank, it is not unusual that he orders
would show that Tan Eng Kee received amounts of money allegedly around those lower in rank.
representing his share in the profits of the enterprise. Petitioners (ii) even a messenger or other trusted employee, over whom
failed to show how much their father, Tan Eng Kee, received, if any, confidence is reposed by the owner, can order materials from
as his share in the profits of Benguet Lumber Company for any suppliers for and in behalf of Benguet Lumber. Furthermore, even a
particular period. Hence, they failed to prove that Tan Eng Kee and partner does not necessarily have to perform this particular task. It is,
Tan Eng Lay intended to divide the profits of the business between thus, not an indication that Tan Eng Kee was a partner.
themselves, which is one of the essential features of a partnership. (iii) although Tan Eng Kee, together with his family, lived in the
Nevertheless, petitioners would still want us to infer or believe the lumber compound and this privilege was not accorded to other
alleged existence of a partnership from this set of circumstances: that employees, the undisputed fact remains that Tan Eng Kee is the
Tan Eng Lay and Tan Eng Kee were commanding the employees; brother of Tan Eng Lay. Naturally, close personal relations existed

99
between them. Whatever privileges Tan Eng Lay gave his brother, orders with suppliers. Again, the circumstances proffered by
and which were not given the other employees, only proves the petitioners do not provide a logical nexus to the conclusion desired;
kindness and generosity of Tan Eng Lay towards a blood relative. these are not inconsistent with the powers and duties of a manager,
(iv) and even if it is assumed that Tan Eng Kee was quarreling with even in a business organized and run as informally as Benguet
Tan Eng Lay in connection with the pricing of stocks, this does not Lumber Company.
adequately prove the existence of a partnership relation between There being no partnership, it follows that there is no dissolution,
them. Even highly confidential employees and the owners of a winding up or liquidation to speak of. Hence, the petition must fail.
company sometimes argue with respect to certain matters which, in WHEREFORE, the petition is hereby denied, and the appealed
no way indicates that they are partners as to each other.35 decision of the Court of Appeals is hereby AFFIRMED in toto. No
In the instant case, we find private respondent's arguments to be pronouncement as to costs.
well-taken. Where circumstances taken singly may be inadequate to SO ORDERED.
prove the intent to form a partnership, nevertheless, the collective Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.
effect of these circumstances may be such as to support a finding of
the existence of the parties' intent.36 Yet, in the case at bench, even
the aforesaid circumstances when taken together are not persuasive EN BANC
indicia of a partnership. They only tend to show that Tan Eng Kee G.R. No. L-19342 May 25, 1972
was involved in the operations of Benguet Lumber, but in what LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely:
capacity is unclear. We cannot discount the likelihood that as a RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B. OÑA,
member of the family, he occupied a niche above the rank-and-file VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
employees. He would have enjoyed liberties otherwise unavailable vs.
were he not kin, such as his residence in the Benguet Lumber THE COMMISSIONER OF INTERNAL REVENUE,
Company compound. He would have moral, if not actual, superiority respondent.
over his fellow employees, thereby entitling him to exercise powers Orlando Velasco for petitioners.
of supervision. It may even be that among his duties is to place Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor

100
General Felicisimo R. Rosete, and Special Attorney Purificacion Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors
Ureta for respondent. when the project of partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a petition in Civil Case
BARREDO, J.:p No. 9637 of the Court of First Instance of Manila for appointment as
Petition for review of the decision of the Court of Tax Appeals in guardian of said minors. On November 14, 1949, the Court
CTA Case No. 617, similarly entitled as above, holding that appointed him guardian of the persons and property of the
petitioners have constituted an unregistered partnership and are, aforenamed minors (See p. 3, BIR rec.).
therefore, subject to the payment of the deficiency corporate income The project of partition (Exhibit K; see also pp. 77-70, BIR rec.)
taxes assessed against them by respondent Commissioner of Internal shows that the heirs have undivided one-half (1/2) interest in ten
Revenue for the years 1955 and 1956 in the total sum of P21,891.00, parcels of land with a total assessed value of P87,860.00, six houses
plus 5% surcharge and 1% monthly interest from December 15, with a total assessed value of P17,590.00 and an undetermined
1958, subject to the provisions of Section 51 (e) (2) of the Internal amount to be collected from the War Damage Commission. Later,
Revenue Code, as amended by Section 8 of Republic Act No. 2343 they received from said Commission the amount of P50,000.00,
1
and the costs of the suit, as well as the resolution of said court more or less. This amount was not divided among them but was used
denying petitioners' motion for reconsideration of said decision. in the rehabilitation of properties owned by them in common (t.s.n.,
The facts are stated in the decision of the Tax Court as follows: p. 46). Of the ten parcels of land aforementioned, two were acquired
Julia Buñales died on March 23, 1944, leaving as heirs her surviving after the death of the decedent with money borrowed from the
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24;
No. 4519 was instituted in the Court of First Instance of Manila for Exhibit 3, pp. 31-34 BIR rec.).
the settlement of her estate. Later, Lorenzo T. Oña the surviving The project of partition also shows that the estate shares equally with
spouse was appointed administrator of the estate of said deceased Lorenzo T. Oña, the administrator thereof, in the obligation of
(Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator P94,973.00, consisting of loans contracted by the latter with the
submitted the project of partition, which was approved by the Court approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Although the project of partition was approved by the Court on May

101
16, 1949, no attempt was made to divide the properties therein listed. corresponding shares of the petitioners in the net income for the year
Instead, the properties remained under the management of Lorenzo are also known. Every year, petitioners returned for income tax
T. Oña who used said properties in business by leasing or selling purposes their shares in the net income derived from said properties
them and investing the income derived therefrom and the proceeds and securities and/or from transactions involving them (Exhibit 3,
from the sales thereof in real properties and securities. As a result, supra; t.s.n., pp. 25-26). However, petitioners did not actually
petitioners' properties and investments gradually increased from receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from 100). The income was always left in the hands of Lorenzo T. Oña
the following year-end balances: who, as heretofore pointed out, invested them in real properties and
Year Investment Land securities. (See Exhibit
Building
3, t.s.n., pp. 50, 102-104).
Account Account On the basis of the
Account
foregoing facts, respondent (Commissioner of
1949 — P87,860.00 Internal Revenue)P17,590.00
decided that petitioners formed an unregistered
1950 P24,657.65 128,566.72 partnership and therefore,
96,076.26 subject to the corporate income tax,
1951 51,301.31 120,349.28 pursuant to Section110,605.11
24, in relation to Section 84(b), of the Tax Code.
1952 67,927.52 87,065.28 Accordingly, he assessed
152,674.39
against the petitioners the amounts of
1953 61,258.27 84,925.68 P8,092.00 and P13,899.00
161,463.83
as corporate income taxes for 1955 and
1954 63,623.37 99,001.20 1956, respectively.167,962.04
(See Exhibit 5, amended by Exhibit 17, pp. 50
1955 100,786.00 120,249.78 and 86, BIR rec.).169,262.52
Petitioners protested against the assessment and
1956 175,028.68 135,714.68 asked for reconsideration
169,262.52
of the ruling of respondent that they have
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) formed an unregistered partnership. Finding no merit in petitioners'
From said investments and properties petitioners derived such request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See
incomes as profits from installment sales of subdivided lots, profits pp. 1-4, Memorandum for Respondent, June 12, 1961).
from sales of stocks, dividends, rentals and interests (see p. 3 of The original assessment was as follows:
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are 1955
recorded in the books of account kept by Lorenzo T. Oña where the Net income as per investigation ................ P40,209.89


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Income tax due thereon ............................... 8,042.00 THE PETITIONERS FORMED AN UNREGISTERED
25% surcharge .............................................. 2,010.50 PARTNERSHIP;
Compromise for non-filing .......................... 50.00 II.
Total ............................................................... P10,102.50 THE COURT OF TAX APPEALS ERRED IN NOT HOLDING
1956 THAT THE PETITIONERS WERE CO-OWNERS OF THE
Net income as per investigation ................ P69,245.23 PROPERTIES INHERITED AND (THE) PROFITS DERIVED
Income tax due thereon ............................... 13,849.00 FROM TRANSACTIONS THEREFROM (sic);
25% surcharge .............................................. 3,462.25 III.
Compromise for non-filing .......................... 50.00 THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
Total ............................................................... P17,361.25 PETITIONERS WERE LIABLE FOR CORPORATE INCOME
(See Exhibit 13, page 50, BIR records) TAXES FOR 1955 AND 1956 AS AN UNREGISTERED
Upon further consideration of the case, the 25% surcharge was PARTNERSHIP;
eliminated in line with the ruling of the Supreme Court in Collector IV.
v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so ON THE ASSUMPTION THAT THE PETITIONERS
that the questioned assessment refers solely to the income tax proper CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE
for the years 1955 and 1956 and the "Compromise for non-filing," COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT
the latter item obviously referring to the compromise in lieu of the THE PETITIONERS WERE AN UNREGISTERED
criminal liability for failure of petitioners to file the corporate PARTNERSHIP TO THE EXTENT ONLY THAT THEY
income tax returns for said years. (See Exh. 17, page 86, BIR INVESTED THE PROFITS FROM THE PROPERTIES OWNED
records). (Pp. 1-3, Annex C to Petition) IN COMMON AND THE LOANS RECEIVED USING THE
Petitioners have assigned the following as alleged errors of the Tax INHERITED PROPERTIES AS COLLATERALS;
Court: V.
I. ON THE ASSUMPTION THAT THERE WAS AN
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT UNREGISTERED PARTNERSHIP, THE COURT OF TAX

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APPEALS ERRED IN NOT DEDUCTING THE VARIOUS deducted from the deficiency corporate taxes, herein involved,
AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL assessed against such unregistered partnership by the respondent
INCOME TAX ON THEIR RESPECTIVE SHARES OF THE Commissioner?
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN Pondering on these questions, the first thing that has struck the Court
COMMON, FROM THE DEFICIENCY TAX OF THE is that whereas petitioners' predecessor in interest died way back on
UNREGISTERED PARTNERSHIP. March 23, 1944 and the project of partition of her estate was
In other words, petitioners pose for our resolution the following judicially approved as early as May 16, 1949, and presumably
questions: (1) Under the facts found by the Court of Tax Appeals, petitioners have been holding their respective shares in their
should petitioners be considered as co-owners of the properties inheritance since those dates admittedly under the administration or
inherited by them from the deceased Julia Buñales and the profits management of the head of the family, the widower and father
derived from transactions involving the same, or, must they be Lorenzo T. Oña, the assessment in question refers to the later years
deemed to have formed an unregistered partnership subject to tax 1955 and 1956. We believe this point to be important because,
under Sections 24 and 84(b) of the National Internal Revenue Code? apparently, at the start, or in the years 1944 to 1954, the respondent
(2) Assuming they have formed an unregistered partnership, should Commissioner of Internal Revenue did treat petitioners as co-owners,
this not be only in the sense that they invested as a common fund the not liable to corporate tax, and it was only from 1955 that he
profits earned by the properties owned by them in common and the considered them as having formed an unregistered partnership. At
loans granted to them upon the security of the said properties, with least, there is nothing in the record indicating that an earlier
the result that as far as their respective shares in the inheritance are assessment had already been made. Such being the case, and We see
concerned, the total income thereof should be considered as that of no reason how it could be otherwise, it is easily understandable why
co-owners and not of the unregistered partnership? And (3) assuming petitioners' position that they are co-owners and not unregistered co-
again that they are taxable as an unregistered partnership, should not partners, for the purposes of the impugned assessment, cannot be
the various amounts already paid by them for the same years 1955 upheld. Truth to tell, petitioners should find comfort in the fact that
and 1956 as individual income taxes on their respective shares of the they were not similarly assessed earlier by the Bureau of Internal
profits accruing from the properties they owned in common be Revenue.

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The Tax Court found that instead of actually distributing the estate of divided among petitioners proportionately in accordance with their
the deceased among themselves pursuant to the project of partition respective shares in the inheritance. In these circumstances, it is Our
approved in 1949, "the properties remained under the management of considered view that from the moment petitioners allowed not only
Lorenzo T. Oña who used said properties in business by leasing or the incomes from their respective shares of the inheritance but even
selling them and investing the income derived therefrom and the the inherited properties themselves to be used by Lorenzo T. Oña as
proceed from the sales thereof in real properties and securities," as a a common fund in undertaking several transactions or in business,
result of which said properties and investments steadily increased with the intention of deriving profit to be shared by them
yearly from P87,860.00 in "land account" and P17,590.00 in proportionally, such act was tantamonut to actually contributing such
"building account" in 1949 to P175,028.68 in "investment account," incomes to a common fund and, in effect, they thereby formed an
P135.714.68 in "land account" and P169,262.52 in "building unregistered partnership within the purview of the above-mentioned
account" in 1956. And all these became possible because, provisions of the Tax Code.
admittedly, petitioners never actually received any share of the It is but logical that in cases of inheritance, there should be a period
income or profits from Lorenzo T. Oña and instead, they allowed when the heirs can be considered as co-owners rather than
him to continue using said shares as part of the common fund for unregistered co-partners within the contemplation of our corporate
their ventures, even as they paid the corresponding income taxes on tax laws aforementioned. Before the partition and distribution of the
the basis of their respective shares of the profits of their common estate of the deceased, all the income thereof does belong commonly
business as reported by the said Lorenzo T. Oña. to all the heirs, obviously, without them becoming thereby
It is thus incontrovertible that petitioners did not, contrary to their unregistered co-partners, but it does not necessarily follow that such
contention, merely limit themselves to holding the properties status as co-owners continues until the inheritance is actually and
inherited by them. Indeed, it is admitted that during the material physically distributed among the heirs, for it is easily conceivable
years herein involved, some of the said properties were sold at that after knowing their respective shares in the partition, they might
considerable profit, and that with said profit, petitioners engaged, decide to continue holding said shares under the common
thru Lorenzo T. Oña, in the purchase and sale of corporate securities. management of the administrator or executor or of anyone chosen by
It is likewise admitted that all the profits from these ventures were them and engage in business on that basis. Withal, if this were to be

105
allowed, it would be the easiest thing for heirs in any inheritance to partition, he allows his share to be held in common with his co-heirs
circumvent and render meaningless Sections 24 and 84(b) of the under a single management to be used with the intent of making
National Internal Revenue Code. profit thereby in proportion to his share, there can be no doubt that,
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was even if no document or instrument were executed for the purpose, for
stated, among the reasons for holding the appellants therein to be tax purposes, at least, an unregistered partnership is formed. This is
unregistered co-partners for tax purposes, that their common fund exactly what happened to petitioners in this case.
"was not something they found already in existence" and that "it was In this connection, petitioners' reliance on Article 1769, paragraph
not a property inherited by them pro indiviso," but it is certainly far (3), of the Civil Code, providing that: "The sharing of gross returns
fetched to argue therefrom, as petitioners are doing here, that ergo, in does not of itself establish a partnership, whether or not the persons
all instances where an inheritance is not actually divided, there can sharing them have a joint or common right or interest in any property
be no unregistered co-partnership. As already indicated, for tax from which the returns are derived," and, for that matter, on any
purposes, the co-ownership of inherited properties is automatically other provision of said code on partnerships is unavailing. In
converted into an unregistered partnership the moment the said Evangelista, supra, this Court clearly differentiated the concept of
common properties and/or the incomes derived therefrom are used as partnerships under the Civil Code from that of unregistered
a common fund with intent to produce profits for the heirs in partnerships which are considered as "corporations" under Sections
proportion to their respective shares in the inheritance as determined 24 and 84(b) of the National Internal Revenue Code. Mr. Justice
in a project partition either duly executed in an extrajudicial Roberto Concepcion, now Chief Justice, elucidated on this point
settlement or approved by the court in the corresponding testate or thus:
intestate proceeding. The reason for this is simple. From the moment To begin with, the tax in question is one imposed upon
of such partition, the heirs are entitled already to their respective "corporations", which, strictly speaking, are distinct and different
definite shares of the estate and the incomes thereof, for each of them from "partnerships". When our Internal Revenue Code includes
to manage and dispose of as exclusively his own without the "partnerships" among the entities subject to the tax on
intervention of the other heirs, and, accordingly he becomes liable "corporations", said Code must allude, therefore, to organizations
individually for all taxes in connection therewith. If after such which are not necessarily "partnerships", in the technical sense of the

