IV.

Cases

G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY, respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March 13, 1996 of
the former Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which
states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as
herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on
February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City
was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan
Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the
hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children
caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12, 1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co.
Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to
share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a
particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
 f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber
Company, Inc. until such time that said corporation is finally liquidated are directed to submit the name of
any person they want to be appointed as receiver failing in which this Court will appoint the Branch Clerk
of Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the
instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed
decision reversing the judgment of the trial court. Petitioners' motion for reconsideration7 was denied by the Court
of Appeals in a Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn
Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits "4"
to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a
mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee.
They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and
Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual. On March 20,
1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered
judgment9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE:
(A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS
EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE
DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING

TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS
WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE
EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES
OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
 d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES
OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY
DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER
WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE
THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN
P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED
BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed
on appeal if such are supported by the evidence.10 Our jurisdiction, it must be emphasized, does not include
review of factual issues. Thus:

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final
order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly set forth.11 [emphasis
supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the
evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken,
absurd, or impossible;

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

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are
based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the
existence of a partnership, the Court in turn went beyond that by justifying the existence of a joint
venture.

When mention is made of a joint venture, it would presuppose parity of standing between the parties,
equal proprietary interest and the exercise by the parties equally of the conduct of the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before
the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the
entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the
war, because of the absence of capital to start a lumber and hardware business, Lay and Kee pooled the
proceeds of their individual businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and hardware business. That
Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses.
Because of the pooling of resources, the post-war Benguet Lumber was eventually established. That the
father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs
of the business during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3)
they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet
Lumber compound, and (5) all their children were employed in the business in different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no
business book, no written account nor any memorandum for that matter and no license mentioning the
existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4,
1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and
Hardware. His application for registration, effective 1954, in fact mentioned that his business started in
1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an
employee of the Benguet Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed
only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay
was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but
when an immovable is constituted, the execution of a public instrument becomes necessary. This is
equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary,
and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can
easily assume that the business establishment, which from the language of the appellees, prospered
(pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties
and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the members
of his family. There is no proof either that the capital assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and since then
have been treated as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of
the complaint.

These are not evidences supporting the existence of a partnership:

 1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk
house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and were "commanding people" as testified to by the son,
Elpidio Tan; 3) that both were supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets
were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written.
However, if it involves real property or where the capital is P3,000.00 or more, the execution of a
contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of
the partnership. The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the testimonial
evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG
KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have held that whether
a partnership exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the evidence by the court a
quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting conclusions, perforce we
must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A
contract of partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.15 The agreement need not be formally reduced into writing, since statute
allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real
rights are contributed,16 and (2) when the partnership has a capital of three thousand pesos or more.17 In
both cases, a public instrument is required.18 An inventory to be signed by the parties and attached to the
public instrument is also indispensable to the validity of the partnership whenever immovable property is
contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is
akin to a particular partnership.20 A particular partnership is distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership,
with no firm name and no legal personality. In a joint account, the participating merchants can transact
business under their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which
each party has an equal proprietary interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be likened to a particular
partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are
similar — community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
 Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdiction is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin,
395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership
but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point
out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the parties from complying with the provisions
of the New Civil Code when it took effect on August 30, 1950. But all that is in the past. The net effect, however,
is that we are asked to determine whether a partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The
evidence presented by petitioners falls short of the quantum of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have
expounded on the precise nature of the business relationship between them. In the absence of evidence, we
cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for
the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses is directly
controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be considered. None of petitioners' witnesses could
suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose
deceased wife was related to Matilde Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and
his brother.27 Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only
later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-
possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence,
Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the
profits and losses.29 Each has the right to demand an accounting as long as the partnership exists.30 We have
allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the business and all
the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible."31 But in the situation in the case at bar, the deferment, if any, had
gone on too long to be plausible. A person is presumed to take ordinary care of his concerns.32 As we explained
in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has even demanded from defendant any accounting of the expenses and earnings of
the business. Were she really a partner, her first concern should have been to find out how the business
was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She
was absolutely silent with respect to any of the acts that a partner should have done; all that she did was
to receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment
for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both
parties considered this offer as the real contract between them.33 [emphasis supplied]

