CASES IN PARTERSHIP, AGENCY, AND TRUSTS
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus
[G.R. No. 144214. July 14, 2003]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners, vs. DONALDO EFREN C.
RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents.
DECISION
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the
latters dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March
23, 2000 Decision[1] and the July 26, 2000 Resolution[2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 41026.The assailed Decision disposed as
follows:
WHEREFORE, foregoing premises considered, the Decision dated July 21,
1992 rendered by the Regional Trial Court, Branch 148, Makati City is
hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is
rendered ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No pronouncement
as to costs.[4]
Reconsideration was denied in the impugned Resolution.
The Facts
Jose formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name Aquarius Food House and
Catering Services.[5] Villareal was appointed general manager and Carmelito
Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000 was
paid by his parents, Respondents Cesar and Carmelita Ramirez.[6]
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by agreement
of the partners.[7]
In the same month, without prior knowledge of respondents, petitioners
closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents house
for storage.[8]
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in reopening
the restaurant, and that they were accepting the latters offer to return their
capital contribution.[9]
On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment
stored in their house. She also reiterated the request for the return of their
one-third share in the equity of the partnership. The repeated oral and written
requests were, however, left unheeded.[10]
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint[11] dated November 10, 1987, for
the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a
desire to withdraw from the partnership and had called for its dissolution
under Articles 1830 and 1831 of the Civil Code; that respondents had been
paid, upon the turnover to them of furniture and equipment worth
over P400,000; and that the latter had no right to demand a return of their
equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.[12]
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were
true, then the loans incurred by petitioners should be regarded as purely
personal and, as such, not chargeable to the partnership. The former further
averred that they had not received any regular report or accounting from the
latter, who had solely managed the business. Respondents also alleged that
they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the
restaurant.[13]
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment[14] on July 8, 1988. The
furniture and the equipment stored in their house were inventoried and
appraised at P29,000.[15] The display freezer was sold for P5,000 and the
proceeds were paid to them.[16]
After trial, the RTC[17] ruled that the parties had voluntarily entered into
a partnership, which could be dissolved at any time. Petitioners clearly
intended to dissolve it when they stopped operating the restaurant. Hence, the
trial court, in its July 21, 1992 Decision, held them liable as follows: [18]
WHEREFORE, judgment is hereby rendered in favor of [respondents] and
against the [petitioners] ordering the [petitioners] to pay jointly and
severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the
return of their capital contribution, the partnership was nonetheless dissolved
when petitioners lost interest in continuing the restaurant business with
them. Because petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient evidence was
presented to show financial losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before [respondents] have joined the
partnership but in accordance with Article 1826 of the New Civil Code,
they are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get
the share of [respondents], this amount of P759,342.00 must be divided into
three (3) shares or in the amount of P253,114.00 for each share and which is
the only amount which [petitioner] will return to [respondents] representing
the contribution to the partnership minus the outstanding debt thereof. [19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit the following issues for our
consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the
distribution of the capital contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs.[22]
 On closer scrutiny, the issues are as follows: (1) whether petitioners are
liable to respondents for the latters share in the partnership; (2) whether the
CAs computation of P253,114 as respondents share is correct; and (3)
whether the CA was likewise correct in not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had
indeed existed, and that it was dissolved on March 1, 1987. They found that
the dissolution took place when respondents informed petitioners of the
intention to discontinue it because of the formers dissatisfaction with, and
loss of trust in, the latters management of the partnership affairs. These
findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third equity
in the partnership.
We hold that respondents have no right to demand from petitioners the
return of their equity share. Except as managers of the partnership, petitioners
did not personally hold its equity or assets. The partnership has a juridical
personality separate and distinct from that of each of the partners. [23] Since
the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners. [24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only pay out what it has
in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be
compensated.[25] After all the creditors have been paid, whatever is left of the
partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated -- in other words, sold and
converted to cash -- and all partnership creditors, if any, paid. The CAs
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial court showed
that the business had made meager profits.[26] However, notable therefrom is
the omission of any provision for the depreciation[27] of the furniture and the
equipment. The amortization of the goodwill[28] (initially valued at P500,000)
is not reflected either.Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership.Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to
almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.
Second, the CAs finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence. We
sustain the contrary finding of the RTC, which had rejected the contention
that the obligation belonged to the partnership for the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. 4) does not reveal the
total loan. The Agreement (Exh. A) par. 6 shows an outstanding obligation
of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. 8) shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case, who obtained a loan
of P355,000.00 on Oct. 1983, when the original partnership was not yet
formed.
Third, the CA failed to reduce the capitalization by P250,000, which
was the amount paid by the partnership to Jesus Jose when he withdrew from
the partnership.
Because of the above-mentioned transactions, the partnership capital
was actually reduced. When petitioners and respondents ventured into
business together, they should have prepared for the fact that their investment
would either grow or shrink. In the present case, the investment of
respondents substantially dwindled. The original amount of P250,000 which
they had invested could no longer be returned to them, because one third of
the partnership properties at the time of dissolution did not amount to that
much.
It is a long established doctrine that the law does not relieve parties from
the effects of unwise, foolish or disastrous contracts they have entered into
with all the required formalities and with full awareness of what they were
doing. Courts have no power to relieve them from obligations they have
voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments.[29]
Petitioners further argue that respondents acted negligently by
permitting the partnership assets in their custody to deteriorate to the point of
being almost worthless. Supposedly, the latter should have liquidated these
sole tangible assets of the partnership and considered the proceeds as payment
of their net capital. Hence, petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to
private respondents was for the purpose of storage. They were unaware that
the restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as a
matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic
of the Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party, courts
have discretion, for special reasons, to decree otherwise. When a lower court
is reversed, the higher court normally does not award costs, because the losing
party relied on the lower courts judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous.Unless shown to
be patently capricious, the award shall not be disturbed by a reviewing
tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision
and Resolution SET ASIDE. This disposition is without prejudice to proper
proceedings for the accounting, the liquidation and the distribution of the
remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.
[G.R. No. 135813. October 25, 2001]
FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES
REYES, respondents.
DECISION
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming
those of the trial court are binding on the Supreme Court. However, there are
several exceptions to this principle. In the present case, we find occasion to
apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November
28, 1997 Decision,[1] as well as the August 17, 1998 and the October 9, 1998
Resolutions,[2] issued by the Court of Appeals (CA) in CA-GR CV No.