106
term. Thus, for instance, section 24 of said Code exempts from the unincorporated organization which carries on any business,
aforementioned tax "duly registered general partnerships," which financial operation, or venture, and which is not, within the meaning
constitute precisely one of the most typical forms of partnerships in of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of
this jurisdiction. Likewise, as defined in section 84(b) of said Code, Federal Income Taxation, p. 789; emphasis ours.)
"the term corporation includes partnerships, no matter how created The term "partnership" includes a syndicate, group, pool, joint
or organized." This qualifying expression clearly indicates that a venture or other unincorporated organization, through or by means
joint venture need not be undertaken in any of the standard forms, or of which any business, financial operation, or venture is carried on.
in confirmity with the usual requirements of the law on partnerships, ... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63;
in order that one could be deemed constituted for purposes of the tax emphasis ours.)
on corporation. Again, pursuant to said section 84(b),the term For purposes of the tax on corporations, our National Internal
"corporation" includes, among others, "joint accounts,(cuentas en Revenue Code includes these partnerships — with the exception
participacion)" and "associations", none of which has a legal only of duly registered general copartnerships — within the purview
personality of its own, independent of that of its members. of the term "corporation." It is, therefore, clear to our mind that
Accordingly, the lawmaker could not have regarded that personality petitioners herein constitute a partnership, insofar as said Code is
as a condition essential to the existence of the partnerships therein concerned, and are subject to the income tax for corporations.
referred to. In fact, as above stated, "duly registered general co- We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
partnerships" — which are possessed of the aforementioned Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29,
personality — have been expressly excluded by law (sections 24 and 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
84[b]) from the connotation of the term "corporation." .... ownership pursued by appellants therein.
xxx xxx xxx As regards the second question raised by petitioners about the
Similarly, the American Law segregation, for the purposes of the corporate taxes in question, of
... provides its own concept of a partnership. Under the term their inherited properties from those acquired by them subsequently,
"partnership" it includes not only a partnership as known in common We consider as justified the following ratiocination of the Tax Court
law but, as well, a syndicate, group, pool, joint venture, or other in denying their motion for reconsideration:

107
In connection with the second ground, it is alleged that, if there was In support of the third ground, counsel for petitioners alleges:
an unregistered partnership, the holding should be limited to the Even if we were to yield to the decision of this Honorable Court that
business engaged in apart from the properties inherited by the herein petitioners have formed an unregistered partnership and,
petitioners. In other words, the taxable income of the partnership therefore, have to be taxed as such, it might be recalled that the
should be limited to the income derived from the acquisition and sale petitioners in their individual income tax returns reported their shares
of real properties and corporate securities and should not include the of the profits of the unregistered partnership. We think it only fair
income derived from the inherited properties. It is admitted that the and equitable that the various amounts paid by the individual
inherited properties and the income derived therefrom were used in petitioners as income tax on their respective shares of the
the business of buying and selling other real properties and corporate unregistered partnership should be deducted from the deficiency
securities. Accordingly, the partnership income must include not income tax found by this Honorable Court against the unregistered
only the income derived from the purchase and sale of other partnership. (page 7, Memorandum for the Petitioner in Support of
properties but also the income of the inherited properties. Their Motion for Reconsideration, Oct. 28, 1961.)
Besides, as already observed earlier, the income derived from In other words, it is the position of petitioners that the taxable
inherited properties may be considered as individual income of the income of the partnership must be reduced by the amounts of income
respective heirs only so long as the inheritance or estate is not tax paid by each petitioner on his share of partnership profits. This is
distributed or, at least, partitioned, but the moment their respective not correct; rather, it should be the other way around. The
known shares are used as part of the common assets of the heirs to be partnership profits distributable to the partners (petitioners herein)
used in making profits, it is but proper that the income of such shares should be reduced by the amounts of income tax assessed against the
should be considered as the part of the taxable income of an partnership. Consequently, each of the petitioners in his individual
unregistered partnership. This, We hold, is the clear intent of the law. capacity overpaid his income tax for the years in question, but the
Likewise, the third question of petitioners appears to have been income tax due from the partnership has been correctly assessed.
adequately resolved by the Tax Court in the aforementioned Since the individual income tax liabilities of petitioners are not in
resolution denying petitioners' motion for reconsideration of the issue in this proceeding, it is not proper for the Court to pass upon
decision of said court. Pertinently, the court ruled this wise: the same.

108
Petitioners insist that it was error for the Tax Court to so rule that Tax Appeals appealed from is affirm with costs against petitioners.
whatever excess they might have paid as individual income tax Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.
cannot be credited as part payment of the taxes herein in question. It Reyes, J.B.L. and Teehankee, JJ., concur in the result.
is argued that to sanction the view of the Tax Court is to oblige Castro, J., took no part.
petitioners to pay double income tax on the same income, and, Concepcion, C.J., is on leave.
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 SECOND DIVISION
agree. As We see it, the case of petitioners as regards the point under G.R. No. L-68118 October 29, 1985
discussion is simply that of a taxpayer who has paid the wrong tax, JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.
assuming that the failure to pay the corporate taxes in question was OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters,
not deliberate. Of course, such taxpayer has the right to be petitioners
reimbursed what he has erroneously paid, but the law is very clear vs.
that the claim and action for such reimbursement are subject to the COMMISSIONER OF INTERNAL REVENUE and COURT
bar of prescription. And since the period for the recovery of the OF TAX APPEALS, respondents.
excess income taxes in the case of herein petitioners has already Demosthenes B. Gadioma for petitioners.
lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely AQUINO, J.:
because the taxpayers failed to make the proper return and payment This case is about the income tax liability of four brothers and sisters
of the corporate taxes legally due from them. In principle, it is but who sold two parcels of land which they had acquired from their
proper not to allow any relaxation of the tax laws in favor of persons father.
who are not exactly above suspicion in their conduct vis-a-vis their On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &
tax obligation to the State. Co., Ltd. on two lots with areas of 1,124 and 963 square meters
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of located at Greenhills, San Juan, Rizal. The next day he transferred

109
his rights to his four children, the petitioners, to enable them to build taxes and penalties totalling P127,781.76 on their profit of P134,336,
their residences. The company sold the two lots to petitioners for in addition to the tax on capital gains already paid by them.
P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, The Commissioner acted on the theory that the four petitioners had
the Torrens titles issued to them would show that they were co- formed an unregistered partnership or joint venture within the
owners of the two lots. meaning of sections 24(a) and 84(b) of the Tax Code (Collector of
In 1974, or after having held the two lots for more than a year, the Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
petitioners resold them to the Walled City Securities Corporation and The petitioners contested the assessments. Two Judges of the Tax
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). Court sustained the same. Judge Roaquin dissented. Hence, the
They derived from the sale a total profit of P134,341.88 or P33,584 instant appeal.
for each of them. They treated the profit as a capital gain and paid an We hold that it is error to consider the petitioners as having formed a
income tax on one-half thereof or of P16,792. partnership under article 1767 of the Civil Code simply because they
In April, 1980, or one day before the expiration of the five-year allegedly contributed P178,708.12 to buy the two lots, resold the
prescriptive period, the Commissioner of Internal Revenue required same and divided the profit among themselves.
the four petitioners to pay corporate income tax on the total profit of To regard the petitioners as having formed a taxable unregistered
P134,336 in addition to individual income tax on their shares thereof partnership would result in oppressive taxation and confirm the
He assessed P37,018 as corporate income tax, P18,509 as 50% fraud dictum that the power to tax involves the power to destroy. That
surcharge and P15,547.56 as 42% accumulated interest, or a total of eventuality should be obviated.
P71,074.56. As testified by Jose Obillos, Jr., they had no such intention. They
Not only that. He considered the share of the profits of each were co-owners pure and simple. To consider them as partners would
petitioner in the sum of P33,584 as a " taxable in full (not a mere obliterate the distinction between a co-ownership and a partnership.
capital gain of which ½ is taxable) and required them to pay The petitioners were not engaged in any joint venture by reason of
deficiency income taxes aggregating P56,707.20 including the 50% that isolated transaction.
fraud surcharge and the accumulated interest. Their original purpose was to divide the lots for residential purposes.
Thus, the petitioners are being held liable for deficiency income If later on they found it not feasible to build their residences on the

110
lots because of the high cost of construction, then they had no choice returns does not of itself establish a partnership, whether or not the
but to resell the same to dissolve the co-ownership. The division of persons sharing them have a joint or common right or interest in any
the profit was merely incidental to the dissolution of the co- property from which the returns are derived". There must be an
ownership which was in the nature of things a temporary state. It had unmistakable intention to form a partnership or joint venture.*
to be terminated sooner or later. Castan Tobeñas says: Such intent was present in Gatchalian vs. Collector of Internal
Como establecer el deslinde entre la comunidad ordinaria o Revenue, 67 Phil. 666, where 15 persons contributed small amounts
copropiedad y la sociedad? to purchase a two-peso sweepstakes ticket with the agreement that
El criterio diferencial-segun la doctrina mas generalizada-esta: por they would divide the prize The ticket won the third prize of
razon del origen, en que la sociedad presupone necesariamente la P50,000. The 15 persons were held liable for income tax as an
convencion, mentras que la comunidad puede existir y existe unregistered partnership.
ordinariamente sin ela; y por razon del fin objecto, en que el objeto The instant case is distinguishable from the cases where the parties
de la sociedad es obtener lucro, mientras que el de la indivision es engaged in joint ventures for profit. Thus, in Oña vs.
solo mantener en su integridad la cosa comun y favorecer su ** This view is supported by the following rulings of respondent
conservacion. Commissioner:
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en Co-owership distinguished from partnership.—We find that the case
la que se dice que si en nuestro Derecho positive se ofrecen a veces at bar is fundamentally similar to the De Leon case. Thus, like the De
dificultades al tratar de fijar la linea divisoria entre comunidad de Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-
bienes y contrato de sociedad, la moderna orientacion de la doctrina indiviso from their deceased parents; they did not contribute or invest
cientifica señala como nota fundamental de diferenciacion aparte del additional ' capital to increase or expand the inherited properties;
origen de fuente de que surgen, no siempre uniforme, la finalidad they merely continued dedicating the property to the use to which it
perseguida por los interesados: lucro comun partible en la sociedad, had been put by their forebears; they individually reported in their
y mera conservacion y aprovechamiento en la comunidad. (Derecho tax returns their corresponding shares in the income and expenses of
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329). the 'hacienda', and they continued for many years the status of co-
Article 1769(3) of the Civil Code provides that "the sharing of gross ownership in order, as conceded by respondent, 'to preserve its (the

111
'hacienda') value and to continue the existing contractual relations the three Evangelista sisters bought four pieces of real property
with the Central Azucarera de Bais for milling purposes. Longa vs. which they leased to various tenants and derived rentals therefrom.
Aranas, CTA Case No. 653, July 31, 1963). Clearly, the petitioners in these two cases had formed an unregistered
All co-ownerships are not deemed unregistered pratnership.—Co- partnership.
Ownership who own properties which produce income should not In the instant case, what the Commissioner should have investigated
automatically be considered partners of an unregistered partnership, was whether the father donated the two lots to the petitioners and
or a corporation, within the purview of the income tax law. To hold whether he paid the donor's tax (See Art. 1448, Civil Code). We are
otherwise, would be to subject the income of all 
co-ownerships of not prejudging this matter. It might have already prescribed.
inherited properties to the tax on corporations, inasmuch as if a WHEREFORE, the judgment of the Tax Court is reversed and set
property does not produce an income at all, it is not subject to any aside. The assessments are cancelled. No costs.
kind of income tax, whether the income tax on individuals or the SO ORDERED.
income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
September 11, 1961, cited in Arañas, 1977 Tax Code Annotated, Concepcion, Jr., is on leave.
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 ARTICLE 1770
the inheritance or the incomes derived therefrom as a common fund OBJECT OR PURPOSE OF PARTNERSHIP
to produce profits for themselves, it was held that they were taxable
as an unregistered partnership. EN BANC
It is likewise different from Reyes vs. Commissioner of Internal G.R. No. L-21906 December 24, 1968
Revenue, 24 SCRA 198, where father and son purchased a lot and INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
building, entrusted the administration of the building to an appellees,
administrator and divided equally the net income, and from vs.
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where NICANOR CASTEEL and JUAN DEPRA, defendants,

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NICANOR CASTEEL, defendant-appellant. resolution, he was advised by the district forester of Davao City that
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir no further action would be taken on his motion, unless he filed a new
plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant. application for the area concerned. So he filed on May 27, 1947 his
fishpond application 1717.
CASTRO, J.: Meanwhile, several applications were submitted by other persons for
This is an appeal from the order of May 2, 1956, the decision of May portions of the area covered by Casteel's application.
4, 1956 and the order of May 21, 1956, all of the Court of First On May 20, 1946 Leoncio Aradillos filed his fishpond application
Instance of Davao, in civil case 629. The basic action is for specific 1202 covering 10 hectares of land found inside the area applied for
performance, and damages resulting from an alleged breach of by Casteel; he was later granted fishpond permit F-289-C covering
contract. 9.3 hectares certified as available for fishpond purposes by the
In 1940 Nicanor Casteel filed a fishpond application for a big tract of Bureau of Forestry.
swampy land in the then Sitio of Malalag (now the Municipality of Victor D. Carpio filed on August 8, 1946 his fishpond application
Malalag), Municipality of Padada, Davao. No action was taken 762 over a portion of the land applied for by Casteel. Alejandro
thereon by the authorities concerned. During the Japanese Cacam's fishpond application 1276, filed on December 26, 1946, was
occupation, he filed another fishpond application for the same area, given due course on December 9, 1947 with the issuance to him of
but because of the conditions then prevailing, it was not acted upon fishpond permit F-539-C to develop 30 hectares of land comprising a
either. On December 12, 1945 he filed a third fishpond application portion of the area applied for by Casteel, upon certification of the
for the same area, which, after a survey, was found to contain 178.76 Bureau of Forestry that the area was likewise available for fishpond
hectares. Upon investigation conducted by a representative of the purposes. On November 17, 1948 Felipe Deluao filed his own
Bureau of Forestry, it was discovered that the area applied for was fishpond application for the area covered by Casteel's application.
still needed for firewood production. Hence on May 13, 1946 this Because of the threat poised upon his position by the above
third application was disapproved. applicants who entered upon and spread themselves within the area,
Despite the said rejection, Casteel did not lose interest. He filed a Casteel realized the urgent necessity of expanding his occupation
motion for reconsideration. While this motion was pending thereof by constructing dikes and cultivating marketable fishes, in