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to
show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of
these documents was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng
Lay and his wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence.
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a
partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to
speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their
father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular
period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the
business between themselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this
set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were
supervising the employees; that both were the ones who determined the price at which the stocks were to be
sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges
granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the
following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates.
So long, therefore, that an employee's position is higher in rank, it is not unusual that he orders around
those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does
not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a
partner.
 (iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was
not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan
Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay
gave his brother, and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the existence of a partnership relation between them.
Even highly confidential employees and the owners of a company sometimes argue with respect to
certain matters which, in no way indicates that they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly
may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these
circumstances may be such as to support a finding of the existence of the parties' intent.36 Yet, in the case at
bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They
only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is
unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-
and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such as his
residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his
fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties
is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus
to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence,
the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

G.R. No. 127405. October 4, 2000.

MARJORIE TOCAO and WILLIAM T. BELO, Petitioners, v. COURT OF APPEALS and NENITA A.
ANAY, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, 1 affirming the
Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509. 2

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay
met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier, through her
former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to
enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the product considering her
experience and established relationship with West Bend Company, a manufacturer of kitchen wares in
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager,
and Anay as head of the marketing department and later, vice-president for sales. Anay organized the
administrative 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 Belo’s name should
not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to
use Anay’s 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 Belo’s assurances that he was sincere, dependable and honest when it came to financial
commitments.chanrob1es virtua1 1aw 1ibrary

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 Tocao’s 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., 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:jgc:chanrobles.com.ph

"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." (Emphasis 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.chanrob1es virtua1 1aw 1ibrary

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 P 13,300,360.00.

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)
P32,000.00 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."cralaw
virtua1aw library

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 remuneration, and her
complaint referred to either her compensation or dismissal, such complaint should have been lodged with the
Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will and
resentment" because Marjorie Tocao did 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, petitioners were the ones
who suffered actual damages "including unreturned and unaccounted stocks of Geminesse Enterprise," and
"serious anxiety, besmirched reputation in the business world, and various damages not less than P500,000.00."
They also alleged that, to "vindicate their allies," they had to hire counsel for a fee of P23,000.00.chanrob1es
virtua1 1aw 1ibrary
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner
of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages. 10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He,
however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%) share in the
gross sales 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, who was new in the business. He attended and/or presided
over business 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 the plaintiff thirty-seven percent (37%) commission upon
her dismissal from the business venture at the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she
admitted that Anay was an expert in the cookware business and hence, they agreed to grant her the following
commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%)
on product demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed
on a ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business
out of the sale of the sewing machines used in her garments business and from Peter Lo a Singaporean friend-
financier who loaned her the funds with interest. Because she treated Anay as her "co-equal," Marjorie received
the same amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:jgc:chanrobles.com.ph

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:chanrob1es virtual 1aw library

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987
and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in
the net profits of the cookware business;chanrob1es virtua1 1aw 1ibrary

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership by
defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P 100,000.00 as exemplary damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.

SO ORDERED."cralaw virtua1aw library

The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the
defendants," based on the following: (a) there was an intention to create a partnership; (b) a common fund was
established through contributions consisting of money and industry, and (c) there was a joint interest in the
profits. The testimony of Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company stating that
he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with Marjorie’s
financial contribution and Anay’s experience, the combination of the two would be invaluable to the partnership,
also supported that conclusion. Belo’s 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.chanrob1es virtua1 1aw 1ibrary

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
Tocao’s 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."cralaw virtua1aw library

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:chanrob1es virtual 1aw library

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.chanrob1es virtua1 1aw
1ibrary

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 company’s cookware products; it was
through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted
private respondent’s 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:jgc:chanrobles.com.ph

"A: No, sir at the start she was the marketing manager because there were no one to sell yet, it’s 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:jgc:chanrobles.com.ph