34742. The Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17,
1998 Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is
GRANTED. Accordingly, the courts decision dated November 28, 1997 is
hereby MODIFIED in that the decision appealed from is AFFIRMED in
toto, with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack of merit petitioners
Motion for Reconsideration of the August 17, 1998 Resolution.[5]
The Facts
The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent]
Nieves Reyes were introduced to each other by one Meliton Zabat regarding
a lending business venture proposed by Nieves. It was verbally agreed that
[petitioner would] act as financier while [Nieves] and Zabat [would] take
charge of solicitation of members and collection of loan payments. The
venture was launched on June 13, 1986, with the understanding that
[petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to
[petitioner]. Gragera, as chairman of the Monte Maria Development
Corporation[6] (Monte Maria, for brevity), sought short-term loans for
members of the corporation. [Petitioner] and Gragera executed an
agreement providing funds for Monte Marias members. Under the
agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves
kept the books as representative of [petitioner] while [Respondent] Arsenio,
husband of Nieves, acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the
Article of Agreement which formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in
the same lending business in competition with their partnership[.] Zabat was
thereby expelled from the partnership. The operations with Monte Maria
continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of
money and damages. [Petitioner] charged [respondents], allegedly in their
capacities as employees of [petitioner], with having misappropriated funds
intended for Gragera for the period July 8, 1986 up to March 31,
1987. Upon Grageras complaint that his commissions were inadequately
remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given to
Gragera. x x x Nieves allegedly failed to account for the
amount. [Petitioner] asserted that after examination of the records, he found
that of the total amount of P4,623,201.90 entrusted to [respondents],
only P3,068,133.20 was remitted to Gragera, thereby leaving the balance
of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt
and prevent them from claiming their rightful share to the profits of the
partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of
Zabat after [petitioner] learned of Zabats activities. Arsenio resigned from
his job at the Asian Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business as a
partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20,
1986, she did not handle sums intended for Gragera. Collections were
turned over to Gragera because he guaranteed 100% payment of all sums
loaned by Monte Maria. Entries she made on worksheets were based on this
assumptive 100% collection of all loans. The loan releases were made less
Grageras agreed commission. Because of this arrangement, she neither
received payments from borrowers nor remitted any amount to Gragera. Her
job was merely to make worksheets (Exhs. 15 to 15-DDDDDDDDDD) to
convey to [petitioner] how much he would earn if all the sums guaranteed
by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He
claimed that after he discovered Zabats activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and
Zabat. [Petitioner] asserted that [respondents] were hired as salaried
employees with respect to the partnership between [petitioner] and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she
received all payments from which Nieves deducted Grageras
commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following
points: whether [respondents] were employees or partners of [petitioner],
whether [petitioner] entrusted money to [respondents] for delivery to
Gragera, whether the P1,555,068.70 claimed under the complaint was
actually remitted to Gragera and whether [respondents] were entitled to
their counterclaim for share in the profits.[7]
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents
were partners, not mere employees, of petitioner. It further ruled that Gragera
was only a commission agent of petitioner, not his partner. Petitioner
moreover failed to prove that he had entrusted any money to Nieves. Thus,
respondents counterclaim for their share in the partnership and for damages
was granted. The trial court disposed as follows:
39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26,
1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay
the [Respondent] NIEVES S. REYES, the following:
39.2.1. P3,064,428.00 - The 15 percent share of the respondent NIEVES
REYES in her profits of her joint venture with the petitioner.
39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987
until the P3,064,428.00 is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the
[respondent] ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the
[respondent] ARSENIO REYES in the profits of his joint venture with the
[petitioner].
39.3.2. Six (6) percent of - As damages from P2,899,739.50 August 3, 1987
until the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay
the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and
39.4.2 The cost of the suit.[8]
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the
counterclaim of respondents was dismissed. Upon the latters Motion for
Reconsideration, however, the trial courts Decision was reinstated in
toto. Subsequently, petitioners own Motion for Reconsideration was denied
in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence
of a partnership among the parties: (1) it was Nieves who broached to
petitioner the idea of starting a money-lending business and introduced him
to Gragera; (2) Arsenio received dividends or profit-shares covering the
period July 15 to August 7, 1986 (Exh. 6); and (3) the partnership contract
was executed after the Agreement with Gragera and petitioner and thus
showed the parties intention to consider it as a transaction of the
partnership. In their common venture, petitioner invested capital while
respondents contributed industry or services, with the intention of sharing in
the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated
a total of P200,000 which was supposed to be delivered to Gragera to cover
unpaid commissions. It was his task to collect the amounts due, while hers
was merely to prepare the daily cash flow reports (Exhs. 15-
15DDDDDDDDDD) to keep track of his collections.
[9]
Hence, this Petition.
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of
discretion tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers
and not employees of Santos in connection with the agreement
between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received
by on documents signed by Nieves Reyes signified receipt of
copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was
a forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves
Reyes of P200,000.00 for delivery to Gragera;
5. Affirming the dismissal of Santos [Second] Amended
Complaint;
6. Affirming the decision of the trial court, upholding private
respondents counterclaim;
7. Denying Santos motion for reconsideration dated September 11,
1998.
Succinctly put, the following were the issues raised by petitioner: (1)
whether the parties relationship was one of partnership or of employer-
employee; (2) whether Nieves misappropriated the sums of money allegedly
entrusted to her for delivery to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as determined by the trial
court.
The Courts Ruling
 The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent
spouses in the money-lending venture with Gragera, with Nieves as
bookkeeper and Arsenio as credit investigator. That Nieves introduced
Gragera to Santos did not make her a partner. She was only a witness to the
Agreement between the two. Separate from the partnership between
petitioner and Gragera was that which existed among petitioner, Nieves and
Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners
contentions and ruled that the business relationship was one of
partnership. We quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x x x Nieves herself
provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), [respondents] contributed industry to the common
fund with the intention of sharing in the profits of the
partnership. [Respondents] provided services without which the partnership
would not have [had] the wherewithal to carry on the purpose for which it
was organized and as such [were] considered industrial partners
(Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat
was technically dissolved by the expulsion of Zabat therefrom, the
remaining partners simply continued the business of the partnership without
undergoing the procedure relative to dissolution. Instead, they invited
Arsenio to participate as a partner in their operations. There was therefore,
no intent to dissolve the earlier partnership. The partnership between
[petitioner,] Nieves and Arsenio simply took over and continued the
business of the former partnership with Zabat, one of the incidents of which
was the lending operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities
undertaken with Monte Maria was done in pursuit of the business for which
the partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid
commissions in exchange for the collection of loans. The commissions were
fixed on gross returns, regardless of the expenses incurred in the operation
of the business. The sharing of gross returns does not in itself establish a
partnership.[11]
We agree with both courts on this point. By the contract of partnership,
two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among
themselves.[12] The Articles of Agreement stipulated that the signatories shall
share the profits of the business in a 70-15-15 manner, with petitioner getting
the lions share.[13] This stipulation clearly proved the establishment of a
partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte Maria
Community Development Group, Inc., which later on changed its business
name to Private Association for Community Development, Inc.
(PACDI). Nieves was not merely petitioners employee. She discharged her
bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement,
which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x each be
responsible in handling the collection of the loan payments of the borrowers
that they each solicited.
3. That the bookkeeping and daily balancing of account of the business
operation shall be handled by the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves
Reyes. On the other hand, Arsenios duties as credit investigator are subsumed
under the phrase screening of prospective borrowers. Because of this
Agreement and the disbursement of monthly allowances and profit shares or
dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts
that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending
business, despite the fact that it was formalized only after the Memorandum
of Agreement had been signed by petitioner and Gragera. Contrary to
petitioners contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6,
1986, or about a month after the Memorandum had been signed by petitioner
and Gragera on July 14, 1986. The Agreement itself attests to this fact:
WHEREAS, the parties have decided to formalize the terms of their
business relationship in order that their respective interests may be properly
defined and established for their mutual benefit and understanding. [15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate
money intended for Grageras commission. According to him, Gragera
remitted his daily collection to Nieves. This is shown by Exhibit B (the
Schedule of Daily Payments), which bears her signature under the words
received by. For the period July 1986 to March 1987, Gragera should have
earned a total commission of P4,282,429.30.However, only P3,068,133.20
was received by him. Thus, petitioner infers that she misappropriated the
difference of P1,214,296.10, which represented the unpaid
commissions. Exhibit H is an untitled tabulation which, according to him,
shows that Gragera was also entitled to a commission of P200,000, an amount
that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show
that Nieves received for delivery to Gragera any amount from which
the P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the
CA:
The presentation of Exhibit D vaguely denominated as members ledger does
not clearly establish that Nieves received amounts from Monte Marias
members. The document does not clearly state what amounts the entries
thereon represent. More importantly, Nieves made the entries for the limited
period of January 11, 1987 to February 17, 1987 only while the rest were
made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows
acknowledgment of the remittance of commissions to Verona
Gonzales. The document is a private one and its due execution and
authenticity have not been duly proved as required in [S]ection 20, Rule 132
of the Rules of Court which states:
Sec. 20. Proof of Private Document Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the
maker.
Any other private document need only be identified as that which it is
claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it
found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it
is a forgery. The initial stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures of NIEVES (Exhs.