113
order to prevent old and new squatters from usurping the land. But Secretary of Agriculture and Natural Resources.
lacking financial resources at that time, he sought financial aid from In the interregnum, some more incidents occurred. To avoid
his uncle Felipe Deluao who then extended loans totalling more or repetition, they will be taken up in our discussion of the appellant's
less P27,000 with which to finance the needed improvements on the third assignment of error.
fishpond. Hence, a wide productive fishpond was built. On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as
Moreover, upon learning that portions of the area applied for by him party of the first part, and Nicanor Casteel as party of the second
were already occupied by rival applicants, Casteel immediately filed part, executed a contract — denominated a "contract of service" —
the corresponding protests. Consequently, two administrative cases the salient provisions of which are as follows:
ensued involving the area in question, to wit: DANR Case 353, That the Party of the First Part in consideration of the mutual
entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, covenants and agreements made herein to the Party of the Second
applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, Part, hereby enter into a contract of service, whereby the Party of the
applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. First Part hires and employs the Party of the Second Part on the
661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant following terms and conditions, to wit:
versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539- That the Party of the First Part will finance as she has hereby
C, Alejandro Cacam, Permittees-Respondents." financed the sum of TWENTY SEVEN THOUSAND PESOS
However, despite the finding made in the investigation of the above (P27,000.00), Philippine Currency, to the Party of the Second Part
administrative cases that Casteel had already introduced who renders only his services for the construction and improvements
improvements on portions of the area applied for by him in the form of a fishpond at Barrio Malalag, Municipality of Padada, Province of
of dikes, fishpond gates, clearings, etc., the Director of Fisheries Davao, Philippines;
nevertheless rejected Casteel's application on October 25, 1949, That the Party of the Second Part will be the Manager and sole buyer
required him to remove all the improvements which he had of all the produce of the fish that will be produced from said
introduced on the land, and ordered that the land be leased through fishpond;
public auction. Failing to secure a favorable resolution of his motion That the Party of the First Part will be the administrator of the same
for reconsideration of the Director's order, Casteel appealed to the she having financed the construction and improvement of said

114
fishpond; In view of all the foregoing considerations, Fp. A. No. 661 (now Fp.
That this contract was the result of a verbal agreement entered into A. No. 1717) of Nicanor Casteel should be, as hereby it is, reinstated
between the Parties sometime in the month of November, 1947, with and given due course for the area indicated in the sketch drawn at the
all the above-mentioned conditions enumerated; ... back of the last page hereof; and Fp. A. No. 762 of Victorio D.
On the same date the above contract was entered into, Inocencia Carpio shall remain rejected.
Deluao executed a special power of attorney in favor of Jesus On the same date, the same official issued a decision in DANR Case
Donesa, extending to the latter the authority "To represent me in the 353-B, the dispositive portion stating as follows:
administration of the fishpond at Malalag, Municipality of Padada, WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos
Province of Davao, Philippines, which has been applied for fishpond and Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as
permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, they are hereby cancelled and revoked; Nicanor Casteel is required
and to supervise, demand, receive, and collect the value of the fish to pay the improvements introduced thereon by said permittees in
that is being periodically realized from it...." accordance with the terms and dispositions contained elsewhere in
On November 29, 1949 the Director of Fisheries rejected the this decision....
application filed by Felipe Deluao on November 17, 1948. Unfazed Sometime in January 1951 Nicanor Casteel forbade Inocencia
by this rejection, Deluao reiterated his claim over the same area in Deluao from further administering the fishpond, and ejected the
the two administrative cases (DANR Cases 353 and 353-B) and latter's representative (encargado), Jesus Donesa, from the premises.
asked for reinvestigation of the application of Nicanor Casteel over Alleging violation of the contract of service (exhibit A) entered into
the subject fishpond. However, by letter dated March 15, 1950 sent between Inocencia Deluao and Nicanor Casteel, Felipe Deluao and
to the Secretary of Commerce and Agriculture and Natural Inocencia Deluao on April 3, 1951 filed an action in the Court of
Resources (now Secretary of Agriculture and Natural Resources), First Instance of Davao for specific performance and damages
Deluao withdrew his petition for reinvestigation. against Nicanor Casteel and Juan Depra (who, they alleged,
On September 15, 1950 the Secretary of Agriculture and Natural instigated Casteel to violate his contract), praying inter alia, (a) that
Resources issued a decision in DANR Case 353, the dispositive Casteel be ordered to respect and abide by the terms and conditions
portion of which reads as follows: of said contract and that Inocencia Deluao be allowed to continue

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administering the said fishpond and collecting the proceeds from the alleging among others, that he was the owner, lawful applicant and
sale of the fishes caught from time to time; and (b) that the occupant of the fishpond in question. This motion, opposed by the
defendants be ordered to pay jointly and severally to plaintiffs the plaintiffs on June 15, 1951, was denied by the lower court in its order
sum of P20,000 in damages. of June 26, 1961.
On April 18, 1951 the plaintiffs filed an ex parte motion for the The defendants on May 14, 1951 filed their answer with
issuance of a preliminary injunction, praying among other things, counterclaim, amended on January 8, 1952, denying the material
that during the pendency of the case and upon their filling the averments of the plaintiffs' complaint. A reply to the defendants'
requisite bond as may be fixed by the court, a preliminary injunction amended answer was filed by the plaintiffs on January 31, 1952.
be issued to restrain Casteel from doing the acts complained of, and The defendant Juan Depra moved on May 22, 1951 to dismiss the
that after trial the said injunction be made permanent. The lower complaint as to him. On June 4, 1951 the plaintiffs opposed his
court on April 26, 1951 granted the motion, and, two days later, it motion.
issued a preliminary mandatory injunction addressed to Casteel, the The defendants filed on October 3, 1951 a joint motion to dismiss on
dispositive portion of which reads as follows: the ground that the plaintiffs' complaint failed to state a claim upon
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, which relief may be granted. The motion, opposed by the plaintiffs
usted, el demandado y todos usu abogados, agentes, mandatarios y on October 12, 1951, was denied for lack of merit by the lower court
demas personas que obren en su ayuda, desista de impedir a la in its order of October 22, 1951. The defendants' motion for
demandante Inocencia R. Deluao que continue administrando reconsideration filed on October 31, 1951 suffered the same fate
personalmente la pesqueria objeto de esta causa y que la misma when it was likewise denied by the lower court in its order of
continue recibiendo los productos de la venta de los pescados November 12, 1951.
provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho After the issues were joined, the case was set for trial. Then came a
demandado Nicanor Casteel a desahuciar mediante fuerza al series of postponements. The lower court (Branch I, presided by
encargado de los demandantes llamado Jesus Donesa de la pesqueria Judge Enrique A. Fernandez) finally issued on March 21, 1956 an
objeto de la demanda de autos. order in open court, reading as follows: .
On May 10, 1951 Casteel filed a motion to dissolve the injunction, Upon petition of plaintiffs, without any objection on the part of

116
defendants, the hearing of this case is hereby transferred to May 2 Fernandez on this case was issued on March 21, 1956, wherein he
and 3, 1956 at 8:30 o'clock in the morning. definitely states that the Court will not entertain any further
This case was filed on April 3, 1951 and under any circumstance this postponement of the hearing of this case.
Court will not entertain any other transfer of hearing of this case and CONSIDERING ALL THE FOREGOING, the Court believes that
if the parties will not be ready on that day set for hearing, the court the consideration and termination of any incident referring to this
will take the necessary steps for the final determination of this case. case should be referred back to Branch I, so that the same may be
(emphasis supplied) disposed of therein. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of A copy of the abovequoted order was served on the defendants'
hearing dated April 21, 1956, issued by the office of the Clerk of counsel on May 4, 1956.
Court (thru the special deputy Clerk of Court) of the Court of First On the scheduled date of hearing, that is, on May 2, 1956, the lower
Instance of Davao, setting the hearing of the case for May 2 and 3, court (Branch I, with Judge Fernandez presiding), when informed
1956 before Judge Amador Gomez of Branch II. The defendants, about the defendants' motion for postponement filed on April 26,
thru counsel, on April 26, 1956 filed a motion for postponement. 1956, issued an order reiterating its previous order handed down in
Acting on this motion, the lower court (Branch II, presided by Judge open court on March 21, 1956 and directing the plaintiffs to
Gomez) issued an order dated April 27, 1956, quoted as follows: introduce their evidence ex parte, there being no appearance on the
This is a motion for postponement of the hearing of this case set for part of the defendants or their counsel. On the basis of the plaintiffs'
May 2 and 3, 1956. The motion is filed by the counsel for the evidence, a decision was rendered on May 4, 1956 the dispositive
defendants and has the conformity of the counsel for the plaintiffs. portion of which reads as follows:
An examination of the records of this case shows that this case was EN SU VIRTUD, el Juzgado dicta de decision a favor de los
initiated as early as April 1951 and that the same has been under demandantes y en contra del demandado Nicanor Casteel:
advisement of the Honorable Enrique A. Fernandez, Presiding Judge (a) Declara permanente el interdicto prohibitorio expedido contra el
of Branch No. I, since September 24, 1953, and that various demandado;
incidents have already been considered and resolved by Judge (b) Ordena al demandado entregue la demandante la posesion y
Fernandez on various occasions. The last order issued by Judge administracion de la mitad (½) del "fishpond" en cuestion con todas

117
las mejoras existentes dentro de la misma; portion of which reads as follows:
(c) Condena al demandado a pagar a la demandante la suma de The duty of Atty. Ruiz, was not to inquire from the Clerk of Court
P200.00 mensualmente en concepto de danos a contar de la fecha de whether the trial of this case has been transferred or not, but to
la expiracion de los 30 dias de la promulgacion de esta decision hasta inquire from the presiding Judge, particularly because his motion
que entregue la posesion y administracion de la porcion del asking the transfer of this case was not set for hearing and was not
"fishpond" en conflicto; also acted upon.
(d) Condena al demandado a pagar a la demandante la suma de Atty. Ruiz knows the nature of the order of this Court dated March
P2,000.00 valor de los pescado beneficiados, mas los intereses 21, 1956, which reads as follows:
legales de la fecha de la incoacion de la demanda de autos hasta el Upon petition of the plaintiff without any objection on the part of the
completo pago de la obligacion principal; defendants, the hearing of this case is hereby transferred to May 2
(e) Condena al demandado a pagar a la demandante la suma de and 3, 1956, at 8:30 o'clock in the morning.
P2,000.00, por gastos incurridos por aquella durante la pendencia de This case was filed on April 3, 1951, and under any circumstance
esta causa; this Court will not entertain any other transfer of the hearing of this
(f) Condena al demandado a pagar a la demandante, en concepto de case, and if the parties will not be ready on the day set for hearing,
honorarios, la suma de P2,000.00; the Court will take necessary steps for the final disposition of this
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de case.
pruebas, en tanto en cuanto se refiere al demandado Juan Depra; In view of the order above-quoted, the Court will not accede to any
(h) Ordena el sobreseimiento de la reconvencion de los demandados transfer of this case and the duty of Atty. Ruiz is no other than to be
por falta de pruebas; present in the Sala of this Court and to call the attention of the same
(i) Con las costas contra del demandado, Casteel. to the existence of his motion for transfer.
The defendant Casteel filed a petition for relief from the foregoing Petition for relief from judgment filed by Atty. Ruiz in behalf of the
decision, alleging, inter alia, lack of knowledge of the order of the defendant, not well taken, the same is hereby denied.
court a quo setting the case for trial. The petition, however, was Dissatisfied with the said ruling, Casteel appealed to the Court of
denied by the lower court in its order of May 21, 1956, the pertinent Appeals which certified the case to us for final determination on the

118
ground that it involves only questions of law. superfluity. Moreover, as between the order of March 21, 1956, duly
Casteel raises the following issues: promulgated by the lower court, thru Judge Fernandez, and the
(1) Whether the lower court committed gross abuse of discretion notice of hearing signed by a "special deputy clerk of court" setting
when it ordered reception of the appellees' evidence in the absence of the hearing in another branch of the same court, the former's order
the appellant at the trial on May 2, 1956, thus depriving the appellant was the one legally binding. This is because the incidents of
of his day in court and of his property without due process of law; postponements and adjournments are controlled by the court and not
(2) Whether the lower court committed grave abuse of discretion by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule
when it denied the verified petition for relief from judgment filed by 22) of the Rules of Court.
the appellant on May 11, 1956 in accordance with Rule 38, Rules of Much less had the clerk of court the authority to interfere with the
Court; and order of the court or to transfer the cage from one sala to another
(3) Whether the lower court erred in ordering the issuance ex parte of without authority or order from the court where the case originated
a writ of preliminary injunction against defendant-appellant, and in and was being tried. He had neither the duty nor prerogative to re-
not dismissing appellees' complaint. assign the trial of the case to a different branch of the same court. His
1. The first and second issues must be resolved against the appellant. duty as such clerk of court, in so far as the incident in question was
The record indisputably shows that in the order given in open court concerned, was simply to prepare the trial calendar. And this duty
on March 21, 1956, the lower court set the case for hearing on May 2 devolved upon the clerk of court and not upon the "special deputy
and 3, 1956 at 8:30 o'clock in the morning and empathically stated clerk of court" who purportedly signed the notice of hearing.
that, since the case had been pending since April 3, 1951, it would It is of no moment that the motion for postponement had the
not entertain any further motion for transfer of the scheduled hearing. conformity of the appellees' counsel. The postponement of hearings
An order given in open court is presumed received by the parties on does not depend upon agreement of the parties, but upon the court's
the very date and time of promulgation,1 and amounts to a legal discretion.3
notification for all legal purposes.2 The order of March 21, 1956, The record further discloses that Casteel was represented by a total
given in open court, was a valid notice to the parties, and the notice of 12 lawyers, none of whom had ever withdrawn as counsel. Notice
of hearing dated April 21, 1956 or one month thereafter, was a to Atty. Ruiz of the order dated March 21, 1956 intransferably

119
setting the case for hearing for May 2 and 3, 1956, was sufficient their going upstairs to the second storey of the Court of First Instance
notice to all the appellant's eleven other counsel of record. This is a building in Davao on May 2, 1956 and checking if the case was
4
well-settled rule in our jurisdiction. scheduled for hearing in the said sala. The appellant after all admits
It was the duty of Atty. Ruiz, or of the other lawyers of record, not that on May 2, 1956 his counsel went to the office of the clerk of
excluding the appellant himself, to appear before Judge Fernandez court.
on the scheduled dates of hearing Parties and their lawyers have no The appellant's statement that parties as a matter of right are entitled
right to presume that their motions for postponement will be to notice of trial, is correct. But he was properly accorded this right.
granted.5 For indeed, the appellant and his 12 lawyers cannot pretend He was notified in open court on March 21, 1956 that the case was
ignorance of the recorded fact that since September 24, 1953 until definitely and intransferably set for hearing on May 2 and 3, 1956
the trial held on May 2, 1956, the case was under the advisement of before Branch I. He cannot argue that, pursuant to the doctrine in
Judge Fernandez who presided over Branch I. There was, therefore, Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the
no necessity to "re-assign" the same to Branch II because Judge denial of his motion for postponement. In the cited case the motion
Fernandez had exclusive control of said case, unless he was legally for postponement was the first one filed by the defendant; in the case
inhibited to try the case — and he was not. at bar, there had already been a series of postponements. Unlike the
There is truth in the appellant's contention that it is the duty of the case at bar, the Siochi case was not intransferably set for hearing.
clerk of court — not of the Court — to prepare the trial calendar. But Finally, whereas the cited case did not spend for a long time, the case
the assignment or reassignment of cases already pending in one sala at bar was only finally and intransferably set for hearing on March
to another sala, and the setting of the date of trial after the trial 21, 1956 — after almost five years had elapsed from the filing of the
calendar has been prepared, fall within the exclusive control of the complaint on April 3, 1951.
presiding judge. The pretension of the appellant and his 12 counsel of record that they
The appellant does not deny the appellees' claim that on May 2 and lacked ample time to prepare for trial is unacceptable because
3, 1956, the office of the clerk of court of the Court of First Instance between March 21, 1956 and May 2, 1956, they had one month and
of Davao was located directly below Branch I. If the appellant and ten days to do so. In effect, the appellant had waived his right to
his counsel had exercised due diligence, there was no impediment to appear at the trial and therefore he cannot be heard to complain that