"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 Belo’s 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 Belo’s roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocao’s 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 Belo’s first name, William, and her nickname, Jiji. 23 The special relationship between
them dovetails with petitioner Belo’s 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.chanrob1es virtua1 1aw 1ibrary

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 Tocao’s 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:jgc:chanrobles.com.ph

"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. That’s 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: That’s 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.chanrob1es virtua1 1aw 1ibrary

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." (Emphasis supplied.) 30

If indeed petitioner Tocao was private respondent’s 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 Tocao’s various business activities, which included the distributorship of
cookware.chanrob1es virtua1 1aw 1ibrary

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:jgc:chanrobles.com.ph

"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. . . ." 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 respondent’s 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:jgc:chanrobles.com.ph

". . . The right to choose with whom a person wishes to associate himself is the very foundation and essence of
that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along
with each partner’s capability to give it, and the absence of 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." 41chanrob1es virtua1 law library

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 Tocao’s 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, attorney’s fees that should be granted on account of the award of exemplary
damages and petitioners’ evident bad faith in refusing to satisfy private respondent’s 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.chanrob1es virtua1 1aw 1ibrary

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 respondent’s 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 attorney’s fees in the amount of P25,000.00.
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 asserting that they had availed of tax
amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section
24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject to corporate
income tax as distinguished from profits derived from the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered
partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045.
In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action
taken by respondent commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact
formed by petitioners which like a corporation was subject to corporate income tax distinct from that imposed on
the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances
of this case, although there might in fact be a co-ownership between the petitioners, there was no adequate
basis for the conclusion that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent
court:

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT

COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN

UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW
THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE
SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal
funds they used in buying several real properties. They appointed their brother to manage their properties with
full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various
tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal
Revenue demanded the payment of income tax on a corporation, among others, from them.

In resolving the issue, this Court held as follows:

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

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participation), associations or insurance companies, but does not include
duly registered general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that
their purpose was to engage in real estate transactions for monetary gain and then divide the same among
themselves, because:

1. Said common fund was not something they found already in existence. It was not a property inherited by them
pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order
to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943,
they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon
followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April
28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transcations undertaken,
as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired by petitioners in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein.
The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum
of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that
there has been any change in the utilization thereof.

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.
G.R. No. 159333 July 31, 2006

ARSENIO T. MENDIOLA, petitioner,

vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES,
PHILS., INC. and/or CELLMARK AB, respondents.

DECISION

PUNO, J.:

On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July 30, 2003,
respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations Commission
(NLRC), which in turn set aside the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal
the dismissal of petitioner from employment and awarded separation pay, moral and exemplary damages, and
attorney's fees.

The facts are as follows:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under
the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly organized
under the laws of Sweden, with principal office in Gothenburg, Sweden.

Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest
Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995, "assuming that
Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on the said date."6 The
Side Agreement outlines the business relationship of the parties with regard to the Philippine operations of
Pacfor. Private respondent will establish a Pacfor representative office in the Philippines, to be known as Pacfor
Phils, and petitioner ATM will be its President. Petitioner's base salary and the overhead expenditures of the
company shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally
owned on a 50-50 equity by ATM and Pacfor-usa.

On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact
business in the Philippines under the name of Pacfor or Pacfor Phils.7 In its application, private respondent
Pacfor proposed to establish its representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as its resident agent in the
Philippines, authorized to accept summons and processes in all legal proceedings, and all notices affecting the
corporation.8

In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing Agreement
for the Representative Office Known as Pacific Forest Resources (Philippines),"9 where the salary of petitioner
was increased to $78,000 per annum. Both agreements show that the operational expenses will be borne by the
representative office and funded by all parties "as equal partners," while the profits and commissions will be
shared among them.