A-3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and of
the genuine signatures lends credence to Nieves claim that the signature
Exh. E-1 is a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily payment (Exhs. B and F) were
based on the predetermined 100% collection as guaranteed by Gragera is
credible and clearly in accord with the evidence. A perusal of Exhs. B and F
as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries were
indeed based on the 100% assumptive collection guaranteed by
Gragera. Thus, the total amount recorded on Exh. B is exactly the number
of borrowers multiplied by the projected collection of P150.00 per
borrower. This holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that
she signed them not to signify that she collected the amounts but that she
received the documents themselves is more believable than [petitioners]
assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally
establish that x x x Nieves received P200,000.00 as commission for
Gragera. As correctly stated by the court a quo, the document showed a
liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence. Since
Gragera guaranteed a daily 100% payment of the loans, he took charge of
the collections. As [petitioners] representative, Nieves merely prepared the
daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable
[petitioner] to keep track of Grageras operations.Gragera on the other hand
devised the schedule of daily payment (Exhs. B and F) to record the
projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS version
would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES
would get GRAGERAs commissions from the amortizations and then give
such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we
quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its
sixth column ADDITIONAL CASH that the additional cash
was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give
the P200,000.00 to GRAGERA when he received the latters letter
complaining of its delayed release. Assuming as true SANTOS claim that
he gave P200,000.00 to GRAGERA, there is no competent evidence that
NIEVES did not give it to GRAGERA. The only proof that NIEVES did not
give it is the letter. But SANTOS did not even present the letter in
evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending
business of SANTOS were covered by petty cash vouchers. It is therefore
strange why SANTOS did not present any voucher or receipt covering
the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had
embezzled P1,555,068.70 from the partnership. She did not
remit P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits B and F are merely computations of
what Gragera should collect for the day; they do not show that Nieves
received the amounts stated therein. Neither is there sufficient proof that she
misappropriated P200,000, because Exhibit H does not indicate that such
amount was received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual
findings is warranted. Well-entrenched is the basic rule that factual findings
of the Court of Appeals affirming those of the trial court are binding and
conclusive on the Supreme Court.[19] Although there are exceptions to this
rule, petitioner has not satisfactorily shown that any of them is applicable to
this issue.
 Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of
the partnership. He maintains that both business propositions were flops, as
his investments were consumed and eaten up by the commissions
orchestrated to be due Gragera a situation that could not have been rendered
possible without complicity between Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner
instituted the action below to avoid payment of the demands of Nieves,
because sometime in March 1987, she signified to petitioner that it was about
time to get her share of the profits which had already accumulated to some P3
million. Respondents add that while the partnership has not declared
dividends or liquidated its earnings, the profits are already reflected on
paper. To prove the counterclaim of Nieves, the spouses show that from June
13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq.
and 15 et seq.). Based on that income, her 15 percent share under the joint
venture amounts to P3,064,428 (Exh. 10-I-3); and Arsenios, P2,026,000
minus the P30,000 which was already advanced to him (Petty Cash Vouchers,
Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature,
pending an accounting of the partnership. However, in its assailed Resolution
of August 17, 1998, it turned volte face. Affirming the trial courts ruling on
the counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and
losses of the partnership before we can rule with certainty as to the
respective shares of the partners. Upon a further review of the records of
this case, however, there appears to be sufficient basis to determine the
amount of shares of the parties and damages incurred by [respondents]. The
fact is that the court a quo already made such a determination [in its]
decision dated August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
27. The defendants counterclaim for the payment of their share in the profits
of their joint venture with SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on
the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working
papers (Exhs. 10 to 10-I, inclusive) which she prepared.Exhs. 10 to 10-I
(inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D
(10) were given to SANTOS. The joint venture had a net profit
of P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to
April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending
business he was engaged in netted a profit and that the originals of the daily
case flow reports were furnished to him. SANTOS however alleged that the
money-lending operation of his joint venture with NIEVES and ZABAT
resulted in a loss of about half a million pesos to him. But such loss, even if
true, does not negate NIEVES claim that overall, the joint venture among
them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason
for the Court to doubt the veracity of [the testimony of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the
profits (Exhs. 6, 6-A and 6-B) should be deducted from his total share.[21]
After a close examination of respondents exhibits, we find reason to
disagree with the CA. Exhibit 10-I[22] shows that the partnership earned a
total income of P20,429,520 for the period June 13, 1986 until April 19,
1987. This entry is derived from the sum of the amounts under the following
column headings: 2-Day Advance Collection, Service Fee, Notarial Fee,
Application Fee, Net Interest Income and Interest Income on Investment.
Such entries represent the collections of the money-lending business or its
gross income.
The total income shown on Exhibit 10-I did not consider the expenses
sustained by the partnership. For instance, it did not factor in the gross loan
releases representing the money loaned to clients. Since the business is
money-lending, such releases are comparable with the inventory or supplies
in other business enterprises.
 Noticeably missing from the computation of the total income is the in the third issue, the rule may be relaxed. Under that situation, this Court has
deduction of the weekly allowance disbursed to respondents. Exhibits I et a similar opportunity to inspect, examine and evaluate those records,
seq. and J et seq.[23] show that Arsenio received allowances from July 19, independently of the lower courts. Hence, we deem the award of the
1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, partnership share, as computed by the trial court and adopted by the CA, to
from July 12, 1986 to March 27, 1987 in the total amount of P25,600. These be incomplete and not binding on this Court.
allowances are different from the profit already received by Arsenio. They
represent expenses that should have been deducted from the business WHEREFORE, the Petition is partly GRANTED. The assailed
profits. The point is that all expenses incurred by the money-lending November 28, 1997 Decision is AFFIRMED, but the challenged Resolutions
enterprise of the parties must first be deducted from the total income in order dated August 17, 1998 and October 9, 1998 are REVERSEDand SET
to arrive at the net profit of the partnership. The share of each one of them ASIDE. No costs.
should be based on this net profit and not from the gross income or total SO ORDERED.
income reflected in Exhibit 10-I, which the two courts invariably referred to
as cash flow sheets. Melo, (Chairman), and Sandoval-Gutierrez, JJ., concur.
Vitug, J., on official leave.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports,
do not reflect the business expenses incurred by the parties, because they
show only the daily cash collections. Contrary to the rulings of both the trial
and the appellate courts, respondents exhibits do not reflect
the complete financial condition of the money-lending business. The lower
[G.R. No. 127405. October 4, 2000]
courts obviously labored over a mistaken notion that Exhibit 10-I-1
represented the net profits earned by the partnership.
For the purpose of determining the profit that should go to an industrial
partner (who shares in the profits but is not liable for the losses), the gross MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT
income from all the transactions carried on by the firm must be added OF APPEALS and NENITA A. ANAY, respondents.
together, and from this sum must be subtracted the expenses or the losses
sustained in the business. Only in the difference representing the net profits DECISION
does the industrial partner share. But if, on the contrary, the losses exceed the
income, the industrial partner does not share in the losses.[25] YNARES-SANTIAGO, J.:
When the judgment of the CA is premised on a misapprehension of facts
This is a petition for review of the Decision of the Court of Appeals in
or a failure to notice certain relevant facts that would otherwise justify a
CA-G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial Court
different conclusion, as in this particular issue, a review of its factual findings
of Makati, Branch 140, in Civil Case No. 88-509.[2]
may be conducted, as an exception to the general rule applied to the first two
issues.[26] Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T. Belo,
The trial court has the advantage of observing the witnesses while they
then the vice-president for operations of Ultra Clean Water Purifier, through
are testifying, an opportunity not available to appellate courts. Thus, its
her former employer in Bangkok. Belo introduced Anay to petitioner
assessment of the credibility of witnesses and their testimonies are accorded
Marjorie Tocao, who conveyed her desire to enter into a joint venture with
great weight, even finality, when supported by substantial evidence; more so
her for the importation and local distribution of kitchen cookwares. Belo
when such assessment is affirmed by the CA. But when the issue involves the
volunteered to finance the joint venture and assigned to Anay the job of
evaluation of exhibits or documents that are attached to the case records, as
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 staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them
to different branches. The parties agreed that Belos name should not appear
in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anays name in securing distributorship
of cookware from that company. The parties agreed further that Anay would
be entitled to: (1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she would make; and (4) two
percent (2%) for her demonstration services. The agreement was not reduced
to writing on the strength of Belos assurances that he was sincere, dependable
and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati
City. Belo made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to
the southwestern regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with the consent of
Marjorie Tocao who, as president and general manager of Geminesse
Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West
Bend Co. for twenty (20) years now, acquired the distributorship of Royal
Queen cookware for Geminesse Enterprise, is the Vice President Sales
Marketing and a business partner of our company, will attend in response to
the invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices. On August 31, 1987, she
received a plaque of appreciation from the administrative and sales people
through Marjorie Tocao[4] for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo[5] entitling her to a thirty-
seven percent (37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter[6] addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.[7] Anay attempted to
contact Belo. She wrote him twice to demand her overriding commission for
the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still,
that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a
complaint for sum of money with damages[8] against Marjorie D. Tocao and
William Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as
moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff
also prayed for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) overriding commission on the
remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged
agreement with Anay that was neither reduced in writing, nor ratified, was
either unenforceable or void or inexistent. As far as Belo was concerned, his
only role was to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted, Geminesse Enterprise
was the sole proprietorship of Marjorie Tocao. Because Anay merely acted
as marketing demonstrator of Geminesse Enterprise for an agreed Anay as her co-equal, Marjorie received the same amounts of commissions
remuneration, and her complaint referred to either her compensation or as her. However, Anay failed to account for stocks valued at P200,000.00.