120
he has been deprived of his property without due process of law.7 the parties over the disputed fishpond. Were we to admit the
Verily, the constitutional requirements of due process have been establishment of a co-ownership violative of the prohibitory laws
fulfilled in this case: the lower court is a competent court; it lawfully which will hereafter be discussed, we shall be compelled to declare
acquired jurisdiction over the person of the defendant (appellant) and altogether the nullity of the contract. This would certainly not serve
the subject matter of the action; the defendant (appellant) was given the cause of equity and justice, considering that rights and
an opportunity to be heard; and judgment was rendered upon lawful obligations have already arisen between the parties. We shall
8
hearing. therefore construe the contract as one of partnership, divided into
2. Finally, the appellant contends that the lower court incurred an two parts — namely, a contract of partnership to exploit the fishpond
error in ordering the issuance ex parte of a writ of preliminary pending its award to either Felipe Deluao or Nicanor Casteel, and a
injunction against him, and in not dismissing the appellee's contract of partnership to divide the fishpond between them after
complaint. We find this contention meritorious. such award. The first is valid, the second illegal.
Apparently, the court a quo relied on exhibit A — the so-called It is well to note that when the appellee Inocencia Deluao and the
"contract of service" — and the appellees' contention that it created a appellant entered into the so-called "contract of service" on
contract of co-ownership and partnership between Inocencia Deluao November 25, 1949, there were two pending applications over the
and the appellant over the fishpond in question. fishpond. One was Casteel's which was appealed by him to the
Too well-settled to require any citation of authority is the rule that Secretary of Agriculture and Natural Resources after it was
everyone is conclusively presumed to know the law. It must be disallowed by the Director of Fisheries on October 25, 1949. The
assumed, conformably to such rule, that the parties entered into the other was Felipe Deluao's application over the same area which was
so-called "contract of service" cognizant of the mandatory and likewise rejected by the Director of Fisheries on November 29, 1949,
prohibitory laws governing the filing of applications for fishpond refiled by Deluao and later on withdrawn by him by letter dated
permits. And since they were aware of the said laws, it must likewise March 15, 1950 to the Secretary of Agriculture and Natural
be assumed — in fairness to the parties — that they did not intend to Resources. Clearly, although the fishpond was then in the possession
violate them. This view must perforce negate the appellees' of Casteel, neither he nor, Felipe Deluao was the holder of a
allegation that exhibit A created a contract of co-ownership between fishpond permit over the area. But be that as it may, they were not

121
however precluded from exploiting the fishpond pending resolution partners in the fishpond that we caused to be made here in
of Casteel's appeal or the approval of Deluao's application over the Balasinon, but it does not mean that you will treat me as one of your
same area — whichever event happened first. No law, rule or "Bantay" (caretaker) on wage basis but not earning wages at all,
regulation prohibited them from doing so. Thus, rather than let the while the truth is that we are partners. In the event that you are not
fishpond remain idle they cultivated it. amenable to my proposition and consider me as "Bantay" (caretaker)
The evidence preponderates in favor of the view that the initial instead, do not blame me if I withdraw all my cases and be left
intention of the parties was not to form a co-ownership but to without even a little and you likewise.
establish a partnership — Inocencia Deluao as capitalist partner and (emphasis supplied)9
Casteel as industrial partner — the ultimate undertaking of which
was to divide into two equal parts such portion of the fishpond as Pursuant to the foregoing suggestion of the appellant that a document
might have been developed by the amount extended by the plaintiffs- be drawn evidencing their partnership, the appellee Inocencia Deluao
appellees, with the further provision that Casteel should reimburse and the appellant executed exhibit A which, although denominated a
the expenses incurred by the appellees over one-half of the fishpond "contract of service," was actually the memorandum of their
that would pertain to him. This can be gleaned, among others, from partnership agreement. That it was not a contract of the services of
the letter of Casteel to Felipe Deluao on November 15, 1949, which the appellant, was admitted by the appellees themselves in their
states, inter alia: letter10 to Casteel dated December 19, 1949 wherein they stated that
... [W]ith respect to your allowing me to use your money, same will they did not employ him in his (Casteel's) claim but because he used
redound to your benefit because you are the ones interested in half of their money in developing and improving the fishpond, his right
the work we have done so far, besides I did not insist on our being must be divided between them. Of course, although exhibit A did not
partners in my fishpond permit, but it was you "Tatay" Eping the one specify any wage or share appertaining to the appellant as industrial
who wanted that we be partners and it so happened that we became partner, he was so entitled — this being one of the conditions he
partners because I am poor, but in the midst of my poverty it never specified for the execution of the document of partnership.11
occurred to me to be unfair to you. Therefore so that each of us may Further exchanges of letters between the parties reveal the continuing
be secured, let us have a document prepared to the effect that we are intent to divide the fishpond. In a letter,12 dated March 24, 1950, the

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appellant suggested that they divide the fishpond and the remaining each refused to share the fishpond with the other.
capital, and offered to pay the Deluaos a yearly installment of P3,000 Art. 1830(3) of the Civil Code enumerates, as one of the causes for
— presumably as reimbursement for the expenses of the appellees the dissolution of a partnership, "... any event which makes it
for the development and improvement of the one-half that would unlawful for the business of the partnership to be carried on or for
pertain to the appellant. Two days later, the appellee Felipe Deluao the members to carry it on in partnership." The approval of the
replied,13expressing his concurrence in the appellant's suggestion and appellant's fishpond application by the decisions in DANR Cases 353
advising the latter to ask for a reconsideration of the order of the and 353-B brought to the fore several provisions of law which made
Director of Fisheries disapproving his (appellant's) application, so the continuation of the partnership unlawful and therefore caused its
that if a favorable decision was secured, then they would divide the ipso facto dissolution.
area. Act 4003, known as the Fisheries Act, prohibits the holder of a
Apparently relying on the partnership agreement, the appellee Felipe fishpond permit (the permittee) from transferring or subletting the
Deluao saw no further need to maintain his petition for the fishpond granted to him, without the previous consent or approval of
reinvestigation of Casteel's application. Thus by letter14 dated March the Secretary of Agriculture and Natural Resources.15 To the same
15, 1950 addressed to the Secretary of Agriculture and Natural effect is Condition No. 3 of the fishpond permit which states that
Resources, he withdrew his petition on the alleged ground that he "The permittee shall not transfer or sublet all or any area herein
was no longer interested in the area, but stated however that he granted or any rights acquired therein without the previous consent
wanted his interest to be protected and his capital to be reimbursed and approval of this Office." Parenthetically, we must observe that in
by the highest bidder. DANR Case 353-B, the permit granted to one of the parties therein,
The arrangement under the so-called "contract of service" continued Leoncio Aradillos, was cancelled not solely for the reason that his
until the decisions both dated September 15, 1950 were issued by the permit covered a portion of the area included in the appellant's prior
Secretary of Agriculture and Natural Resources in DANR Cases 353 fishpond application, but also because, upon investigation, it was
and 353-B. This development, by itself, brought about the ascertained thru the admission of Aradillos himself that due to lack
dissolution of the partnership. Moreover, subsequent events likewise of capital, he allowed one Lino Estepa to develop with the latter's
reveal the intent of both parties to terminate the partnership because capital the area covered by his fishpond permit F-289-C with the

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understanding that he (Aradillos) would be given a share in the improvements under certain conditions.
produce thereof.16 (a) Transfer subject to approval. — A sub-lease or transfer shall only
Sec. 40 of Commonwealth Act 141, otherwise known as the Public be valid when first approved by the Director under such terms and
Land Act, likewise provides that conditions as may be prescribed, otherwise it shall be null and void.
The lessee shall not assign, encumber, or sublet his rights without the A transfer not previously approved or reported shall be considered
consent of the Secretary of Agriculture and Commerce, and the sufficient cause for the cancellation of the permit or lease and
violation of this condition shall avoid the contract; Provided, That forfeiture of the bond and for granting the area to a qualified
assignment, encumbrance, or subletting for purposes of speculation applicant or bidder, as provided in subsection (r) of Sec. 33 of this
shall not be permitted in any case: Provided, further, That nothing Order.
contained in this section shall be understood or construed to permit Since the partnership had for its object the division into two equal
the assignment, encumbrance, or subletting of lands leased under this parts of the fishpond between the appellees and the appellant after it
Act, or under any previous Act, to persons, corporations, or shall have been awarded to the latter, and therefore it envisaged the
associations which under this Act, are not authorized to lease public unauthorized transfer of one-half thereof to parties other than the
lands. applicant Casteel, it was dissolved by the approval of his application
Finally, section 37 of Administrative Order No. 14 of the Secretary and the award to him of the fishpond. The approval was an event
of Agriculture and Natural Resources issued in August 1937, which made it unlawful for the business of the partnership to be
prohibits a transfer or sublease unless first approved by the Director carried on or for the members to carry it on in partnership.
of Lands and under such terms and conditions as he may prescribe. The appellees, however, argue that in approving the appellant's
Thus, it states: application, the Secretary of Agriculture and Natural Resources
When a transfer or sub-lease of area and improvement may be likewise recognized and/or confirmed their property right to one-half
allowed. — If the permittee or lessee had, unless otherwise of the fishpond by virtue of the contract of service, exhibit A. But the
specifically provided, held the permit or lease and actually operated untenability of this argument would readily surface if one were to
and made improvements on the area for at least one year, he/she may consider that the Secretary of Agriculture and Natural Resources did
request permission to sub-lease or transfer the area and not do so for the simple reason that he does not possess the authority

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

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... [T]he powers granted to the Secretary of Agriculture and or acted with arbitrariness and in disregard of his duty, or with grave
Commerce (Natural Resources) by law regarding the disposition of abuse of discretion, we can do no less than respect and maintain
public lands such as granting of licenses, permits, leases, and unfettered his official acts in the premises. It is a salutary rule that
contracts, or approving, rejecting, reinstating, or cancelling the judicial department should not dictate to the executive
applications, or deciding conflicting applications, are all executive department what to do with regard to the administration and
and administrative in nature. It is a well-recognized principle that disposition of the public domain which the law has entrusted to its
purely administrative and discretionary functions may not be care and administration. Indeed, courts cannot superimpose their
interfered with by the courts (Coloso v. Board of Accountancy, G.R. discretion on that of the land department and compel the latter to do
No. L-5750, April 20, 1953). In general, courts have no supervising an act which involves the exercise of judgment and discretion.22
power over the proceedings and action of the administrative Therefore, with the view that we take of this case, and even
departments of the government. This is generally true with respect to assuming that the injunction was properly issued because present all
acts involving the exercise of judgment or discretion, and findings of the requisite grounds for its issuance, its continuation, and, worse, its
fact. (54 Am. Jur. 558-559) Findings of fact by an administrative declaration as permanent, was improper in the face of the knowledge
board or official, following a hearing, are binding upon the courts later acquired by the lower court that it was the appellant's
and will not be disturbed except where the board or official has gone application over the fishpond which was given due course. After the
beyond his statutory authority, exercised unconstitutional powers or Secretary of Agriculture and Natural Resources approved the
clearly acted arbitrarily and without regard to his duty or with grave appellant's application, he became to all intents and purposes the
abuse of discretion... (emphasis supplied) legal permittee of the area with the corresponding right to possess,
In the case at bar, the Secretary of Agriculture and Natural Resources occupy and enjoy the same. Consequently, the lower court erred in
gave due course to the appellant's fishpond application 1717 and issuing the preliminary mandatory injunction. We cannot
awarded to him the possession of the area in question. In view of the overemphasize that an injunction should not be granted to take
finality of the Secretary's decision in DANR Cases 353 and 353-B, property out of the possession and control of one party and place it in
and considering the absence of any proof that the said official the hands of another whose title has not been clearly established by
exceeded his statutory authority, exercised unconstitutional powers, law.23

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However, pursuant to our holding that there was a partnership issued against the appellant, (2) placing the latter back in possession
between the parties for the exploitation of the fishpond before it was of the fishpond in litigation, and (3) remanding this case to the court
awarded to Casteel, this case should be remanded to the lower court of origin for the reception of evidence relative to the accounting that
for the reception of evidence relative to an accounting from the parties must perforce render in the premises, at the termination of
November 25, 1949 to September 15, 1950, in order for the court to which the court shall render judgment accordingly. The appellant's
determine (a) the profits realized by the partnership, (b) the share (in counterclaim is dismissed. No pronouncement as to costs.
the profits) of Casteel as industrial partner, (e) the share (in the Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
profits) of Deluao as capitalist partner, and (d) whether the amounts Sanchez, Fernando and Capistrano, JJ., concur.
totalling about P27,000 advanced by Deluao to Casteel for the
development and improvement of the fishpond have already been
liquidated. Besides, since the appellee Inocencia Deluao continued in ARTICLE 1773
possession and enjoyment of the fishpond even after it was awarded CONTRIBUTION OF IMMOVABLE PROPERTY IN
to Casteel, she did so no longer in the concept of a capitalist partner CONTRACT OF PARTNERSHIP
but merely as creditor of the appellant, and therefore, she must
likewise submit in the lower court an accounting of the proceeds of EN BANC
the sales of all the fishes harvested from the fishpond from G.R. No. L-24193 June 28, 1968
September 16, 1950 until Casteel shall have been finally given the MAURICIO AGAD, plaintiff-appellant,
possession and enjoyment of the same. In the event that the appellee vs.
Deluao has received more than her lawful credit of P27,000 (or SEVERINO MABATO and MABATO and AGAD COMPANY,
whatever amounts have been advanced to Casteel), plus 6% interest defendants-appellees.
thereon per annum, then she should reimburse the excess to the Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio
appellant. S. Advincula for defendants-appellees.
ACCORDINGLY, the judgment of the lower court is set aside.
Another judgment is hereby rendered: (1) dissolving the injunction CONCEPCION, C.J.:

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In this appeal, taken by plaintiff Mauricio Agad, from an order of therefore, that the complaint be dismissed; that Annex "A" be
dismissal of the Court of First Instance of Davao, we are called upon declared void ab initio; and that Agad be sentenced to pay actual,
to determine the applicability of Article 1773 of our Civil Code to moral and exemplary damages, as well as attorney's fees.
the contract of partnership on which the complaint herein is based. Subsequently, Mabato filed a motion to dismiss, upon the ground
Alleging that he and defendant Severino Mabato are — pursuant to a that the complaint states no cause of action and that the lower court
public instrument dated August 29, 1952, copy of which is attached had no jurisdiction over the subject matter of the case, because it
to the complaint as Annex "A" — partners in a fishpond business, to involves principally the determination of rights over public lands.
the capital of which Agad contributed P1,000, with the right to After due hearing, the court issued the order appealed from, granting
receive 50% of the profits; that from 1952 up to and including 1956, the motion to dismiss the complaint for failure to state a cause of
Mabato who handled the partnership funds, had yearly rendered action. This conclusion was predicated upon the theory that the
accounts of the operations of the partnership; and that, despite contract of partnership, Annex "A", is null and void, pursuant to Art.
repeated demands, Mabato had failed and refused to render accounts 1773 of our Civil Code, because an inventory of the fishpond
for the years 1957 to 1963, Agad prayed in his complaint against referred in said instrument had not been attached thereto. A
Mabato and Mabato & Agad Company, filed on June 9, 1964, that reconsideration of this order having been denied, Agad brought the
judgment be rendered sentencing Mabato to pay him (Agad) the sum matter to us for review by record on appeal.
of P14,000, as his share in the profits of the partnership for the Articles 1771 and 1773 of said Code provide:
period from 1957 to 1963, in addition to P1,000 as attorney's fees, Art. 1771. A partnership may be constituted in any form, except
and ordering the dissolution of the partnership, as well as the where immovable property or real rights are contributed thereto, in
winding up of its affairs by a receiver to be appointed therefor. which case a public instrument shall be necessary.
In his answer, Mabato admitted the formal allegations of the Art. 1773. A contract of partnership is void, whenever immovable
complaint and denied the existence of said partnership, upon the property is contributed thereto, if inventory of said property is not
ground that the contract therefor had not been perfected, despite the made, signed by the parties; and attached to the public instrument.
execution of Annex "A", because Agad had allegedly failed to give The issue before us hinges on whether or not "immovable property or
his P1,000 contribution to the partnership capital. Mabato prayed, real rights" have been contributed to the partnership under