In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his 50%
equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President, replied that petitioner
is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's representative office and not an
entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of dividing the
income 50-50."11 Petitioner presumably knew of this arrangement from the start, having been the one to propose
to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines
to save on taxes.12

Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He alleged he
would have been better off remaining as an independent agent or representative of Pacfor-USA as ATM
Marketing Corp.13 Had he known that no joint venture existed, he would not have allowed Pacfor to take the
profitable business of his own company, ATM Marketing Corp.14 Petitioner raised other issues, such as the
rentals of office furniture, salary of the employees, company car, as well as commissions allegedly due him. The
issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid
commissions and office furniture and equipment rentals, amounting to more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it all
papers, documents, files, records, and other materials in his or ATM Marketing Corporation's possession that
belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to
remit more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor Phils.17 Lastly,
private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title and turn
over to it possession of the service car.18

Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal with
Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000, private respondent
Pacfor stated:

Until further notice, please course all inquiries and communications for Pacific Forest Resources
(Philippines) to:

Pacific Forest Resources

200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax

Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of ATM
Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines.19

In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, private
respondent directed said client "to please communicate directly with us on any further questions associated with
these payments or any future business. Do not communicate with [Pacfor] and/or [ATM]."20

Petitioner construed these directives as a severance of the "unregistered partnership" between him and Pacfor,
and the termination of his employment as resident manager of Pacfor Phils.21 In a memorandum to the
employees of Pacfor Phils., dated January 29, 2001, he stated:

I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to them
effective December 19, 2000. The company records were turned over only on January 26, 2001. This
means our jobs with Pacific Forest were terminated effective December 19, 2000. I am concerned about
your welfare. I would like to help you by offering you to work with ATM Marketing Corporation.

Please let me know if you are interested.22

On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils. Thus, it
follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and equipment and the
service car. He also reiterated his demand for unpaid commissions, and proposed to offset these with the
remaining Christmas giveaway fund in his possession.23 Furthermore, he did not renew the lease contract with
Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he was the signatory to the lease
agreement.24

On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and ordered him to
show cause why no disciplinary action should be taken against him. Private respondent Pacfor charged
petitioner with willful disobedience and serious misconduct for his refusal to turn over the service car and the
Christmas giveaway fund which he applied to his alleged unpaid commissions. Private respondent also alleged
loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation
owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPI's principal,
International Forest Products, a competitor of private respondent.25

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William Gleason's
letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise informed private
respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office premises,26 and demanded
payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint for illegal dismissal,
recovery of separation pay, and payment of attorney's fees with the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum dated
March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined for serious
misconduct and conflict of interest. Private respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary for
himself, besides the dollar salary agreed upon by the parties. Private respondent also accused petitioner of
disloyalty and representation of conflicting interests for having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a competitor company of
private respondent Pacfor.29

Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By directing
petitioner to turn over all office records and materials, regardless of whether he may have retained copies,
private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager whose duty, among others, was to maintain the
security of its business transactions and communications was rendered meaningless. The dispositive portion of
the decision of the Labor Arbiter reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents

Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant
Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service, whichever
is higher (sic), as reinstatement is no longer feasible by reason of the strained relations of the parties
equivalent to five (5) months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant
the sum of P500,000.00 as moral and exemplary damages and ten percent (10%) of the amounts
awarded as and for attorney's fees.

All other claims are dismissed for lack of basis.

SO ORDERED.30

Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the NLRC set
aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit.31 It held there was
no employer-employee relationship between the parties. Based on the two agreements between the parties, it
concluded that petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity).

The NLRC denied petitioner's Motion for Reconsideration.32

Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the ruling of the
NLRC.

Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.

Hence, this appeal.34

Petitioner assigns the following errors:

A. The Respondent Court of Appeals committed reversible error and abused its discretion in rendering
judgment against petitioner since jurisdiction has been acquired over the subject matter of the case as
there exists employer-employee relationship between the parties.

B. The Respondent Court of Appeals committed reversible error and abused its discretion in ruling that
jurisdiction over the subject matter cannot be waived and may be alleged even for the first time on
appeal or considered by the court motu prop[r]io.35

The first issue is whether an employer-employee relationship exists between petitioner and private respondent
Pacfor.

Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Pacfor,
and also an employee of the partnership. Petitioner insists that an industrial partner may at the same time be an
employee of the partnership, provided there is such an agreement, which, in this case, is the "Side Agreement"
and the "Revised Operating and Profit Sharing Agreement." The Court of Appeals denied the appeal of
petitioner, holding that "the legal basis of the complaint is not employment but perhaps partnership, co-
ownership, or independent contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership
exists between the parties.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all property
that may be acquired thereby and through the efforts of the members.36 The property or stock of the partnership
forms a community of goods, a common fund, in which each party has a proprietary interest.37 In fact, the New
Civil Code regards a partner as a co-owner of specific partnership property.38 Each partner possesses a joint
interest in the whole of partnership property. If the relation does not have this feature, it is not one of
partnership.39 This essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is not
a part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President established this fact when
he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He
stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private
respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save
on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.40

Besides, a corporation cannot become a member of a partnership in the absence of express authorization by
statute or charter.41 This doctrine is based on the following considerations: (1) that the mutual agency between
the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and
authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage
its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate
property to become subject to risks not contemplated by the stockholders when they originally invested in the
corporation.42 No such authorization has been proved in the case at bar.

Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is present in the
case at bar. The elements to determine the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's
power to control the employee's conduct. The most important element is the employer's control of the
employee's conduct, not only as to the result of the work to be done, but also as to the means and methods to
accomplish it.43

In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which selected
and engaged the services of petitioner as its resident agent in the Philippines. Second, as stipulated in their Side
Agreement, private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum which was
later increased to $78,000. Third, private respondent Pacfor holds the power of dismissal, as may be gleaned
through the various memoranda it issued against petitioner, placing the latter on preventive suspension while
charging him with various offenses, including willful disobedience, serious misconduct, and gross neglect of
duty, and ordering him to show cause why no disciplinary action should be taken against him.

Lastly and most important, private respondent Pacfor has the power of control over the means and method of
petitioner in accomplishing his work.

The power of control refers merely to the existence of the power, and not to the actual exercise thereof. The
principal consideration is whether the employer has the right to control the manner of doing the work, and it is
not the actual exercise of the right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship.44 In the case at bar, private respondent Pacfor, as
employer, clearly possesses such right of control. Petitioner, as private respondent Pacfor's resident agent in the
Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who transacts business,
and accepts service on its behalf.

This right of control was exercised by private respondent Pacfor during the period of November to December
2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it ordered petitioner to remit
the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it the possession of the service car. It was also
during this period when private respondent Pacfor sent letters to its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor
Phils. In its letter to DAVCOR, private respondent Pacfor replied to the client's request for an invoice payment
extension, and formulated a revised payment program for DAVCOR. This is one unmistakable proof that private
respondent Pacfor exercises control over the petitioner.

Next, we shall determine if petitioner was constructively dismissed from employment.

The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit
however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits to make
him feel that his presence in the company was no longer wanted. First, private respondent Pacfor directed
petitioner to turn over to it all records of Pacfor Phils. This would certainly make the work of petitioner very
difficult, if not impossible. Second, private respondent Pacfor ordered petitioner to remit the Christmas giveaway
fund intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title and turn over to it the
possession of the service car. It also advised its clients in the Philippines, particularly Intercontinental Paper
Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor
appointed a new resident agent for Pacfor Phils.45

Although there is no reduction of the salary of petitioner, constructive dismissal is still present because continued
employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of clear discrimination,
insensibility or disdain by the employer that continued employment may become so unbearable on the part of
the employee so as to foreclose any choice on his part except to resign from such employment.47

The harassing acts of the private respondent are unjustified. They were undertaken when petitioner sought
clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private respondent
Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives against petitioner was a
valid exercise of management prerogative. We remind private respondent Pacfor that the exercise of
management prerogative is not absolute. "By its very nature, encompassing as it could be, management
prerogative must be exercised in good faith and with due regard to the rights of labor – verily, with the principles
of fair play at heart and justice in mind." The exercise of management prerogative cannot be utilized as an
implement to circumvent our laws and oppress employees.48

As resident agent of private respondent corporation, petitioner occupied a position involving trust and
confidence. In the light of the strained relations between the parties, the full restoration of an employment
relationship based on trust and confidence is no longer possible. He should be awarded separation pay, in lieu
of reinstatement.

IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-G.R.
SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the National Labor
Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with the MODIFICATION that the amount of P250,000.00 representing an alleged increase in
petitioner's salary shall be deducted from the grant of separation pay for lack of evidence.

SO ORDERED.

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.
Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE

RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN
FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES,
THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements

entered into by stockholders and the replacement of the conditions of such agreements with
terms never contemplated by the stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be
illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-
15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT

THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE

PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be
determined: (1) the nature of the business established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance with the
rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R.
Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd
668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties
should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties'
intention was to form a corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto partners or
joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the parties' agreement was to establish
a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol
evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and
Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have been reduced to writing,
it is to be considered as containing all such terms, and therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of the agreement other than the
contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties or the validity of the agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties thereto
disclaim being partners or joint venturers such disclaimer is directed at third parties and is not
inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI
shall constitute the minority stockholder. In any event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if
some words in the Agreement appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a
contract shall be interpreted together attributing to the doubtful ones that sense which may result
from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No.
2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the question whether they intended by their
agreement to create a joint adventure, or to assume some other relation is a question of fact for
the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.)
238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint
venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. As
stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with
ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority
vis-a-vis the Philippine National group of investors, on the condition that the Agreement should
contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were included to protect the
interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this member is required for
certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the amendment of the articles and
by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of
Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares
should not export "Standard" products otherwise than through ASI's Export Marketing Services
[Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the
board of directors for certain actions, in effect gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting requirements for amendments of the
articles and by-laws; and most significantly to the issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the
capital stock and the Philippine National stockholders who own the balance of 60%, and that 2)
ASI is given certain protections as the minority stockholder.

Premises considered, we believe that under the Agreement there are two groups of stockholders
who established a corporation with provisions for a special contractual relationship between the
parties, i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of
the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that
Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local
firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the
developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is
always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole
or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries
to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent
with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts
should extend protection especially in industries where constitutional and legal requirements reserve controlling
ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the parties
thereto, may provide that in exercising any voting rights, the shares held by them shall be voted
as therein provided, or as they may agree, or as determined in accordance with a procedure
agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's chapter on
close corporations and Saniwares cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each other but are divisible into groups
representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for
13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7
stockholders, etc. If the members of one family and/or business or interest group are considered
as one (which, it is respectfully submitted, they should be for purposes of determining how
closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of
Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated
11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venture corporations
and have not rigidly applied principles of corporation law designed primarily for public issue
corporations. These courts have indicated that express arrangements between corporate joint
ventures should be construed with less emphasis on the ordinary rules of law usually applied to
corporate entities and with more consideration given to the nature of the agreement between the
joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d
903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should control, and the
courts ruled that substantial justice lay with those litigants who relied on the joint venture
agreement rather than the litigants who relied on the orthodox principles of corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture deviate from the
traditional pattern of corporation management. A noted authority has pointed out that just as in
close corporations, shareholders' agreements in joint venture corporations often contain
provisions which do one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of shareholders power to
select a specified number of directors; (3) give to the shareholders control over the selection and
retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that
agreements regarding the exercise of voting rights are allowed only in close corporations. As
Campos and Lopez-Campos explain:
 Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as defined by the
Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as
a close corporation under section 96, can some of them enter into an agreement to vote as a unit
in the election of directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling agreements to
protect their interests, as long as they do not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps
more useful and more often resorted to in close corporations. But they may also be found
necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will not come within the definition.
In such case, its stockholders should not be precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination
of directors restricts the right of the Agreement's signatories to vote for directors, such
contractual provision, as correctly held by the SEC, is valid and binding upon the signatories
thereto, which include appellants. (Rollo No. 75951, pp. 90-94)