dismissal, such complaint should have been lodged with the Department of
Labor and not with the regular court. On April 22, 1993, the trial court rendered a decision the dispositive part
of which is as follows:
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of ill-will and resentment because Marjorie Tocao did WHEREFORE, in view of the foregoing, judgment is hereby rendered:
not allow her to lord it over in the Geminesse Enterprise. Anay had acted like
she owned the enterprise because of her experience and expertise. Hence, 1. Ordering defendants to submit to the Court a formal account as
petitioners were the ones who suffered actual damages including unreturned to the partnership affairs for the years 1987 and 1988 pursuant
and unaccounted stocks of Geminesse Enterprise, and serious anxiety,
to Art. 1809 of the Civil Code in order to determine the ten
besmirched reputation in the business world, and various damages not less
percent (10%) share of plaintiff in the net profits of the
than P500,000.00. They also alleged that, to vindicate their names, they had
cookware business;
to hire counsel for a fee of P23,000.00.
2. Ordering defendants to pay five percent (5%) overriding
At the pre-trial conference, the issues were limited to: (a) whether or not commission for the one hundred and fifty (150) cookware sets
the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) available for disposition when plaintiff was wrongfully
whether or not the parties are entitled to damages.[10]
excluded from the partnership by defendants;
In their defense, Belo denied that Anay was supposed to receive a share
3. Ordering defendants to pay plaintiff overriding commission on
in the profit of the business. He, however, admitted that the two had agreed
the total production which for the period covering January 8,
that Anay would receive a three to four percent (3-4%) share in the gross sales
1988 to February 5, 1988 amounted to P32,000.00;
of the cookware. He denied contributing capital to the business or receiving
a share in its profits as he merely served as a guarantor of Marjorie Tocao, 4. Ordering defendants to pay P100,000.00 as moral damages and
who was new in the business. He attended and/or presided over business P100,000.00 as exemplary damages, and
meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting 5. Ordering defendants to pay P50,000.00 as attorneys fees and
the plaintiff thirty-seven percent (37%) commission upon her dismissal from P20,000.00 as costs of suit.
the business venture at the request of Tocao, because Anay had no other
income. SO ORDERED.
For her part, Marjorie Tocao denied having entered into an oral
The trial court held that there was indeed an oral partnership agreement
partnership agreement with Anay. However, she admitted that Anay was an
between the plaintiff and the defendants, based on the following: (a) there
expert in the cookware business and hence, they agreed to grant her the
was an intention to create a partnership; (b) a common fund was established
following commissions: thirty-seven percent (37%) on personal sales; five
through contributions consisting of money and industry, and (c) there was a
percent (5%) on gross sales; two percent (2%) on product demonstrations,
joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin
and two percent (2%) for recruitment of personnel. Marjorie denied that they
and the administrative officer of Geminesse Enterprise from August 21, 1986
agreed on a ten percent (10%) commission on the net profits. Marjorie
until it was absorbed by Royal International, Inc., buttressed the fact that a
claimed that she got the capital for the business out of the sale of the sewing
partnership existed between the parties. The letter of Roger Muencheberg of
machines used in her garments business and from Peter Lo, a Singaporean
West Bend Company stating that he awarded the distributorship to Anay and
friend-financier who loaned her the funds with interest. Because she treated
Marjorie Tocao because he was convinced that with Marjories financial
contribution and Anays experience, the combination of the two would be
invaluable to the partnership, also supported that conclusion. Belos claim that
he was merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his
issuance of a memo giving Anay 37% commission on personal sales belied
this. On the contrary, it demonstrated his involvement as a partner in the
business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is often
resorted to in business circles as an impetus to bigger sales volume. It did not
matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be constituted in any form. The fact
that Geminesse Enterprise was registered in Marjorie Tocaos name is not
determinative of whether or not the business was managed and operated by a
sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse
Enterprise.
The trial court finally held that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner must give
him his due upon the dissolution of the partnership as well as damages or
share in the profits realized from the appropriation of the partnership business
and goodwill. An innocent partner thus possesses pecuniary interest in every
existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the
amount of damages awarded by the trial court were reduced to P50,000.00
for moral damages and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack of
merit.[12] Petitioners Belo and Marjorie Tocao are now before this Court on a
petition for review on certiorari, asserting that there was no business
partnership between them and herein private respondent Nenita A. Anay who
is, therefore, not entitled to the damages awarded to her by the Court of
Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise came into being exactly a
year before the alleged partnership was formed, and that it was very unlikely
that petitioner Belo would invest the sum of P2,500,000.00 with petitioner
Tocao contributing nothing, without any memorandum whatsoever regarding
the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which
are within the exclusive domain of both the trial and appellate courts. This
Court cannot set aside factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by the court a quo.[14] In
this case, both the trial court and the Court of Appeals are one in ruling that
petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves.[15] It may be constituted in
any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto.[16] This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code [17] did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on
the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in
the business of distributorship of cookware. Private respondent contributed
such expertise to the partnership and hence, under the law, she was the
industrial or managing partner. It was through her reputation with the West
Bend Company that the partnership was able to open the business of
distributorship of that companys cookware products; it was through the same
efforts that the business was propelled to financial success. Petitioner Tocao
herself admitted private respondents indispensable role in putting up the
business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
 A: No, sir at the start she was the marketing manager because there
were no one to sell yet, its only me there then her and then two
(2) people, so about four (4). Now, after that when she
recruited already Oscar Abella and Lina Torda-Cruz these two
(2) people were given the designation of marketing managers
of which definitely Nita as superior to them would be the Vice
President.[18]
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of
West Bend Company to Roger Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance
the operations. Marge does not have cookware experience. Nita Anay has
started to gather former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu
Javier. They will continue to gather other key people and build up the
organization. All they need is the finance and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the
partnership rings hollow in the face of the established fact that he presided
over meetings regarding matters affecting the operation of the business.
Moreover, his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of her personal
sales, could not be interpreted otherwise than that he had a proprietary interest
in the business. His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business. Moreover, if he was indeed a
guarantor of future debts of petitioner Tocao under Article 2053 of the Civil
Code,[20]he should have presented documentary evidence therefor. While
Article 2055 of the Civil Code simply provides that guaranty must be express,
Article 1403, the Statute of Frauds, requires that a special promise to answer
for the debt, default or miscarriage of another be in writing. [21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and
petitioner Belos roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocaos admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname,
Jiji.[23] The special relationship between them dovetails with petitioner Belos
claim that he was acting in behalf of petitioner Tocao. Significantly, in the
early stage of the business operation, petitioners requested West Bend
Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged
their respective capital and infused the amount into the partnership of
distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not
result in an employer-employee relationship between petitioners and private
respondent. While it is true that the receipt of a percentage of net profits
constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an employer-employee
relationship between the parties. In the first place, private respondent had a
voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocaos
admissions militate against an employer-employee relationship. She admitted
that, like her who owned Geminesse Enterprise,[27] private respondent
received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. X and Y. Please go over this. Exh. Y is
denominated `Cubao overrides 8-21-87 with ending August 21,
1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own
knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am
telling you earlier a certain percentage for promotions, advertising,
incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here
and words which I quote: Overrides Marjorie Ann Tocao
P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and
promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D.
Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this
Honorable Court that there being the same P21,410.50 is merely by
coincidence?
A: No, sir, I made it a point that we were equal because the way I look at
her kasi, you know in a sense because of her expertise in the business
she is vital to my business. So, as part of the incentive I offer her the
same thing.
Q: So, in short you are saying that this you have shared together, I mean
having gotten from the company P21,140.50 is your way of
indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other
one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann
Tocao P15,314.25 the amount there you will acknowledge you have
received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is
also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these
two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is
difficult to believe that they shall receive the same income in the business. In
a partnership, each partner must share in the profits and losses of the venture,
except that the industrial partner shall not be liable for the losses. [31] As an
industrial partner, private respondent had the right to demand for a formal
accounting of the business and to receive her share in the net profit. [32]
The fact that the cookware distributorship was operated under the name
of Geminesse Enterprise, a sole proprietorship, is of no moment. What was
registered with the Bureau of Domestic Trade on August 19, 1987 was merely
the name of that enterprise.[33] While it is true that in her undated application
for renewal of registration of that firm name, petitioner Tocao indicated that
it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the
cookware business, while 20% to 30% of its business activity was devoted to
the sale of water sterilizer or purifier.[35] Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons - it was utilized as
the common name for petitioner Tocaos various business activities, which
included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return
the unaccounted and unremitted stocks of Geminesse Enterprise amounting
to P208,250.00.[36] Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondents efforts to make the business venture
a success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private
respondent in front of other people.[38] Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to hold office in both the
Makati and Cubao sales offices concretely spoke of her perception that
private respondent was no longer necessary in the business operation, [39] and
resulted in a falling out between the two.However, a mere falling out or
misunderstanding between partners does not convert the partnership into a
sham organization.[40] The partnership exists until dissolved under the
law. Since the partnership created by petitioners and private respondent has
no fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself
is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may,
at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership but that it can result in a liability for
damages.[41]
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine
of delectus personae allows the partners to have the power, although not
necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly stating
that private respondent was, as of October 9, 1987, no longer the vice-
president for sales of Geminesse Enterprise.[43] By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying
on of the business. Nevertheless, the partnership was not terminated thereby;
it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by
the partnership. This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the
factual findings upon which it is based is primarily the task of the trial
court.[45] The Court of Appeals may modify that amount only when its factual
findings are diametrically opposed to that of the lower court, [46] or the award
is palpably or scandalously and unreasonably excessive.[47] However,
exemplary damages that are awarded by way of example or correction for the
public good,[48] should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral
damages of P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the
award of exemplary damages and petitioners evident bad faith in refusing to
satisfy private respondents plainly valid, just and demandable
claims,[49] appear to have been excessively granted by the trial court and
should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is
DENIED. The partnership among petitioners and private respondent is
ordered dissolved, and the parties are ordered to effect the winding 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 respondents
ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent
five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition since the time private
respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent
overriding commission on the total production which, for the period
covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent
moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE
FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF
APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the
Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the
earlier decision dated June 5, 1986, of the then Intermediate Appellate Court
and directed that in all subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc. (ASI)
cannot nominate more than three (3) directors; that the Filipino stockholders
shall not interfere in ASI's choice of its three (3) nominees; that, on the
other hand, the Filipino stockholders can nominate only six (6) candidates
and in the event they cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the
primary purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
European or American who could help in its expansion plans. On August
15, 1962, ASI, a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china
and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the
name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."
The Agreement has the following provisions relevant to the issues in these
cases on the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall
be substantially in the form annexed hereto as Exhibit A
and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in
a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation,
three of the nine directors shall be designated by
American-Standard, and the other six shall be designated
by the other stockholders of the Corporation. (pp. 51 &
53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to
protect it as a minority group, including the grant of veto powers over a
number of corporate acts and the right to designate certain officers, such as
a member of the Executive Committee whose vote was required for
important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation
was also registered with the Board of Investments for availment of
incentives with the condition that at least 60% of the capital stock of the
corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic
disagreement was due to their desire to expand the export operations of the
company to which ASI objected as it apparently had other subsidiaries of
joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was
held. The meeting was presided by Baldwin Young. The minutes were
taken by the Secretary, Avelino Cruz. After disposing of the preliminary
items in the agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A.
Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn
nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the
last two nominations out of order on the basis of section 5 (a) of the
Agreement, the consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of Saniwares' legal
counsel. The following events then, transpired:
... There were protests against the action of the Chairman
and heated arguments ensued. An appeal was made by the
ASI representative to the body of stockholders present
that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of
order and no vote on the ruling was taken. The Chairman
then instructed the Corporate Secretary to cast all the
votes present and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3 nominees
of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua protested the
decision of the Chairman and announced that all votes
accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively voted
for the three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E. Salazar and
other proxy holders announced that all the votes owned by
and or represented by them 467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely,
Wolfgang Aurbach, John Griffin and David Whittingham
and the six originally nominated by Rogelio Vinluan,
namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the
election of the following Wolfgang Aurbach, John
Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, Raul A. Boncan, Baldwin Young. The representative
of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28,
Rollo, AC-G.R. SP No. 05617). This motion to adjourn
was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were
registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned
but only recessed and that the meeting would be
reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E. Salazar
and other stockholders, allegedly representing 53 or 54%
of the shares of Saniwares, decided to continue the
meeting at the elevator lobby of the American Standard
Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a
tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties
with the Securities and Exchange Commission (SEC). The first petition
filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo,
Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique
Lagdameo and George F. Lee against Luciano Salazar and Charles
Chamsay. The case was denominated as SEC Case No. 2417. The second
petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC
Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case
No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer
who rendered a decision upholding the election of the Lagdameo Group and
dismissing the quo warranto petition of Salazar and Chamsay. The ASI
Group and Salazar appealed the decision to the SEC en banc which affirmed
the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604)
and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The
petitions were consolidated and the appellate court in its decision ordered
the remand of the case to the Securities and Exchange Commission with the
directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group)
the appellate court (Court of Appeals) rendered the questioned amended
decision. Petitioners Wolfgang Aurbach, John Griffin, David P. continuing monopoly of the control of a corporation. (pp.
Whittingham and Charles Chamsay in G.R. No. 75875 assign the following 14-15, Rollo-75975-76)
errors:
On the other hand, the petitioners in G.R. No. 75951 contend that:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD
THE ALLEGED ELECTION OF PRIVATE I
RESPONDENTS AS MEMBERS OF THE BOARD OF
DIRECTORS OF SANIWARES WHEN IN FACT THE AMENDED DECISION OF THE RESPONDENT
THERE WAS NO ELECTION AT ALL.
COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED
II. THE COURT OF APPEALS PROHIBITS THE INTO TWO BLOCKS, FAILS TO FULLY ENFORCE
STOCKHOLDERS FROM EXERCISING THEIR FULL THE BASIC INTENT OF THE AGREEMENT AND
VOTING RIGHTS REPRESENTED BY THE NUMBER THE LAW.
OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY
II
REPRESENT OF THEIR PROPERTY RIGHTS
WITHOUT DUE PROCESS OF LAW.
THE AMENDED DECISION DOES NOT
CATEGORICALLY RULE THAT PRIVATE
III. THE COURT OF APPEALS IMPOSES
PETITIONERS HEREIN WERE THE DULY ELECTED
CONDITIONS AND READS PROVISIONS INTO THE
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
AGREEMENT OF THE PARTIES WHICH WERE NOT
STOCKHOLDERS MEETING OF SANTWARES. (P.