128
consideration. Mabato alleged and the lower court held that the appellee, Severino Mabato. It is so ordered.
answer should be in the affirmative, because "it is really Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles
inconceivable how a partnership engaged in the fishpond business and Fernando, JJ., concur.
could exist without said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as stated in Annex
"A" the partnership was established "to operate a fishpond", not to THIRD DIVISION
"engage in a fishpond business". Moreover, none of the partners G.R. No. 101847 May 27, 1993
contributed either a fishpond or a real right to any fishpond. Their LOURDES NAVARRO AND MENARDO NAVARRO,
contributions were limited to the sum of P1,000 each. Indeed, petitioners,
Paragraph 4 of Annex "A" provides: vs.
That the capital of the said partnership is Two Thousand (P2,000.00) COURT OF APPEALS, JUDGE BETHEL KATALBAS-
Pesos Philippine Currency, of which One Thousand (P1,000.00) MOSCARDON, Presiding Judge, Regional Trial Court of
pesos has been contributed by Severino Mabato and One Thousand Bacolod City, Branch 52, Sixth Judicial Region and Spouses
(P1,000.00) Pesos has been contributed by Mauricio Agad. OLIVIA V. YANSON AND RICARDO B. YANSON,
xxx xxx xxx respondents.
The operation of the fishpond mentioned in Annex "A" was the George L. Howard Law Office for petitioners
purpose of the partnership. Neither said fishpond nor a real right Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for
thereto was contributed to the partnership or became part of the private respondents.
capital thereof, even if a fishpond or a real right thereto could
become part of its assets. MELO, J.:
WHEREFORE, we find that said Article 1773 of the Civil Code is Assailed and sought to be set aside by the petition before us is the
not in point and that, the order appealed from should be, as it is Resolution of the Court of Appeals dated June 20, 1991 which
hereby set aside and the case remanded to the lower court for further dismissed the petition for annulment of judgment filed by the
proceedings, with the costs of this instance against defendant- Spouses Lourdes and Menardo Navarro, thusly:

129
The instant petition for annulment of decision is DISMISSED. replevin. The Sheriff's Return of Service dated March 3, 1978
1. Judgments may be annulled only on the ground of extrinsic or affirmed receipt by private respondents of all pieces of personal
collateral fraud, as distinguished from intrinsic fraud (Canlas vs. property sought to be recovered from petitioners.
Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon
the petition. rendered a decision, disposing as follows :
2. Even if the judgment rendered by the respondent Court were Accordingly, in the light of the aforegoing findings, all chattels
erroneous, it is not necessarily void (Chereau vs. Fuentebella, 43 already recovered by plaintiff by virtue of the Writ of Replevin and
Phil. 216). Hence, it cannot be annulled by the proceeding sought to as listed in the complaint are hereby sustained to belong to plaintiff
be commenced by the petitioners. being the owner of these properties; the motor vehicle, particularly
3. The petitioners' remedy against the judgment enforcement of that Ford Fiera Jeep registered in and which had remain in the
which is sought to be stopped should have been appeal. possession of the defendant is likewise declared to belong to her,
SO ORDERED. (pp. 24-25, Rollo.) however, said defendant is hereby ordered to reimburse plaintiff the
The antecedent facts of the case are as follows: sum of P6,500.00 representing the amount advanced to pay part of
On July 23, 1976, herein private respondent Olivia V. Yanson filed a the price therefor; and said defendant is likewise hereby ordered to
complaint against petitioner Lourdes Navarro for "Delivery of return to plaintiff such other equipment[s] as were brought by the
Personal Properties With Damages". The complaint incorporated an latter to and during the operation of their business as were listed in
application for a writ of replevin. The complaint was later docketed the complaint and not recovered as yet by virtue of the previous Writ
as Civil Case No. 716 (12562) of the then Court of First Instance of of Replevin. (p. 12, Rollo.)
Bacolod (Branch 55) and was subsequently amended to include Petitioner received a copy of the decision on January 10, 1991
private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and (almost 9 months after its rendition) and filed on January 16, 1991 a
petitioner's husband, as co-defendant. "Motion for Extension of Time To File a Motion for
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to Reconsideration". This was granted on January 18, 1991. Private
be promoted and to retire as Presiding Justice of the Court of respondents filed their opposition, citing the ruling in the case of
Appeals) approved private respondents' application for a writ of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])

130
proscribing the filing of any motion for extension of time to file a belonging to the partnership do not actually belong to any of the
motion for a new trial or reconsideration. The trial judge vacated the parties until the final disposition and winding up of the partnership"
order dated January 18, 1991 and declared the decision of April 30, (p. 15, Rollo). These issues, however, were extensively discussed by
1990 as final and executory. (Petitioners' motion for reconsideration the trial judge in her 16-page, single-spaced decision.
was subsequently filed on February 1, 1991 or 22 days after the We agree with respondents that the decision in this case has become
receipt of the decision). final. In fact a writ of execution had been issued and was promptly
On February 4, 1991, the trial court issued a writ of execution satisfied by the payment of P6,500.00 to private respondents.
(Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex Having lost their right to appeal, petitioners resorted to annulment
"6", p. 82, Rollo) declared that the writ was "duly served and proceedings to justify a belated judicial review of their case. This
satisfied". A receipt for the amount of P6,500.00 issued by Mrs. was, however, correctly thrown out by the Court of Appeals because
Lourdes Yanson, co-petitioner in this case, was likewise submitted petitioners failed to cite extrinsic or collateral fraud to warrant the
by the Sheriff (Annex "7", p. 83, Rollo). setting aside of the trial court's decision. We respect the appellate
On June 26, 1991, petitioners filed with respondent court a petition court's finding in this regard.
for annulment of the trial court's decision, claiming that the trial Petitioners have come to us in a petition for review. However, the
judge erred in declaring the non-existence of a partnership, contrary petition is focused solely on factual issues which can no longer be
to the evidence on record. entertained. Petitioners' arguments are all directed against the
The appellate court, as aforesaid, outrightly dismissed the petition decision of the regional trial court; not a word is said in regard to the
due to absence of extrinsic or collateral fraud, observing further that appellate's court disposition of their petition for annulment of
an appeal was the proper remedy. judgment. Verily, petitioners keeps on pressing that the idea of a
In the petition before us, petitioners claim that the trial judge ignored partnership exists on account of the so-called admissions in judicio.
evidence that would show that the parties "clearly intended to form, But the factual premises of the trial court were more than enough to
and (in fact) actually formed a verbal partnership engaged in the suppress and negate petitioners submissions along this line:
business of Air Freight Service Agency in Bacolod"; and that the To be resolved by this Court factually involved in the issue of
decision sustaining the writ of replevin is void since the properties whether there was a partnership that existed between the parties

131
based on their verbal contention; whether the properties that were persons.
commonly used in the operation of Allied Air Freight belonged to In consideration of the above, it is undeniable that both the plaintiff
the alleged partnership business; and the status of the parties in this and the defendant-wife made admission to have entered into an
transaction of alleged partnership. On the other hand, the legal issues agreement of operating this Allied Air Freight Agency of which the
revolves on the dissolution and winding up in case a partnership so plaintiff personally constituted with the Manila Office in a sense that
existed as well as the issue of ownership over the properties subject the plaintiff did supply the necessary equipments and money while
matter of recovery. her brother Atty. Rodolfo Villaflores was the Manager and the
As a premise, Article 1767 of the New Civil Code defines the defendant the Cashier. It was also admitted that part of this
contract of partnership to quote: agreement was an equal sharing of whatever proceeds realized.
Art. 1767. By the contract of partnership two or more persons bind Consequently, the plaintiff brought into this transaction certain
themselves to contribute money, property, or industry to a common chattels in compliance with her obligation. The same has been done
fund, with the intention of dividing the proceeds among themselves. by the herein brother and the herein defendant who started to work in
xxx xxx xxx the business. A cursory examination of the evidences presented no
Corollary to this definition is the provision in determining whether a proof that a partnership, whether oral or written had been constituted
partnership exist as so provided under Article 1769, to wit: at the inception of this transaction. True it is that even up to the filing
xxx xxx xxx of this complaint those movables brought by the plaintiff for the use
Furthermore, the Code provides under Article 1771 and 1772 that in the operation of the business remain registered in her name.
while a partnership may be constituted in any form, a public While there may have been co-ownership or co-possession of some
instrument is necessary where immovables or any rights is items and/or any sharing of proceeds by way of advances received by
constituted. Likewise, if the partnership involves a capitalization of both plaintiff and the defendant, these are not indicative and
P3,000.00 or more in money or property, the same must appear in a supportive of the existence of any partnership between them. Article
public instrument which must be recorded in the Office of the 1769 of the New Civil Code is explicit. Even the books and records
Securities and Exchange Commission. Failure to comply with these retrieved by the Commissioner appointed by the Court did not show
requirements shall only affect liability of the partners to third proof of the existence of a partnership as conceptualized by law.

132
Such that if assuming that there were profits realized in 1975 after virtue of the Writ of Replevin. Considering the other vehicle which
the two-year deficits were compensated, this could only be subject to appeared registered in the name of the defendant, and to which even
an equal sharing consonant to the agreement to equally divide any she admitted that part of the purchase price came from the business
profit realized. However, this Court cannot overlook the fact that the claimed mutually operated, although the Court have not as much
Audit Report of the appointed Commissioner was not highly reliable considered all entries in the Audit Report as totally reliable to be
in the sense that it was more of his personal estimate of what is sustained insofar as the operation of the business is concerned,
available on hand. Besides, the alleged profits was a difference found nevertheless, with this admission of the defendant and the fact that as
after valuating the assets and not arising from the real operation of borne out in said Report there has been disbursed and paid for in this
the business. In accounting procedures, strictly, this could not be vehicle out of the business funds in the total sum of P6,500.00, it is
profit but a net worth. only fitting and proper that validity of these disbursements must be
In view of the above factual findings of the Court it follows sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this
inevitably therefore that there being no partnership that existed, any connection and taking into account the earlier agreement that only
dissolution, liquidation or winding up is beside the point. The profits were to be shared equally, the plaintiff must be reimbursed of
plaintiff himself had summarily ceased from her contract of agency this cost if only to allow the defendant continuous possession of the
and it is a personal prerogative to desist. On the other hand, the vehicle in question. It is a fundamental moral, moral and civil
assumption by the defendant in negotiating for herself the injunction that no one shall enrich himself at the expense of another.
continuance of the Agency with the principal in Manila is (pp. 71-75, Rollo.)
comparable to plaintiff's. Any account of plaintiff with the principal Withal, the appellate court acted properly in dismissing the petition
as alleged, bore no evidence as no collection was ever demanded of for annulment of judgment, the issue raised therein having been
from her. The alleged P20,000.00 assumption specifically, as would directly litigated in, and passed upon by, the trial court.
have been testified to by the defendant's husband remain a mere WHEREFORE, the petition is DISMISSED. The Resolution of the
allegation. Court of Appeals dated June 20, 1991 is AFFIRMED in all respects.
As to the properties sought to be recovered, the Court sustains the No special pronouncement is made as to costs.
possession by plaintiff of all equipments and chattels recovered by SO ORDERED.

133
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur. follows:
WHEREFORE, for all the foregoing considerations, the Court,
finding for the defendant and against the plaintiffs, orders the
THIRD DIVISION dismissal of the plaintiffs complaint. The counterclaims of the
G.R. No. 134559 December 9, 1999 defendant are likewise ordered dismissed. No pronouncement as to
ANTONIA TORRES assisted by her husband, ANGELO costs. 3
TORRES; and EMETERIA BARING, petitioners, The Facts
vs. Sisters Antonia Torres and Emeteria Baring, herein petitioners,
COURT OF APPEALS and MANUEL TORRES, respondents. entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
PANGANIBAN, J.: Pursuant to the contract, they executed a Deed of Sale covering the
Courts may not extricate parties from the necessary consequences of said parcel of land in favor of respondent, who then had it registered
their acts. That the terms of a contract turn out to be financially in his name. By mortgaging the property, respondent obtained from
disadvantageous to them will not relieve them of their obligations Equitable Bank a loan of P40,000 which, under the Joint Venture
therein. The lack of an inventory of real property will not ipso facto Agreement, was to be used for the development of the subdivision. 4
release the contracting partners from their respective obligations to All three of them also agreed to share the proceeds from the sale of
each other arising from acts executed in accordance with their the subdivided lots.
agreement. The project did not push through, and the land was subsequently
The Case foreclosed by the bank.
The Petition for Review on Certiorari before us assails the March 5, According to petitioners, the project failed because of "respondent's
1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. lack of funds or means and skills." They add that respondent used the
42378 and its June 25, 1998 Resolution denying reconsideration. The loan not for the development of the subdivision, but in furtherance of
assailed Decision affirmed the ruling of the Regional Trial Court his own company, Universal Umbrella Company.
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as On the other hand, respondent alleged that he used the loan to

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implement the Agreement. With the said amount, he was able to and respondent had formed a partnership for the development of the
effect the survey and the subdivision of the lots. He secured the Lapu subdivision. Thus, they must bear the loss suffered by the partnership
Lapu City Council's approval of the subdivision project which he in the same proportion as their share in the profits stipulated in the
advertised in a local newspaper. He also caused the construction of contract. Disagreeing with the trial court's pronouncement that losses
7
roads, curbs and gutters. Likewise, he entered into a contract with an as well as profits in a joint venture should be distributed equally,
engineering firm for the building of sixty low-cost housing units and the CA invoked Article 1797 of the Civil Code which provides:
actually even set up a model house on one of the subdivision lots. He Art. 1797 — The losses and profits shall be distributed in conformity
did all of these for a total expense of P85,000. with the agreement. If only the share of each partner in the profits
Respondent claimed that the subdivision project failed, however, has been agreed upon, the share of each in the losses shall be in the
because petitioners and their relatives had separately caused the same proportion.
annotations of adverse claims on the title to the land, which The CA elucidated further:
eventually scared away prospective buyers. Despite his requests, In the absence of stipulation, the share of each partner in the profits
petitioners refused to cause the clearing of the claims, thereby and losses shall be in proportion to what he may have contributed,
forcing him to give up on the project. 5 but the industrial partner shall not be liable for the losses. As for the
Subsequently, petitioners filed a criminal case for estafa against profits, the industrial partner shall receive such share as may be just
respondent and his wife, who were however acquitted. Thereafter, and equitable under the circumstances. If besides his services he has
they filed the present civil case which, upon respondent's motion, contributed capital, he shall also receive a share in the profits in
was later dismissed by the trial court in an Order dated September 6, proportion to his capital.
1982. On appeal, however, the appellate court remanded the case for The Issue
further proceedings. Thereafter, the RTC issued its assailed Decision, Petitioners impute to the Court of Appeals the following error:
which, as earlier stated, was affirmed by the CA. . . . [The] Court of Appeals erred in concluding that the transaction
Hence, this Petition. 6 . . . between the petitioners and respondent was that of a joint
Ruling of the Court of Appeals venture/partnership, ignoring outright the provision of Article 1769,
In affirming the trial court, the Court of Appeals held that petitioners and other related provisions of the Civil Code of the Philippines. 8

135
The Court's Ruling PARTY, this property located at Lapu-Lapu City, Island of Mactan,
The Petition is bereft of merit. under Lot No. 1368 covering TCT No. T-0184 with a total area of
Main Issue: 17,009 square meters, to be sub-divided by the FIRST PARTY;
Existence of a Partnership Whereas, the FIRST PARTY had given the SECOND PARTY, the
Petitioners deny having formed a partnership with respondent. They sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine
contend that the Joint Venture Agreement and the earlier Deed of Currency upon the execution of this contract for the property
Sale, both of which were the bases of the appellate court's finding of entrusted by the SECOND PARTY, for sub-division projects and
a partnership, were void. development purposes;
In the same breath, however, they assert that under those very same NOW THEREFORE, for and in consideration of the above
contracts, respondent is liable for his failure to implement the covenants and promises herein contained the respective parties
project. Because the agreement entitled them to receive 60 percent of hereto do hereby stipulate and agree as follows:
the proceeds from the sale of the subdivision lots, they pray that ONE: That the SECOND PARTY signed an absolute Deed of Sale . .
respondent pay them damages equivalent to 60 percent of the value . dated March 5, 1969, in the amount of TWENTY FIVE
of the property. 9 THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
The pertinent portions of the Joint Venture Agreement read as (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
follows: [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
KNOW ALL MEN BY THESE PRESENTS: the FIRST PARTY, but the SECOND PARTY did not actually
This AGREEMENT, is made and entered into at Cebu City, receive the payment.
Philippines, this 5th day of March, 1969, by and between MR. SECOND: That the SECOND PARTY, had received from the
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. FIRST PARTY, the necessary amount of TWENTY THOUSAND
ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the (P20,000.00) pesos, Philippine currency, for their personal
SECOND PARTY: obligations and this particular amount will serve as an advance
WITNESSETH: payment from the FIRST PARTY for the property mentioned to be
That, whereas, the SECOND PARTY, voluntarily offered the FIRST sub-divided and to be deducted from the sales.