In regard to the question as to whether or not the ASI group may vote their additional equity during elections of
Saniwares' board of directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board seats is obviously in consonance with the minority
position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should
honor and adhere to their respective rights and obligations thereunder. Appellants seem to
contend that any allocation of board seats, even in joint venture corporations, are null and void to
the extent that such may interfere with the stockholder's rights to cumulative voting as provided
in Section 24 of the Corporation Code. This Court should not be prepared to hold that any
agreement which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not prejudice those
who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities
and Exchange Commission has held in the decision appealed from, that cumulative voting rights
may be voluntarily waived by stockholders who enter into special relationships with each other to
pursue and implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a general rule on this
question. Rather, all that needs to be done is to give life and effect to the particular contractual
rights and obligations which the parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the contractual allocation of
board seats Cannot be disregarded. On the other hand, the rights of the stockholders to
cumulative voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon
further reflection, we feel that the proper and just solution to give due consideration to both
factors suggests itself quite clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the stockholders within
each group to cumulative voting in the process of determining who the group's nominees would
be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if
the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino stockholder can
cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation of the board seats and the stockholder's right
to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by
the appellees on possible violation or circumvention of the 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. 97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED,
WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited"
("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on
land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum
Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its main office in Makati,
Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General
Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half
of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be
paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed
the operations and finances of the business; he had overall supervision of the workers at the marble quarry in
Bulacan and took charge of the preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora
Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to
Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of
the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to
use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong,
Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble
quarry was entered into with the Cruz spouses in February of 1988.2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong,
petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co
for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was responsible for the obligations of the old
partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
Mountain business enterprise. His unpaid salaries remained unpaid.3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries
accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against
Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's
charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new
partnership.4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally
dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries,
backwages and attorney's fees.5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and
dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that
the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and
that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin
Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in
his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid
wages should be asserted against the original members of the preceding partnership, but these though
impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter.6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the
Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical
personality separate and distinct from that of each of its members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment
contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in
the latter's membership.7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which
had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into
existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against
the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the
changes in the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code
provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as distinguished from the winding up of
the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the partners,

where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any partner at
any time;

xxx xxx xxx

(Emphasis supplied)

In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the
total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest,
was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the
Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose
of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact
that the business of the old partnership was simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership, and continued using
the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said
assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the retiring and the
incoming partners. It is not, however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring partners
(Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved,
one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court
held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party
creditor of the old partnership.9 The liability of the new partnership, upon the other hand, in the set of
circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as
follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the
person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires
and assigns (or the representative of the deceased partner assigns) his rights in partnership
property to two or more of the partners, or to one or more of the partners and one or more third
persons, if the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the business
without liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or
the representative of the deceased partner, but without any assignment of his right in partnership
property;

(4) When all the partners or their representatives assign their rights in partnership property to one
or more third persons who promise to pay the debts and who continue the business of the
dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the
business under the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or
with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the business,
under this article, to the creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth
in this article the creditors of the retiring or deceased partner or the representative of the
deceased partner, have a prior right to any claim of the retired partner or the representative of
 the deceased partner against the person or partnership continuing the business on account of
the retired or deceased partner's interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on the
ground of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which
continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old
Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-
vis any claim of any retired or previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above
six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin
Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the
previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new
general or assistant general manager to run the affairs of the business enterprise take over. An assistant general
manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did
not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the
precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own
new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the
business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous
or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay
for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider
that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from
the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the
new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change
in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong
and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as
to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to
respond by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of
this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per
annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of
the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%)
of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed
by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC
dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following
amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at
the rate of P2,000.00 per month multiplied by thirty-six (36) months (November
1984 to December 1987) in the total amount of P72,000.00;
 (b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by
three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

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

(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA, Defendant-Appellee.

DECISION

PARAS, J.

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh
Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.

As found by the trial court, the antecedent facts of the case are as follows:

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an
indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange
Commission.

One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests
products licenses and concessions over public and/or private forest lands and to operate, develop and promote
such forests rights and concessions." (Rollo, p. 114).

A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in
behalf of the duly registered partnership EDE.

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the
logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits and
losses of the partnership shall be divided share and share alike between the partners.

During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record
on Appeal [R.A.] p. 946).

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as
industrial partner.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit
"B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the
slight difference in the purpose of the second partnership which is to hold and secure renewal of timber license
instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty
(30) years, everything else is the same.