THERE, WHICH ACTION IT CANNOT LEGALLY
24, Rollo-75951)
DO. (p. 17, Rollo-75875)
The issues raised in the petitions are interrelated, hence, they are discussed
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended
jointly.
decision on the following grounds:
The main issue hinges on who were the duly elected directors of Saniwares
11.1.
for the year 1983 during its annual stockholders' meeting held on March 8,
ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
1983. To answer this question the following factors should be determined:
binding contractual agreements entered into by
(1) the nature of the business established by the parties whether it was a
stockholders and the replacement of the conditions of
joint venture or a corporation and (2) whether or not the ASI Group may
such agreements with terms never contemplated by the vote their additional 10% equity during elections of Saniwares' board of
stockholders but merely dictated by the CA . directors.

11.2. The Amended decision would likewise sanction the

deprivation of the property rights of stockholders without
due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with
the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp
678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751,
128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that
the actual intention of the parties should be viewed strictly on the
"Agreement" dated August 15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous
Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder. (At P.
66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the
Lagdameo and Young Group on the ground that it contravenes the parol
evidence rule under section 7, Rule 130 of the Revised Rules of Court.
According to them, the Lagdameo and Young Group never pleaded in their
pleading that the "Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an
agreement have been reduced to writing, it is to be
considered as containing all such terms, and therefore,
there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following
cases:
(a) Where a mistake or imperfection of the writing, or its
failure to express the true intent and agreement of the
parties or the validity of the agreement is put in issue by
the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in
their Reply and Answer to Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make
it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties
and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute
the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering
into the Agreement is to enter into ajoint venture
enterprise, and if some words in the Agreement appear to
be contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New Civil
Code). The various stipulations of a contract shall be
interpreted together attributing to the doubtful ones that
sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge
the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to
prove that the parties joined their efforts in furtherance of
an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint
 adventure, or to assume some other relation is a question
of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.)
238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33
C.J. p. 871)
In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to establish a joint venture
and not a corporation. The history of the organization of Saniwares and the
unusual arrangements which govern its policy making body are all
consistent with a joint venture and not with an ordinary corporation. As
stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin
Young, he negotiated the Agreement with ASI in behalf
of the Philippine nationals. He testified that ASI agreed to
accept the role of minority vis-a-vis the Philippine
National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as
the minority.
An examination of the Agreement shows that certain
provisions were included to protect the interests of ASI as
the minority. For example, the vote of 7 out of 9 directors
is required in certain enumerated corporate acts [Sec. 3
(b) (ii) (a) of the Agreement]. ASI is contractually entitled
to designate a member of the Executive Committee and
the vote of this member is required for certain transactions
[Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote
for the amendment of the articles and by-laws of
Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given
the right to designate the president and plant manager
[Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should
not export "Standard" products otherwise than through
ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-
how to Saniwares and the latter paid royalties for the
same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement
requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority
voting requirements for amendments of the articles and
by-laws; and most significantly to the issues of tms case,
the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the
other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital
stock and the Philippine National stockholders who own
the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders who
established a corporation with provisions for a special
contractual relationship between the parties, i.e., ASI and
the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six to
three ratio. Each group is assured of a fixed number of directors in the
board.
Moreover, ASI in its communications referred to the enterprise as joint
venture. Baldwin Young also testified that Section 16(c) of the Agreement
that "Nothing herein contained shall be construed to constitute any of the
parties hereto partners or joint venturers in respect of any transaction
hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial
and manufacturing capacities of a local firm are constrained to seek the
technology and marketing assistance of huge multinational corporations of
the developed world. Arrangements are formalized where a foreign group
becomes a minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance. However, there
is always a danger from such arrangements. The foreign group may, from
the start, intend to establish its own sole or monopolistic operations and
merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say the
least. To the extent that such subversive actions can be lawfully prevented,
the courts should extend protection especially in industries where
constitutional and legal requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes
the right of stockholders to enter into agreements
regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in
writing and signed by the parties thereto, may provide that
in exercising any voting rights, the shares held by them
shall be voted as therein provided, or as they may agree,
or as determined in accordance with a procedure agreed
upon by them.
Appellants contend that the above provision is included in
the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95
stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders,
the Chamsay family for 8 stockholders, the Santos family
for 9 stockholders, the Dy family for 7 stockholders, etc.
If the members of one family and/or business or interest
group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March
1983, practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and
Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not
a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim
that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a realistic
approach to joint venture corporations and have not
rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have
indicated that express arrangements between corporate
joint ventures should be construed with less emphasis on
the ordinary rules of law usually applied to corporate
entities and with more consideration given to the nature of
the agreement between the joint venturers (Please see
Wabash Ry v. American Refrigerator Transit Co., 7 F 2d
335; Chicago, M & St. P. Ry v. Des Moines Union Ry;
254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic
Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter
Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571;
Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status
of Joint Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal
questions as to the extent to which the requirements
arising from the corporate form of joint venture
corporations should control, and the courts ruled that
substantial justice lay with those litigants who relied on
the joint venture agreement rather than the litigants who
relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing
the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed
out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain
provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and
director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of
directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a
procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P.
16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code
does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in
particular. Does this provision necessarily imply that
these agreements can be valid only in close corporations
as defined by the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot qualify as a
close corporation under section 96, can some of them
enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for
denying stockholders of corporations other than close
ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do
not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and
more often resorted to in close corporations. But they may
also be found necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the
requisites laid down by section 96, it is entirely possible
that a corporation which is in fact a close corporation will
not come within the definition. In such case, its
stockholders should not be precluded from entering into
contracts like voting agreements if these are otherwise
valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement
relating to the designation or nomination of directors
restricts the right of the Agreement's signatories to vote
for directors, such contractual provision, as correctly held
by the SEC, is valid and binding upon the signatories
thereto, which include appellants. (Rollo No. 75951, pp.
90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the
Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is
spelled out in the Agreement. Section 5(a) hereof says
that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board seats is
obviously in consonance with the minority position of
ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should honor
and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any
allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may
interfere with the stockholder's rights to cumulative voting
as provided in Section 24 of the Corporation Code. This
Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be
struck down, even if such agreement has been freely
entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be
that it would be more cogent to hold, as the Securities and
Exchange Commission has held in the decision appealed
from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special
relationships with each other to pursue and implement
specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called
upon to make a general rule on this question. Rather, all
that needs to be done is to give life and effect to the
particular contractual rights and obligations which the
parties have assumed for themselves.
On the one hand, the clearly established minority position
of ASI and the contractual allocation of board seats
Cannot be disregarded. On the other hand, the rights of
the stockholders to cumulative voting should also be
protected.
In our decision sought to be reconsidered, we opted to
uphold the second over the first. Upon further reflection,
we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly.
This Court should recognize and uphold the division of
the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to
cumulative voting in the process of determining who the
group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this
means that if the Filipino stockholders cannot agree who
their six nominees will be, a vote would have to be taken
among the Filipino stockholders only. During this voting,
each Filipino stockholder can cumulate his votes. ASI,
however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able
to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to
get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the
board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the
ASI Group has the right to vote their additional equity pursuant to Section
24 of the Corporation Code which gives the stockholders of a corporation
the right to cumulate their votes in electing directors. Petitioner Salazar adds
that this right if granted to the ASI Group would not necessarily mean a
violation of the Anti-Dummy Act (Commonwealth Act 108, as amended).
He cites section 2-a thereof which provides:
And provided finally that the election of aliens as
members of the board of directors or governing body of
corporations or associations engaging in partially
 nationalized activities shall be allowed in proportion to
their allowable participation or share in the capital of such
entities. (amendments introduced by Presidential Decree
715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that
provision is applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law
origin. It has no precise legal definition but it has been
generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed.
811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and
a mutual right of control. Blackner v. Mc Dermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdictions is that the
partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE
2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may
be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783,
Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these
two business forms, and has held that although a
corporation cannot enter into a partnership contract, it
may however engage in a joint venture with others. (At p.
12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of
contracts generally apply to a contract of joint venture. (O' Hara v. Harman
14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote their
additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of
the parties as regards the allocation of director seats under Section 5 (a) of
the "Agreement," and the right of each group of stockholders to cumulative
voting in the process of determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section
5 (a) of the Agreement relates to the manner of nominating the members of
the board of directors while Section 3 (a) (1) relates to the manner of voting
for these nominees.