136
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, including all necessary improvements spent by the FIRST
PARTY, the interest and the principal amount involving the amount PARTY, and-the FIRST PARTY will be given a grace period to
of TWENTY THOUSAND (P20,000.00) Pesos, Philippine turnover the property mentioned above.
Currency, until the sub-division project is terminated and ready for That this AGREEMENT shall be binding and obligatory to the
sale to any interested parties, and the amount of TWENTY parties who executed same freely and voluntarily for the uses and
THOUSAND (P20,000.00) pesos, Philippine currency, will be purposes therein stated. 10
deducted accordingly. A reading of the terms embodied in the Agreement indubitably
FOURTH: That all general expense[s] and all cost[s] involved in the shows the existence of a partnership pursuant to Article 1767 of the
sub-division project should be paid by the FIRST PARTY, Civil Code, which provides:
exclusively and all the expenses will not be deducted from the sales Art. 1767. By the contract of partnership two or more persons bind
after the development of the sub-division project. themselves to contribute money, property, or industry to a common
FIFTH: That the sales of the sub-divided lots will be divided into fund, with the intention of dividing the profits among themselves.
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY Under the above-quoted Agreement, petitioners would contribute
PERCENTUM 40% for the FIRST PARTY, and additional profits or property to the partnership in the form of land which was to be
whatever income deriving from the sales will be divided equally developed into a subdivision; while respondent would give, in
according to the . . . percentage [agreed upon] by both parties. addition to his industry, the amount needed for general expenses and
SIXTH: That the intended sub-division project of the property other costs. Furthermore, the income from the said project would be
involved will start the work and all improvements upon the adjacent divided according to the stipulated percentage. Clearly, the contract
lots will be negotiated in both parties['] favor and all sales shall [be] manifested the intention of the parties to form a partnership. 11
decided by both parties. It should be stressed that the parties implemented the contract. Thus,
SEVENTH: That the SECOND PARTIES, should be given an option petitioners transferred the title to the land to facilitate its use in the
to get back the property mentioned provided the amount of name of the respondent. On the other hand, respondent caused the
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, subject land to be mortgaged, the proceeds of which were used for
borrowed by the SECOND PARTY, will be paid in full to the FIRST the survey and the subdivision of the land. As noted earlier, he

137
developed the roads, the curbs and the gutters of the subdivision and relieve parties thereto of their obligations. They cannot now disavow
entered into a contract to construct low-cost housing units on the the relationship formed from such agreement due to their supposed
property. misunderstanding of its terms.
Respondent's actions clearly belie petitioners' contention that he Alleged Nullity of the
made no contribution to the partnership. Under Article 1767 of the Partnership Agreement
Civil Code, a partner may contribute not only money or property, but Petitioners argue that the Joint Venture Agreement is void under
also industry. Article 1773 of the Civil Code, which provides:
Petitioners Bound by Art. 1773. A contract of partnership is void, whenever immovable
Terms of Contract property is contributed thereto, if an inventory of said property is not
Under Article 1315 of the Civil Code, contracts bind the parties not made, signed by the parties, and attached to the public instrument.
only to what has been expressly stipulated, but also to all necessary They contend that since the parties did not make, sign or attach to the
consequences thereof, as follows: public instrument an inventory of the real property contributed, the
Art. 1315. Contracts are perfected by mere consent, and from that partnership is void.
moment the parties are bound not only to the fulfillment of what has We clarify. First, Article 1773 was intended primarily to protect
been expressly stipulated but also to all the consequences which, third persons. Thus, the eminent Arturo M. Tolentino states that
according to their nature, may be in keeping with good faith, usage under the aforecited provision which is a complement of Article
12
and law. 1771, "The execution of a public instrument would be useless if
It is undisputed that petitioners are educated and are thus presumed there is no inventory of the property contributed, because without its
to have understood the terms of the contract they voluntarily signed. designation and description, they cannot be subject to inscription in
If it was not in consonance with their expectations, they should have the Registry of Property, and their contribution cannot prejudice
objected to it and insisted on the provisions they wanted. third persons. This will result in fraud to those who contract with the
Courts are not authorized to extricate parties from the necessary partnership in the belief [in] the efficacy of the guaranty in which the
consequences of their acts, and the fact that the contractual immovables may consist. Thus, the contract is declared void by the
stipulations may turn out to be financially disadvantageous will not law when no such inventory is made." The case at bar does not

138
involve third parties who may be prejudiced. service by another. 15
Second, petitioners themselves invoke the allegedly void contract as In this case, the cause of the contract of sale consisted not in the
basis for their claim that respondent should pay them 60 percent of stated peso value of the land, but in the expectation of profits from
13
the value of the property. They cannot in one breath deny the the subdivision project, for which the land was intended to be used.
contract and in another recognize it, depending on what momentarily As explained by the trial court, "the land was in effect given to the
suits their purpose. Parties cannot adopt inconsistent positions in partnership as [petitioner's] participation therein. . . . There was
regard to a contract and courts will not tolerate, much less approve, therefore a consideration for the sale, the [petitioners] acting in the
such practice. expectation that, should the venture come into fruition, they [would]
In short, the alleged nullity of the partnership will not prevent courts get sixty percent of the net profits."
from considering the Joint Venture Agreement an ordinary contract Liability of the Parties
from which the parties' rights and obligations to each other may be Claiming that rerpondent was solely responsible for the failure of the
inferred and enforced. subdivision project, petitioners maintain that he should be made to
Partnership Agreement Not the Result pay damages equivalent to 60 percent of the value of the property,
of an Earlier Illegal Contract which was their share in the profits under the Joint Venture
Petitioners also contend that the Joint Venture Agreement is void Agreement.
under Article 1422 14 of the Civil Code, because it is the direct result We are not persuaded. True, the Court of Appeals held that
of an earlier illegal contract, which was for the sale of the land petitioners' acts were not the cause of the failure of the project. 16 But
17
without valid consideration. it also ruled that neither was respondent responsible therefor. In
This argument is puerile. The Joint Venture Agreement clearly states imputing the blame solely to him, petitioners failed to give any
that the consideration for the sale was the expectation of profits from reason why we should disregard the factual findings of the appellate
the subdivision project. Its first stipulation states that petitioners did court relieving him of fault. Verily, factual issues cannot be resolved
not actually receive payment for the parcel of land sold to in a petition for review under Rule 45, as in this case. Petitioners
respondent. Consideration, more properly denominated as cause, can have not alleged, not to say shown, that their Petition constitutes one
18
take different forms, such as the prestation or promise of a thing or of the exceptions to this doctrine. Accordingly, we find no

139
reversible error in the CA's ruling that petitioners are not entitled to resolved to dismiss the complaint for estafa filed by petitioners Oscar
damages. and Emerita Angeles ("Angeles spouses") against respondent Felino
WHEREFORE, the Perition is hereby DENIED and the challenged Mercado ("Mercado").
Decision AFFIRMED. Costs against petitioners. Antecedent Facts
SO ORDERED On 19 November 1996, the Angeles spouses filed a criminal
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur. complaint for estafa under Article 315 of the Revised Penal Code
against Mercado before the Provincial Prosecution Office. Mercado
is the brother-in-law of the Angeles spouses, being married to
FIRST DIVISION Emerita Angeles’ sister Laura.
G.R. No. 142612. July 29, 2005 In their affidavits, the Angeles spouses claimed that in November
OSCAR ANGELES and EMERITA ANGELES, Petitioners, 1992, Mercado convinced them to enter into a contract of
vs. antichresis,5 colloquially known as sanglaang-perde, covering eight
THE HON. SECRETARY OF JUSTICE and FELINO parcels of land ("subject land") planted with fruit-bearing lanzones
MERCADO, Respondents. trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with P210,000 as
DECISION consideration. As the Angeles spouses stay in Manila during
CARPIO, J.: weekdays and go to Laguna only on weekends, the parties agreed
The Case that Mercado would administer the lands and complete the necessary
1 2
This is a petition for certiorari to annul the letter-resolution dated 1 paperwork.6
February 2000 of the Secretary of Justice in Resolution No. 155.3 After three years, the Angeles spouses asked for an accounting from
The Secretary of Justice affirmed the resolution4 in I.S. No. 96-939 Mercado. Mercado explained that the subject land earned P46,210 in
dated 28 February 1997 rendered by the Provincial Prosecution 1993, which he used to buy more lanzones trees. Mercado also
Office of the Department of Justice in Santa Cruz, Laguna reported that the trees bore no fruit in 1994. Mercado gave no
("Provincial Prosecution Office"). The Provincial Prosecution Office accounting for 1995. The Angeles spouses claim that only after this

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demand for an accounting did they discover that Mercado had put the Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
contract of sanglaang-perde over the subject land under Mercado ay nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing
and his spouse’s names. The relevant portions of the contract of
7
na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming
sanglaang-perde, signed by Juana Suazo alone, read: kasunduang ito.
xxx Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG ay nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO
LIBONG PISO (P210,000), salaping gastahin, na aking tinanggap sa MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon
mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa [sic] sa loob ng LIMA (5) [sic] taonng [sic] aming kasunduang ito.8
hustong gulang, Filipino, tumitira at may pahatirang sulat sa Bgy. In his counter-affidavit, Mercado denied the Angeles spouses’
Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking allegations. Mercado claimed that there exists an industrial
ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na partnership, colloquially known as sosyo industrial, between him and
mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay his spouse as industrial partners and the Angeles spouses as the
magmamana, kahalili at ibang dapat pagliwatan ng kanilang financiers. This industrial partnership had existed since 1991, before
karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi the contract of antichresis over the subject land. As the years passed,
kasama ang ibang halaman na napapalooban nito, ng nabanggit na Mercado used his and his spouse’s earnings as part of the capital in
WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA the business transactions which he entered into in behalf of the
(5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos sa Angeles spouses. It was their practice to enter into business
taong 1997, kaya’t pagkatapos ng lansonesan sa taong 1997, ang transactions with other people under the name of Mercado because
pamomosision at pakikinabang sa lahat na puno ng lanzones sa the Angeles spouses did not want to be identified as the financiers.
nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay Mercado attached bank receipts showing deposits in behalf of
manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang Emerita Angeles and contracts under his name for the Angeles
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na spouses. Mercado also attached the minutes of the barangay
ano pa mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO conciliation proceedings held on 7 September 1996. During the
MERCADO. barangay conciliation proceedings, Oscar Angeles stated that there

141
was a written sosyo industrial agreement: capital would come from RESPECTFULLY SUBMITTED.10
the Angeles spouses while the profit would be divided evenly The Angeles spouses filed a motion for reconsideration, which the
9
between Mercado and the Angeles spouses. Provincial Prosecution Office denied in a resolution dated 4 August
The Ruling of the Provincial Prosecution Office 1997.
On 3 January 1997, the Provincial Prosecution Office issued a The Ruling of the Secretary of Justice
resolution recommending the filing of criminal information for estafa On appeal to the Secretary of Justice, the Angeles spouses
against Mercado. This resolution, however, was issued without emphasized that the document evidencing the contract of sanglaang-
Mercado’s counter-affidavit. perde with Juana Suazo was executed in the name of the Mercado
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. spouses, instead of the Angeles spouses. The Angeles spouses allege
On receiving the 3 January 1997 resolution, Mercado moved for its that this document alone proves Mercado’s misappropriation of their
reconsideration. Hence, on 26 February 1997, the Provincial P210,000.
Prosecution Office issued an amended resolution dismissing the The Secretary of Justice found otherwise. Thus:
Angeles spouses’ complaint for estafa against Mercado. Reviewing the records of the case, we are of the opinion that the
The Provincial Prosecution Office stated thus: indictment of [Mercado] for the crime of estafa cannot be sustained.
The subject of the complaint hinges on a partnership gone sour. The [The Angeles spouses] failed to show sufficient proof that [Mercado]
partnership was initially unsaddled [with] problems. Management deliberately deceived them in the "sanglaang perde" transaction. The
became the source of misunderstanding including the accounting of document alone, which was in the name of [Mercado and his
profits, which led to further misunderstanding until it was revealed spouse], failed to convince us that there was deceit or false
that the contract with the orchard owner was only with the name of representation on the part of [Mercado] that induced the [Angeles
the respondent, without the names of the complainants. spouses] to part with their money. [Mercado] satisfactorily explained
The accusation of "estafa" here lacks enough credible evidentiary that the [Angeles spouses] do not want to be revealed as the
support to sustain a prima facie finding. financiers. Indeed, it is difficult to believe that the [Angeles spouses]
Premises considered, it is respectfully recommended that the would readily part with their money without holding on to some
complaint for estafa be dismissed. document to evidence the receipt of money, or at least to inspect the

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document involved in the said transaction. Under the circumstances, representation that the amount shall be applied to the business of
we are inclined to believe that [the Angeles spouses] knew from the their partnership. In case of misapplication or conversion of the
very start that the questioned document was not really in their names. money received, the co-partner’s liability is civil in nature (People v.
In addition, we are convinced that a partnership truly existed Clarin, 7 Phil. 504)
between the [Angeles spouses] and [Mercado]. The formation of a WHEREFORE, the appeal is hereby DISMISSED.11
partnership was clear from the fact that they contributed money to a Hence, this petition.
common fund and divided the profits among themselves. Records Issues
would show that [Mercado] was able to make deposits for the The Angeles spouses ask us to consider the following issues:
account of the [Angeles spouses]. These deposits represented their 1. Whether the Secretary of Justice committed grave abuse of
share in the profits of their business venture. Although the [Angeles discretion amounting to lack of jurisdiction in dismissing the appeal
spouses] deny the existence of a partnership, they, however, never of the Angeles spouses;
disputed that the deposits made by [Mercado] were indeed for their 2. Whether a partnership existed between the Angeles spouses and
account. Mercado even without any documentary proof to sustain its
The transcript of notes on the dialogue between the [Angeles existence;
spouses] and [Mercado] during the hearing of their barangay 3. Assuming that there was a partnership, whether there was
conciliation case reveals that the [Angeles spouses] acknowledged misappropriation by Mercado of the proceeds of the lanzones after
their joint business ventures with [Mercado] although they assailed the Angeles spouses demanded an accounting from him of the
the manner by which [Mercado] conducted the business and handled income at the office of the barangay authorities on 7 September
and distributed the funds. The veracity of this transcript was not 1996, and Mercado failed to do so and also failed to deliver the
raised in issued [sic] by [the Angeles spouses]. Although the legal proceeds to the Angeles spouses;
formalities for the formation of a partnership were not adhered to, 4. Whether the Secretary of Justice should order the filing of the
the partnership relationship of the [Angeles spouses] and [Mercado] information for estafa against Mercado.12
is evident in this case. Consequently, there is no estafa where money The Ruling of the Court
is delivered by a partner to his co-partner on the latter’s The petition has no merit.