This is the proper interpretation of the Agreement of the parties as regards
the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a
Filipino director who would be beholden to them would obliterate their
minority status as agreed upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be allowed to interfere in the
voting within the Filipino group. Otherwise, ASI would
be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even
be able to get a majority of the board seats, a result which
is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the
board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on
 possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the Anti-
Dummy Act. In this regard, petitioner Salazar's position is that the Anti-
Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the
same law also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors.
This is the allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in
limiting 3 board seats in the 9-man board of directors there are provisions
already agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC
which were impliedly affirmed by the appellate court declaring Messrs.
Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V.
Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No.
75951) object to a cumulative voting during the election of the board of
directors of the enterprise as ruled by the appellate court and submits that
the six (6) directors allotted the Filipino stockholders should be selected by
consensus pursuant to section 5 (a) of the Agreement which uses the word
"designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their
group.
Section 5 (a) of the Agreement which uses the word designates in the
allocation of board directors should not be interpreted in isolation. This
should be construed in relation to section 3 (a) (1) of the Agreement. As we
stated earlier, section 3(a) (1) relates to the manner of voting for these
nominees which is cumulative voting while section 5(a) relates to the
manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot
now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise
under the cumulative voting procedure cannot, however, be ignored. The
validity of the cumulative voting procedure is dependent on the directors
thus elected being genuine members of the Filipino group, not voters whose
interest is to increase the ASI share in the management of Saniwares. The
joint venture character of the enterprise must always be taken into account,
so long as the company exists under its original agreement. Cumulative
voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875
are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED.
The amended decision of the Court of Appeals is MODIFIED in that
Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V.
Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting. In
all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. L-9996 October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor
General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and
Francisca Evangelista, for review of a decision of the Court of Tax Appeals,
the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are
liable for the income tax, real estate dealer's tax and the residence
tax for the years 1945 to 1949, inclusive, in accordance with the
respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review
filed by petitioner is hereby dismissed with costs against
petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of
P59,1400.00 which amount together with their personal monies
was used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina
Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property
has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus
21 parcels of land with an aggregate area of 3,718.40 sq. m.
including improvements thereon for P130,000.00; this property has
an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular
Investments Inc., a lot of 4,353 sq. m. including improvements
thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable
a lot of 8,371 sq. m. including improvements thereon for
P237,234.34. This property has an assessed value of P59,140.00 as
of 1948;
6. That in a document dated August 16, 1945, they appointed their
brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts
therefor; in default of such payment, to bring suits against the
defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties
the petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including
December, 1945, the total amount collected as rents on their real
properties was P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum
of P24,786.30, out of which amount was deducted in the sum of
P16,288.27 for expenses thereby leaving them a net rental income
of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00
out of the which amount was deducted the sum of P4,837.65 as
expenses, thereby leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of
1948 38.75
Internal Revenue demanded the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence tax for the years 1945-
1949 38.75
1949, computed, according to assessment made by said officer, as follows:
Total including surcharge P193.75
INCOME TAXES
TOTAL TAXES DUE P6,878.34.
1945 14.84

1946 1,144.71 Said letter of demand and corresponding assessments were delivered to
petitioners on December 3, 1954, whereupon they instituted the present case
in the Court of Tax Appeals, with a prayer that "the decision of the
1947 10.34
respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in
1948 1,912.30
question, with costs against the respondent.
1949 1,575.90
After appropriate proceedings, the Court of Tax Appeals the above-
Total including surcharge and compromise P6,157.09 mentioned decision for the respondent, and a petition for reconsideration
and new trial having been subsequently denied, the case is now before Us
REAL ESTATE DEALER'S FIXED TAX for review at the instance of the petitioners.

1946 P37.50 The issue in this case whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466,
1947 150.00 otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers fixed tax. With
1948 150.00 respect to the tax on corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in section 24 and 84 of said
1949 150.00 Code, the pertinent parts of which read:

Total including penalty P527.00 SEC. 24. Rate of tax on corporations.—There shall be levied,
assessed, collected, and paid annually upon the total net income
RESIDENCE TAXES OF CORPORATION received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the
1945 P38.75 Philippines, no matter how created or organized but not including
duly registered general co-partnerships (compañias colectivas), a
1946 38.75 tax upon such income equal to the sum of the following: . . .

1947 38.75 SEC. 84 (b). The term 'corporation' includes partnerships, no

matter how created or organized, joint-stock companies, joint
 accounts (cuentas en participacion), associations or insurance
companies, but does not include duly registered general
copartnerships. (compañias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind
themselves to contribute money, properly, or industry to a common
fund, with the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in
acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage
in real estate transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one
transaction, but in a series of transactions. On February 2, 1943,
they bought a lot for P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This was soon followed on April
23, 1944, by the acquisition of another real estate for P108,825.00.
Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of
the property acquired by the petitioners in February, 1943. In other
words, one cannot but perceive a character of habitually peculiar to
business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to
other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely Simeon Evangelista, with full
power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and
enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon
Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. They did not even try to
offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners,
for, in consequence of the acts performed by them, a legal entity, with a
personality independent of that of its members, did not come into existence,
and some of the characteristics of partnerships are lacking in the case at bar.
This pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the entities
subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical
sense of the term. Thus, for instance, section 24 of said Code exempts from
the aforementioned tax "duly registered general partnerships which
constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term
corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes, among other, joint accounts,
(cuentas en participation)" and "associations," none of which has a legal
personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential
to the existence of the partnerships therein referred to. In fact, as above
stated, "duly registered general copartnerships" — which are possessed of
the aforementioned personality — have been expressly excluded by law
(sections 24 and 84 [b] from the connotation of the term "corporation" It
may not be amiss to add that petitioners' allegation to the effect that their
liability in connection with the leasing of the lots above referred to, under
the management of one person — even if true, on which we express no
opinion — tends to increase the similarity between the nature of their
venture and that corporations, and is, therefore, an additional argument in
favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are
taxed differently from "partnerships". By specific provisions of said laws,
such "corporations" include "associations, joint-stock companies and
insurance companies." However, the term "association" is not used in the
aforementioned laws.
. . . in any narrow or technical sense. It includes any organization,
created for the transaction of designed affairs, or the attainment of
some object, which like a corporation, continues notwithstanding
that its members or participants change, and the affairs of which,
like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative
capacity. It is immaterial whether such organization is created by
an agreement, a declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock corporation or
company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through
an attorney in fact, a partnership association, and any other type of
organization (by whatever name known) which is not, within the
meaning of the Code, a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p. 788; emphasis
supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term
'partnership 'it includes not only a partnership as known at common
law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business
financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. . . (7A
Merten's Law of Federal Income taxation, p. 789; emphasis
supplied.)
The term 'partnership' includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is
carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p.
562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue
Code, includes these partnerships — with the exception only of duly
registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject to
the income tax for corporations.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how
created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which in
no case, shall exceed one thousand pesos, in accordance with the
following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or
organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of
section 24 and 84 (b) of our National Internal Revenue Code
(commonwealth Act No. 466), and that the latter was approved on June 15,
1939, the day immediately after the approval of said Commonwealth Act
No. 465 (June 14, 1939), it is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the same meaning.
Consequently, petitioners are subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have habitually engaged in leasing
the properties above mentioned for a period of over twelve years, and that
the yearly gross rentals of said properties from June 1945 to 1948 ranged
from P9,599 to P17,453. Thus, they are subject to the tax provided in
section 193 (q) of our National Internal Revenue Code, for "real estate
dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of
buying, selling, exchanging, leasing, or renting property or his
own account as principal and holding himself out as a full or part
time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or
joint venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3)
parcels of land from Juan Roque. The first two parcels of land were sold by
petitioners in 1968 toMarenir Development Corporation, while the three
parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson
on March 19,1970. Petitioners realized a net profit in the sale made in 1968
in the amount of P165,224.70, while they realized a net profit of P60,000.00
in the sale made in 1970. The corresponding capital gains taxes were paid
by petitioners in 1973 and 1974 by availing of the tax amnesties granted in
the said years.