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Whether the Secretary of Justice Committed Mercado. The Angeles spouses rely on Articles 1771 to 1773 of the
Grave Abuse of Discretion Civil Code, which state that:
An act of a court or tribunal may constitute grave abuse of discretion Art. 1771. A partnership may be constituted in any form, except
when the same is performed in a capricious or whimsical exercise of where immovable property or real rights are contributed thereto, in
judgment amounting to lack of jurisdiction. The abuse of discretion which case a public instrument shall be necessary.
must be so patent and gross as to amount to an evasion of positive Art. 1772. Every contract of partnership having a capital of three
duty, or to a virtual refusal to perform a duty enjoined by law, as thousand pesos or more, in money or property, shall appear in a
where the power is exercised in an arbitrary and despotic manner public instrument, which must be recorded in the Office of the
because of passion or personal hostility.13 Securities and Exchange Commission.
The Angeles spouses fail to convince us that the Secretary of Justice Failure to comply with the requirements of the preceding paragraph
committed grave abuse of discretion when he dismissed their appeal. shall not affect the liability of the partnership and the members
Moreover, the Angeles spouses committed an error in procedure thereof to third persons.
when they failed to file a motion for reconsideration of the Secretary Art. 1773. A contract of partnership is void, whenever immovable
of Justice’s resolution. A previous motion for reconsideration before property is contributed thereto, if an inventory of said property is not
the filing of a petition for certiorari is necessary unless: (1) the issue made, signed by the parties, and attached to the public instrument.
raised is one purely of law; (2) public interest is involved; (3) there is The Angeles spouses’ position that there is no partnership because of
urgency; (4) a question of jurisdiction is squarely raised before and the lack of a public instrument indicating the same and a lack of
decided by the lower court; and (5) the order is a patent nullity.14 The registration with the Securities and Exchange Commission ("SEC")
Angeles spouses failed to show that their case falls under any of the holds no water. First, the Angeles spouses contributed money to the
exceptions. In fact, this present petition for certiorari is dismissible partnership and not immovable property. Second, mere failure to
for this reason alone. register the contract of partnership with the SEC does not invalidate
Whether a Partnership Existed a contract that has the essential requisites of a partnership. The
Between Mercado and the Angeles Spouses purpose of registration of the contract of partnership is to give notice
The Angeles spouses allege that they had no partnership with to third parties. Failure to register the contract of partnership does

144
not affect the liability of the partnership and of the partners to third financiers of said contracts, they might be kidnapped by the New
persons. Neither does such failure to register affect the partnership’s People’s Army or their business deals be questioned by the Bureau
juridical personality. A partnership may exist even if the partners do of Internal Revenue or worse, their assets and unexplained income be
not use the words "partner" or "partnership." sequestered, as xxx Oscar Angeles was then working with the
Indeed, the Angeles spouses admit to facts that prove the existence government.16
of a partnership: a contract showing a sosyo industrial or industrial Furthermore, accounting of the proceeds is not a proper subject for
partnership, contribution of money and industry to a common fund, the present case.
and division of profits between the Angeles spouses and Mercado. For these reasons, we hold that the Secretary of Justice did not abuse
Whether there was his discretion in dismissing the appeal of the Angeles spouses.
Misappropriation by Mercado WHEREFORE, we AFFIRM the decision of the Secretary of
The Secretary of Justice adequately explained the alleged Justice. The present petition for certiorari is DISMISSED.
misappropriation by Mercado: "The document alone, which was in SO ORDERED.
the name of [Mercado and his spouse], failed to convince us that Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and
there was deceit or false representation on the part of [Mercado] that Azcuna, JJ., concur.
induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers."15 THIRD DIVISION
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna G.R. NOS. 166299-300 December 13, 2005
which decided the civil case for damages, injunction and restraining AURELIO K. LITONJUA, JR., Petitioner,
order filed by the Angeles spouses against Mercado and Leo vs.
Cerayban, stated: EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO
xxx [I]t was the practice to have all the contracts of antichresis of PHILS. MARITIME, INC., CINEPLEX, INC., DDM
their partnership secured in [Mercado’s] name as [the Angeles GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
spouses] are apprehensive that, if they come out into the open as AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,

145
LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), between them started when, on December 4, 2002, in the Regional
LUNETA THEATER, INC., E & L REALTY, (formerly E & L Trial Court (RTC) at Pasig City, Aurelio filed a suit against his
INT’L SHIPPING CORP.), FNP CO., INC., HOME brother Eduardo and herein respondent Robert T. Yang (Yang) and
ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., several corporations for specific performance and accounting. In his
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D complaint,3 docketed as Civil Case No. 69235 and eventually raffled
CORP., "L" DEV. CORP, LCM THEATRICAL to Branch 68 of the court,4 Aurelio alleged that, since June 1973, he
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., and Eduardo are into a joint venture/partnership arrangement in the
MACOIL INC., ODEON REALTY CORP., SARATOGA Odeon Theater business which had expanded thru investment in
REALTY, INC., ACT THEATER INC. (formerly General Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., Corporation (operator of Odeon I and II theatres), Avenue Realty,
AVENUE THEATER, INC. and LVF PHILIPPINES, INC., Inc., owner of lands and buildings, among other corporations. Yang
(Formerly VF PHILIPPINES), Respondents. is described in the complaint as petitioner’s and Eduardo’s partner in
their Odeon Theater investment.5 The same complaint also contained
DECISION the following material averments:
GARCIA, J.: 3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
In this petition for review under Rule 45 of the Rules of Court, joint venture/partnership for the continuation of their family business
petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the and common family funds ….
Decision of the Court of Appeals (CA) dated March 31, 20041 in 3.01.1 This joint venture/[partnership] agreement was contained in a
consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No memorandum addressed by Eduardo to his siblings, parents and
78774 and its Resolution dated December 07, 2004,2 denying other relatives. Copy of this memorandum is attached hereto and
petitioner’s motion for reconsideration. made an integral part as Annex "A" and the portion referring to
The recourse is cast against the following factual backdrop: [Aurelio] submarked as Annex "A-1".
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent 3.02 It was then agreed upon between [Aurelio] and Eduardo that in
Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute consideration of [Aurelio’s] retaining his share in the remaining

146
family businesses (mostly, movie theaters, shipping and land are transferring . . . various real properties of the corporations
development) and contributing his industry to the continued belonging to the joint venture/partnership to other parties in fraud of
operation of these businesses, [Aurelio] will be given P1 Million or [Aurelio]. In consequence, [Aurelio] is therefore causing at this time
10% equity in all these businesses and those to be subsequently the annotation on the titles of these real properties… a notice of lis
acquired by them whichever is greater. . . . pendens …. (Emphasis in the original; underscoring and words in
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 bracket added.)
years, [Aurelio] and Eduardo had accumulated in their joint For ease of reference, Annex "A-1" of the complaint, which
venture/partnership various assets including but not limited to the petitioner asserts to have been meant for him by his brother Eduardo,
corporate defendants and [their] respective assets. pertinently reads:
4.02 In addition . . . the joint venture/partnership … had also 10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
acquired [various other assets], but Eduardo caused to be registered You have now your own life to live after having been married. ….
in the names of other parties…. I am trying my best to mold you the way I work so you can follow
xxx xxx xxx the pattern …. You will be the only one left with the company,
4.04 The substantial assets of most of the corporate defendants among us brothers and I will ask you to stay as I want you to run this
consist of real properties …. A list of some of these real properties is office every time I am away. I want you to run it the way I am trying
attached hereto and made an integral part as Annex "B". to run it because I will be all alone and I will depend entirely to you
xxx xxx xxx (sic). My sons will not be ready to help me yet until about maybe
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo 15/20 years from now. Whatever is left in the corporation, I will
became sour so that [Aurelio] requested for an accounting and make sure that you get ONE MILLION PESOS (P1,000,000.00) or
liquidation of his share in the joint venture/partnership [but these ten percent (10%) equity, whichever is greater. We two will gamble
demands for complete accounting and liquidation were not heeded]. the whole thing of what I have and what you are entitled to. …. It
xxx xxx xxx will be you and me alone on this. If ever I pass away, I want you to
5.05 What is worse, [Aurelio] has reasonable cause to believe that take care of all of this. You keep my share for my two sons are ready
Eduardo and/or the corporate defendants as well as Bobby [Yang], take over but give them the chance to run the company which I have

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built. other defendants submitted their answer – moved to dismiss on the
xxx xxx xxx ground, inter alia, that, as to him, petitioner has no cause of action
Because you will need a place to stay, I will arrange to give you first and the complaint does not state any.8 Petitioner opposed this motion
ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or to dismiss.
asset, like Lt. Artiaga so you can live better there. The rest I will give On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
you in form of stocks which you can keep. This stock I assure you is Affirmative Defenses.9 To this motion, petitioner interposed an
good and saleable. I will also gladly give you the share of Wack- Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Wack …and Valley Golf … because you have been good. The rest Acting on the separate motions immediately adverted to above, the
will be in stocks from all the corporations which I repeat, ten percent trial court, in an Omnibus Order dated March 5, 2003, denied the
(10%) equity. 6 affirmative defenses and, except for Yang, set the case for pre-trial
On December 20, 2002, Eduardo and the corporate respondents, as on April 10, 2003.11
defendants a quo, filed a joint ANSWER With Compulsory In another Omnibus Order of April 2, 2003, the same court denied
Counterclaim denying under oath the material allegations of the the motion of Eduardo, et al., for reconsideration12 and Yang’s
complaint, more particularly that portion thereof depicting petitioner motion to dismiss. The following then transpired insofar as Yang is
and Eduardo as having entered into a contract of partnership. As concerned:
affirmative defenses, Eduardo, et al., apart from raising a 1. On April 14, 2003, Yang filed his ANSWER, but expressly
jurisdictional matter, alleged that the complaint states no cause of reserved the right to seek reconsideration of the April 2, 2003
action, since no cause of action may be derived from the actionable Omnibus Order and to pursue his failed motion to dismiss13 to its full
document, i.e., Annex "A-1", being void under the terms of Article resolution.
1767 in relation to Article 1773 of the Civil Code, infra. It is further 2. On April 24, 2003, he moved for reconsideration of the Omnibus
alleged that whatever undertaking Eduardo agreed to do, if any, Order of April 2, 2003, but his motion was denied in an Order of
under Annex "A-1", are unenforceable under the provisions of the July 4, 2003.14
Statute of Frauds.7 3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a
For his part, Yang - who was served with summons long after the petition for certiorari under Rule 65 of the Rules of Court, docketed

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as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial Explaining its case disposition, the appellate court stated, inter alia,
court, the first denying his motion to dismiss the basic complaint that the alleged partnership, as evidenced by the actionable
and, the second, denying his motion for reconsideration. documents, Annex "A" and "A-1" attached to the complaint, and
Earlier, Eduardo and the corporate defendants, on the contention that upon which petitioner solely predicates his right/s allegedly violated
grave abuse of discretion and injudicious haste attended the issuance by Eduardo, Yang and the corporate defendants a quo is "void or
of the trial court’s aforementioned Omnibus Orders dated March 5, legally inexistent".
and April 2, 2003, sought relief from the CA via similar recourse. In time, petitioner moved for reconsideration but his motion was
Their petition for certiorari was docketed as CA G.R. SP No. 76987. denied by the CA in its equally assailed Resolution of December 7,
Per its resolution dated October 2, 2003,16 the CA’s 14th Division 2004.18 .
ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP Hence, petitioner’s present recourse, on the contention that the CA
No. 76987. erred:
Following the submission by the parties of their respective A. When it ruled that there was no partnership created by the
Memoranda of Authorities, the appellate court came out with the actionable document because this was not a public instrument and
herein assailed Decision dated March 31, 2004, finding for Eduardo immovable properties were contributed to the partnership.
and Yang, as lead petitioners therein, disposing as follows: B. When it ruled that the actionable document did not create a
WHEREFORE, judgment is hereby rendered granting the issuance of demandable right in favor of petitioner.
the writ of certiorari in these consolidated cases annulling, reversing C. When it ruled that the complaint stated no cause of action against
and setting aside the assailed orders of the court a quo dated March [respondent] Robert Yang; and
5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by D. When it ruled that petitioner has changed his theory on appeal
private respondent [now petitioner Aurelio] against all the petitioners when all that Petitioner had done was to support his pleaded cause of
[now herein respondents Eduardo, et al.] with the court a quo is action by another legal perspective/argument.
hereby dismissed. The petition lacks merit.
SO ORDERED. 17
(Emphasis in the original; words in bracket Petitioner’s demand, as defined in the petitory portion of his
added.) complaint in the trial court, is for delivery or payment to him, as

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Eduardo’s and Yang’s partner, of his partnership/joint venture share, determinative of the existence, or defining the formal requisites, of a
after an accounting has been duly conducted of what he deems to be partnership is indicated. Foremost of these are the following
19
partnership/joint venture property. provisions of the Civil Code:
A partnership exists when two or more persons agree to place their Art. 1771. A partnership may be constituted in any form, except
money, effects, labor, and skill in lawful commerce or business, with where immovable property or real rights are contributed thereto, in
the understanding that there shall be a proportionate sharing of the which case a public instrument shall be necessary.
20
profits and losses between them. A contract of partnership is Art. 1772. Every contract of partnership having a capital of three
defined by the Civil Code as one where two or more persons bound thousand pesos or more, in money or property, shall appear in a
themselves to contribute money, property, or industry to a common public instrument, which must be recorded in the Office of the
fund with the intention of dividing the profits among themselves.21 A Securities and Exchange Commission.
joint venture, on the other hand, is hardly distinguishable from, and Failure to comply with the requirement of the preceding paragraph
may be likened to, a partnership since their elements are similar, i.e., shall not affect the liability of the partnership and the members
community of interests in the business and sharing of profits and thereof to third persons.
losses. Being a form of partnership, a joint venture is generally Art. 1773. A contract of partnership is void, whenever immovable
22
governed by the law on partnership. property is contributed thereto, if an inventory of said property is not
The underlying issue that necessarily comes to mind in this made, signed by the parties, and attached to the public instrument.
proceedings is whether or not petitioner and respondent Eduardo are Annex "A-1", on its face, contains typewritten entries, personal in
partners in the theatre, shipping and realty business, as one claims tone, but is unsigned and undated. As an unsigned document, there
but which the other denies. And the issue bearing on the first can be no quibbling that Annex "A-1" does not meet the public
assigned error relates to the question of what legal provision is instrumentation requirements exacted under Article 1771 of the Civil
applicable under the premises, petitioner seeking, as it were, to Code. Moreover, being unsigned and doubtless referring to a
enforce the actionable document - Annex "A-1" - which he depicts in partnership involving more than P3,000.00 in money or property,
his complaint to be the contract of partnership/joint venture between Annex "A-1" cannot be presented for notarization, let alone
himself and Eduardo. Clearly, then, a look at the legal provisions registered with the Securities and Exchange Commission (SEC), as

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called for under the Article 1772 of the Code. And inasmuch as the contributed to the perceived partnership.
inventory requirement under the succeeding Article 1773 goes into Lest it be overlooked, the contract-validating inventory requirement
the matter of validity when immovable property is contributed to the under Article 1773 of the Civil Code applies as long real property or
partnership, the next logical point of inquiry turns on the nature of real rights are initially brought into the partnership. In short, it is
petitioner’s contribution, if any, to the supposed partnership. really of no moment which of the partners, or, in this case, who
The CA, addressing the foregoing query, correctly stated that between petitioner and his brother Eduardo, contributed immovables.
petitioner’s contribution consisted of immovables and real rights. In context, the more important consideration is that real property was
Wrote that court: contributed, in which case an inventory of the contributed property
A further examination of the allegations in the complaint would duly signed by the parties should be attached to the public
show that [petitioner’s] contribution to the so-called instrument, else there is legally no partnership to speak of.
"partnership/joint venture" was his supposed share in the family Petitioner, in an obvious bid to evade the application of Article 1773,
business that is consisting of movie theaters, shipping and land argues that the immovables in question were not contributed, but
development under paragraph 3.02 of the complaint. In other words, were acquired after the formation of the supposed partnership.
his contribution as a partner in the alleged partnership/joint venture Needless to stress, the Court cannot accord cogency to this specious
consisted of immovable properties and real rights. …. 23
argument. For, as earlier stated, petitioner himself admitted
Significantly enough, petitioner matter-of-factly concurred with the contributing his share in the supposed shipping, movie theatres and
appellate court’s observation that, prescinding from what he himself realty development family businesses which already owned
alleged in his basic complaint, his contribution to the partnership immovables even before Annex "A-1" was allegedly executed.
consisted of his share in the Litonjua family businesses which owned Considering thus the value and nature of petitioner’s alleged
variable immovable properties. Petitioner’s assertion in his motion contribution to the purported partnership, the Court, even if so
for reconsideration24 of the CA’s decision, that "what was to be disposed, cannot plausibly extend Annex "A-1" the legal effects that
contributed to the business [of the partnership] was [petitioner’s] petitioner so desires and pleads to be given. Annex "A-1", in fine,
industry and his share in the family [theatre and land development] cannot support the existence of the partnership sued upon and sought
business" leaves no room for speculation as to what petitioner to be enforced. The legal and factual milieu of the case calls for this

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disposition. A partnership may be constituted in any form, save when actionable document attached thereto, clearly demonstrates that
immovable property or real rights are contributed thereto or when the [petitioner] has NO valid contractual or legal right which could be
partnership has a capital of at least P3,000.00, in which case a public violated by the [individual respondents] herein. As a consequence,
instrument shall be necessary.25 And if only to stress what has [petitioner’s] complaint does NOT state a valid cause of action
repeatedly been articulated, an inventory to be signed by the parties because NOT all the essential elements of a cause of action are
and attached to the public instrument is also indispensable to the present. (Underscoring and words in bracket added.)
validity of the partnership whenever immovable property is Likewise well-taken are the following complementary excerpts from
contributed to it. the CA’s equally assailed Resolution of December 7, 200427 denying
Given the foregoing perspective, what the appellate court wrote in its petitioner’s motion for reconsideration:
assailed Decision26 about the probative value and legal effect of Further, We conclude that despite glaring defects in the allegations in
Annex "A-1" commends itself for concurrence: the complaint as well as the actionable document attached thereto
Considering that the allegations in the complaint showed that (Rollo, p. 191), the [trial] court did not appreciate and apply the legal
[petitioner] contributed immovable properties to the alleged provisions which were brought to its attention by herein
partnership, the "Memorandum" (Annex "A" of the complaint) [respondents] in the their pleadings. In our evaluation of
which purports to establish the said "partnership/joint venture" is [petitioner’s] complaint, the latter alleged inter alia to have
NOT a public instrument and there was NO inventory of the contributed immovable properties to the alleged partnership but the
immovable property duly signed by the parties. As such, the said actionable document is not a public document and there was no
"Memorandum" … is null and void for purposes of establishing the inventory of immovable properties signed by the parties. Both the
existence of a valid contract of partnership. Indeed, because of the allegations in the complaint and the actionable documents
failure to comply with the essential formalities of a valid contract, considered, it is crystal clear that [petitioner] has no valid or legal
the purported "partnership/joint venture" is legally inexistent and it right which could be violated by [respondents]. (Words in bracket
produces no effect whatsoever. Necessarily, a void or legally added.)
inexistent contract cannot be the source of any contractual or legal Under the second assigned error, it is petitioner’s posture that Annex
right. Accordingly, the allegations in the complaint, including the "A-1", assuming its inefficacy or nullity as a partnership document,

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nevertheless created demandable rights in his favor. As petitioner jurisdiction. Petitioner’s act of changing his original theory is an
succinctly puts it in this petition: impermissible practice and constitutes, as the CA aptly declared, an
43. Contrariwise, this actionable document, especially its above- admission of the untenability of such theory in the first place.
quoted provisions, established an actionable contract even though it [Petitioner] is now humming a different tune . . . . In a sudden twist
may not be a partnership. This actionable contract is what is known of stance, he has now contended that the actionable instrument may
as an innominate contract (Civil Code, Article 1307). be considered an innominate contract. xxx Verily, this now changes
44. It may not be a contract of loan, or a mortgage or whatever, but [petitioner’s] theory of the case which is not only prohibited by the
surely the contract does create rights and obligations of the parties Rules but also is an implied admission that the very theory he
and which rights and obligations may be enforceable and himself … has adopted, filed and prosecuted before the respondent
demandable. Just because the relationship created by the agreement court is erroneous.
cannot be specifically labeled or pigeonholed into a category of Be that as it may . …. We hold that this new theory contravenes
nominate contract does not mean it is void or unenforceable. [petitioner’s] theory of the actionable document being a partnership
Petitioner has thus thrusted the notion of an innominate contract on document. If anything, it is so obvious we do have to test the
this Court - and earlier on the CA after he experienced a reversal of sufficiency of the cause of action on the basis of partnership law
fortune thereat - as an afterthought. The appellate court, however, xxx.29 (Emphasis in the original; Words in bracket added).
cannot really be faulted for not yielding to petitioner’s dubious But even assuming in gratia argumenti that Annex "A-1" partakes of
stratagem of altering his theory of joint venture/partnership to an a perfected innominate contract, petitioner’s complaint would still be
innominate contract. For, at bottom, the appellate court’s certiorari dismissible as against Eduardo and, more so, against Yang. It cannot
jurisdiction was circumscribed by what was alleged to have been the be over-emphasized that petitioner points to Eduardo as the author of
order/s issued by the trial court in grave abuse of discretion. As Annex "A-1". Withal, even on this consideration alone, petitioner’s
respondent Yang pointedly observed,28 since the parties’ basic claim against Yang is doomed from the very start.
position had been well-defined, that of petitioner being that the As it were, the only portion of Annex "A-1" which could perhaps be
actionable document established a partnership/joint venture, it is on remotely regarded as vesting petitioner with a right to demand from
those positions that the appellate court exercised its certiorari respondent Eduardo the observance of a determinate conduct, reads:

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xxx You will be the only one left with the company, among us to a common fund would be to read something not written in Annex
brothers and I will ask you to stay as I want you to run this office "A-1". Thus, even this angle alone argues against the very idea of a
everytime I am away. I want you to run it the way I am trying to run partnership, the creation of which requires two or more contracting
it because I will be alone and I will depend entirely to you, My sons minds mutually agreeing to contribute money, property or industry to
will not be ready to help me yet until about maybe 15/20 years from a common fund with the intention of dividing the profits between or
now. Whatever is left in the corporation, I will make sure that you among themselves.32
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) In sum then, the Court rules, as did the CA, that petitioner’s
equity, whichever is greater. (Underscoring added) complaint for specific performance anchored on an actionable
It is at once apparent that what respondent Eduardo imposed upon document of partnership which is legally inexistent or void or, at
himself under the above passage, if he indeed wrote Annex "A-1", is best, unenforceable does not state a cause of action as against
a promise which is not to be performed within one year from respondent Eduardo and the corporate defendants. And if no of
"contract" execution on June 22, 1973. Accordingly, the agreement action can successfully be maintained against respondent Eduardo
embodied in Annex "A-1" is covered by the Statute of Frauds and because no valid partnership existed between him and petitioner, the
ergo unenforceable for non-compliance therewith.30 By force of the Court cannot see its way clear on how the same action could
statute of frauds, an agreement that by its terms is not to be plausibly prosper against Yang. Surely, Yang could not have become
performed within a year from the making thereof shall be a partner in, or could not have had any form of business relationship
unenforceable by action, unless the same, or some note or with, an inexistent partnership.
memorandum thereof, be in writing and subscribed by the party As may be noted, petitioner has not, in his complaint, provide the
charged. Corollarily, no action can be proved unless the requirement logical nexus that would tie Yang to him as his partner. In fact,
exacted by the statute of frauds is complied with.31 attendant circumstances would indicate the contrary. Consider:
Lest it be overlooked, petitioner is the intended beneficiary of the P1 1. Petitioner asserted in his complaint that his so-called joint
Million or 10% equity of the family businesses supposedly promised venture/partnership with Eduardo was "for the continuation of their
by Eduardo to give in the near future. Any suggestion that the stated family business and common family funds which were theretofore
amount or the equity component of the promise was intended to go being mainly managed by Eduardo." 33 But Yang denies kinship with

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the Litonjua family and petitioner has not disputed the disclaimer. as "progeny" of the Odeon Theatre business.34
2. In some detail, petitioner mentioned what he had contributed to Needless to stress, petitioner has not sufficiently established in his
the joint venture/partnership with Eduardo and what his share in the complaint the legal vinculum whence he sourced his right to drag
businesses will be. No allegation is made whatsoever about what Yang into the fray. The Court of Appeals, in its assailed decision,
Yang contributed, if any, let alone his proportional share in the captured and formulated the legal situation in the following wise:
profits. But such allegation cannot, however, be made because, as [Respondent] Yang, … is impleaded because, as alleged in the
aptly observed by the CA, the actionable document did not contain complaint, he is a "partner" of [Eduardo] and the [petitioner] in the
such provision, let alone mention the name of Yang. How, indeed, Odeon Theater Investment which expanded through reinvestments of
could a person be considered a partner when the document profits and direct investments in several corporations, thus:
purporting to establish the partnership contract did not even mention xxx xxx xxx
his name. Clearly, [petitioner’s] claim against … Yang arose from his alleged
3. Petitioner states in par. 2.01 of the complaint that "[he] and partnership with petitioner and the …respondent. However, there
Eduardo are business partners in the [respondent] corporations," was NO allegation in the complaint which directly alleged how the
while "Bobby is his and Eduardo’s partner in their Odeon Theater supposed contractual relation was created between [petitioner] and
investment’ (par. 2.03). This means that the partnership between …Yang. More importantly, however, the foregoing ruling of this
petitioner and Eduardo came first; Yang became their partner in their Court that the purported partnership between [Eduardo] is void and
Odeon Theater investment thereafter. Several paragraphs later, legally inexistent directly affects said claim against …Yang. Since
however, petitioner would contradict himself by alleging that his [petitioner] is trying to establish his claim against … Yang by linking
"investment and that of Eduardo and Yang in the Odeon theater him to the legally inexistent partnership . . . such attempt had become
business has expanded through a reinvestment of profit income and futile because there was NOTHING that would contractually connect
direct investments in several corporation including but not limited to [petitioner] and … Yang. To establish a valid cause of action, the
[six] corporate respondents" This simply means that the "Odeon complaint should have a statement of fact upon which to connect
Theatre business" came before the corporate respondents. [respondent] Yang to the alleged partnership between [petitioner]
Significantly enough, petitioner refers to the corporate respondents and respondent [Eduardo], including their alleged investment in the

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Odeon Theater. A statement of facts on those matters is pivotal to the joint venture, or whatever, is a legal matter. What is determinative
complaint as they would constitute the ultimate facts necessary to for purposes of sufficiency of the complainant’s allegations, is
establish the elements of a cause of action against … Yang. 35
whether the actionable document bears out an actionable contract –
Pressing its point, the CA later stated in its resolution denying be it a partnership, a joint venture or whatever or some innominate
petitioner’s motion for reconsideration the following: contract … It may be noted that one kind of innominate contract is
xxx Whatever the complaint calls it, it is the actionable document what is known as du ut facias (I give that you may do).37
attached to the complaint that is controlling. Suffice it to state, We 43. Contrariwise, this actionable document, especially its above-
have not ignored the actionable document … As a matter of fact, We quoted provisions, established an actionable contract even though it
emphasized in our decision … that insofar as [Yang] is concerned, may not be a partnership. This actionable contract is what is known
he is not even mentioned in the said actionable document. We are as an innominate contract (Civil Code, Article 1307).38
therefore puzzled how a person not mentioned in a document Springing surprises on the opposing party is offensive to the sporting
purporting to establish a partnership could be considered a partner.36 idea of fair play, justice and due process; hence, the proscription
(Words in bracket ours). against a party shifting from one theory at the trial court to a new and
The last issue raised by petitioner, referring to whether or not he different theory in the appellate court.39 On the same rationale, an
changed his theory of the case, as peremptorily determined by the issue which was neither averred in the complaint cannot be raised for
CA, has been discussed at length earlier and need not detain us long. the first time on appeal.40 It is not difficult, therefore, to agree with
Suffice it to say that after the CA has ruled that the alleged the CA when it made short shrift of petitioner’s innominate contract
partnership is inexistent, petitioner took a different tack. Thus, from theory on the basis of the foregoing basic reasons.
a joint venture/partnership theory which he adopted and consistently Petitioner’s protestation that his act of introducing the concept of
pursued in his complaint, petitioner embraced the innominate innominate contract was not a case of changing theories but of
contract theory. Illustrative of this shift is petitioner’s statement in supporting his pleaded cause of action – that of the existence of a
par. #8 of his motion for reconsideration of the CA’s decision partnership - by another legal perspective/argument, strikes the Court
combined with what he said in par. # 43 of this petition, as follows: as a strained attempt to rationalize an untenable position. Paragraph
8. Whether or not the actionable document creates a partnership, 12 of his motion for reconsideration of the CA’s decision virtually

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relegates partnership as a fall-back theory. Two paragraphs later, in the undated and unsigned Annex "A-1". A void Annex "A-1", as an
the same notion, petitioner faults the appellate court for reading, with actionable document of partnership, would strip petitioner of a cause
myopic eyes, the actionable document solely as establishing a of action under the premises. A complaint for delivery and
partnership/joint venture. Verily, the cited paragraphs are a study of accounting of partnership property based on such void or legally
a party hedging on whether or not to pursue the original cause of non-existent actionable document is dismissible for failure to state of
action or altogether abandoning the same, thus: action. So, in gist, said the Court of Appeals. The Court agrees.
12. Incidentally, assuming that the actionable document created a WHEREFORE, the instant petition is DENIED and the impugned
partnership between [respondent] Eduardo, Sr. and [petitioner], no Decision and Resolution of the Court of Appeals AFFIRMED.
immovables were contributed to this partnership. xxx Cost against the petitioner.
14. All told, the Decision takes off from a false premise that the SO ORDERED.
actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and … Eduardo, Sr. and
Roberto T Yang simply because his document does not create a
partnership or a joint venture. This is … a myopic reading of the
actionable document.
Per the Court’s own count, petitioner used in his complaint the
mixed words "joint venture/partnership" nineteen (19) times and the
term "partner" four (4) times. He made reference to the "law of joint
venture/partnership [being applicable] to the business relationship
… between [him], Eduardo and Bobby [Yang]" and to his "rights in
all specific properties of their joint venture/partnership". Given this
consideration, petitioner’s right of action against respondents
Eduardo and Yang doubtless pivots on the existence of the
partnership between the three of them, as purportedly evidenced by

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