However, in a letter dated March 31, 1979 of then Acting BIR
Commissioner Efren I. Plana, petitioners were assessed and required to pay
a total amount of P107,101.70 as alleged deficiency corporate income taxes
for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 PARTNERSHIP SUBJECT TO CORPORATE INCOME
asserting that they had availed of tax amnesties way back in 1974. TAX, AND THAT THE BURDEN OF OFFERING
EVIDENCE IN OPPOSITION THERETO RESTS UPON
In a reply of August 22, 1979, respondent Commissioner informed THE PETITIONERS.
petitioners that in the years 1968 and 1970, petitioners as co-owners in the
real estate transactions formed an unregistered partnership or joint venture B. IN MAKING A FINDING, SOLELY ON THE BASIS
taxable as a corporation under Section 20(b) and its income was subject to OF ISOLATED SALE TRANSACTIONS, THAT AN
the taxes prescribed under Section 24, both of the National Internal Revenue UNREGISTERED PARTNERSHIP EXISTED THUS
Code 1 that the unregistered partnership was subject to corporate income tax IGNORING THE REQUIREMENTS LAID DOWN BY
as distinguished from profits derived from the partnership by them which is LAW THAT WOULD WARRANT THE
subject to individual income tax; and that the availment of tax amnesty PRESUMPTION/CONCLUSION THAT A
under P.D. No. 23, as amended, by petitioners relieved petitioners of their PARTNERSHIP EXISTS.
individual income tax liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence, the petitioners were required C. IN FINDING THAT THE INSTANT CASE IS
to pay the deficiency income tax assessed. SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE
Petitioners filed a petition for review with the respondent Court of Tax THE EVANGELISTA CASE.
Appeals docketed as CTA Case No. 3045. In due course, the respondent
court by a majority decision of March 30, 1987, 2 affirmed the decision and D. IN RULING THAT THE TAX AMNESTY DID NOT
action taken by respondent commissioner with costs against petitioners. RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY
It ruled that on the basis of the principle enunciated in Evangelista 3 an SUCH AMNESTY. (pp. 12-13, Rollo.)
unregistered partnership was in fact formed by petitioners which like a
corporation was subject to corporate income tax distinct from that imposed The petition is meritorious.
on the partners.
The basis of the subject decision of the respondent court is the ruling of this
In a separate dissenting opinion, Associate Judge Constante Roaquin stated Court in Evangelista. 4
that considering the circumstances of this case, although there might in fact
be a co-ownership between the petitioners, there was no adequate basis for
In the said case, petitioners borrowed a sum of money from their father
the conclusion that they thereby formed an unregistered partnership which
which together with their own personal funds they used in buying several
made "hem liable for corporate income tax under the Tax Code.
real properties. They appointed their brother to manage their properties with
full power to lease, collect, rent, issue receipts, etc. They had the real
Hence, this petition wherein petitioners invoke as basis thereof the properties rented or leased to various tenants for several years and they
following alleged errors of the respondent court: gained net profits from the rental income. Thus, the Collector of Internal
Revenue demanded the payment of income tax on a corporation, among
A. IN HOLDING AS PRESUMPTIVELY CORRECT others, from them.
THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT In resolving the issue, this Court held as follows:
PETITIONERS FORMED AN UNREGISTERED
The issue in this case is whether petitioners are subject to
the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers'
fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and
partnership as used in sections 24 and 84 of said Code, the
pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be
levied, assessed, collected, and paid annually upon the
total net income received in the preceding taxable year
from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how
created or organized but not including duly registered
general co-partnerships (companies collectives), a tax
upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships,
no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include
duly registered general co-partnerships (companies
colectivas).
Article 1767 of the Civil Code of the Philippines
provides:
By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves.
Pursuant to this article, the essential elements of a
partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the
case at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in
acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied
that their purpose was to engage in real estate
transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they found
already in existence. It was not a property inherited by
them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof
in order to establish said common fund.
2. They invested the same, not merely in one transaction,
but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This was soon
followed, on April 23, 1944, by the acquisition of another
real estate for P108,825.00. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transcations undertaken, as well
as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation
and preservation of the aforementioned common fund or
even of the property acquired by petitioners in February,
1943. In other words, one cannot but perceive a character
of habituality peculiar to business transactions engaged
in for purposes of gain.
3. The aforesaid lots were not devoted to residential
purposes or to other personal uses, of petitioners herein.
The properties were leased separately to several persons,
who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still
being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.
 4. Since August, 1945, the properties have been under the
management of one person, namely, Simeon Evangelists,
with full power to lease, to collect rents, to issue receipts,
to bring suits, to sign letters and contracts, and to indorse
and deposit notes and checks. Thus, the affairs relative to
said properties have been handled as if the same belonged
to a corporation or business enterprise operated for
profit.
5. The foregoing conditions have existed for more than
ten (10) years, or, to be exact, over fifteen (15) years,
since the first property was acquired, and over twelve (12)
years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any
evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation
therefor.
Although, taken singly, they might not suffice to establish
the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave
no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in
point. 5
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and
that they intended to divide the profits among themselves. Respondent
commissioner and/ or his representative just assumed these conditions to be
present on the basis of the fact that petitioners purchased certain parcels of
land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners
purchased twenty-four (24) lots showing that the purpose was not limited to
the conservation or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They
did not sell the same nor make any improvements thereon. In 1966, they
bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make
any additional or new purchase. The remaining three (3) parcels were sold
by them in 1970. The transactions were isolated. The character of
habituality peculiar to business transactions for the purpose of gain was not
present.
In Evangelista, the properties were leased out to tenants for several years.
The business was under the management of one of the partners. Such
condition existed for over fifteen (15) years. None of the circumstances are
present in the case at bar. The co-ownership started only in 1965 and ended
in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista
in Evangelista he said:
I wish however to make the following observation Article
1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2
and 3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use
of the property;
(3) The sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;
From the above it appears that the fact that those who
agree to form a co- ownership share or do not share any
profits made by the use of the property held in common
does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a
partnership whether or not the persons sharing therein
have a joint or common right or interest in the property.
This only means that, aside from the circumstance of
profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form
a partnership, the existence of a juridical personality
different from that of the individual partners, and the
freedom to transfer or assign any interest in the property
by one with the consent of the others (Padilla, Civil Code
of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-
636)
It is evident that an isolated transaction whereby two or
more persons contribute funds to buy certain real estate
for profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution,
are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal
proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-
partnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a
partnership; the parties are only tenants in common.
(Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed.,
1157.)
Where plaintiff, his brother, and another agreed to
become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing
of it, the brother and the other not being entitled to share
in plaintiffs commission, no partnership existed as
between the three parties, whatever their relation may
have been as to third parties. (Magee vs. Magee 123 N.E.
673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must
be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a
community of interest, as far as third persons are
concerned as enables each party to make contract,
manage the business, and dispose of the whole property.-
Municipal Paving Co. vs. Herring 150 P. 1067, 50 III
470.)
The common ownership of property does not itself create
a partnership between the owners, though they may use it
for the purpose of making gains; and they may, without
becoming partners, agree among themselves as to the
management, and use of such property and the application
of the proceeds therefrom. (Spurlock vs. Wilson, 142
S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in
the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter
did not thereby make them partners. They shared in the gross profits as co-
owners and paid their capital gains taxes on their net profits and availed of
the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby
liable for corporate income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered
partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that can
be held liable for said deficiency corporate income tax, then petitioners can
be held individually liable as partners for this unpaid obligation of the
partnership p. 7 However, as petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these transactions, they are thereby
relieved of any further tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the

respondent Court of Tax Appeals of March 30, 1987 is hereby REVERSED
and SET ASIDE and another decision is hereby rendered relieving
petitioners of the corporate income tax liability in this case, without
pronouncement as to costs.

SO ORDERED.