The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to
ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07
(Decision, R.A. 919).

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE
OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D")
agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the
Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument
that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment
contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the
second partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights and
obligations accrued in the name of the second partnership (R.A. 921).

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of
any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948).

On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).

On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area
(Decision, R.A. 948).

The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS
Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging
superintendent.

Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will
just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision,
R.A. 949).: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February
21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).

Rojas' petition for appointment of a receiver was denied (R.A. 894).

Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).

The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961
in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started
examining the records and supporting papers of the partnership as well as the information furnished them by the
parties, which were compiled in three (3) volumes.

On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching
thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the
report of the commissioners which was opposed by the appellee.

On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to
be submitted to the trial court:

(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second
partnership;

(b) Their sharing basis: whether in proportion to their contribution or share and share alike;

(c) The ownership of properties bought by Maglana in his wife's name;

(d) The damages suffered and who should be liable for them; and

(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A.
pp. 895-896).- nad

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as
follows:

"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:

"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the
second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share — the
partnership of the defendant and the plaintiff is one of a de facto and at will;

"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the basis of share and share alike — this covered by actual
contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of profits and
losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of 80% for the
defendant and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual contribution and, considering his indebtedness to the
partnership, the plaintiff is not entitled to any share in the profits of the said partnership;

"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name
were acquired with partnership funds or with funds of the defendant and — the Court declares that there is no
evidence that these properties were acquired by the partnership funds, and therefore the same should not
belong to the partnership;

"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable
for them — the Court declares that neither parties is entitled to damages, for as already stated above it is not a
wise policy to place a price on the right of a person to litigate and/or to come to Court for the assertion of the
rights they believe they are entitled to;

"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve
the partnership or not — the Court declares that the letter of the defendant to the plaintiff dated February 23,
1961, in effect dissolved the partnership;

"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the
laborers and employees of the Eastcoast Development Enterprises, — the COURT DECLARES THE SAME AS
NOT BELONGING TO THE PARTNERSHIP;

"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David — is VALID AND
BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION
TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of
P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;

"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him
he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not yet been
actually received, and further the receipt is merely based upon an expectancy and/or still speculative;

"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the
partnership;

"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to him, and this should be considered as part of Maglana's
contribution likewise to the partnership; and

"12. The complaint is hereby dismissed with costs against the plaintiff.: rd

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.

The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.

The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was
carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and
at will. It was considered as a partnership at will because there was no term, express or implied; no period was
fixed, expressly or impliedly (Decision, R.A. pp. 962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development
Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not
been novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant
Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the
terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations
between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit
"C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it
was legal error to consider a de facto partnership between said two partners or a partnership at will. Hence, the
letter of appellee Maglana dated February 23, 1961, did not legally dissolve the registered partnership between
them, being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-
Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code
and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-
Partnership (Exhibit "A").

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident
that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second
one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp.
24-25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits and
fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted
the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the
capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as
important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First Articles of Partnership were
only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered
(Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second partnership, all
business transactions were carried out under the duly registered articles. As found by the trial court, it is an
admitted fact that even up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A.
pp. 950-957). No rights and obligations accrued in the name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).

On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed
to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter,
the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more
convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to
contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to
perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the
duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with
the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that
Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves
governed by the articles of the duly registered partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither
be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing
partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the
answer is in the affirmative.

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect
a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of
course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no
case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased,
hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas
and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles
of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike"
between the partners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.

On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are
as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while
Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a
settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for
interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code)
(Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share
in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports
which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of
P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution,
he will be liable for P52,040.31.

Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership,
no plausible reason could be found to disturb the findings and conclusions of the trial court.: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused
to contribute either in cash or in equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to
exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided
for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.: nad

SO ORDERED.

V. Cases

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special
Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by herein
respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners.
The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October
1947, the limited partnership was registered with the Securities and Exchange Commission. The firm engaged,
among other activities, in the importation, marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and accessories. It had an office and held itself out
as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with the
Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December
1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded
with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the
income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the Court
of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing that of the
Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually
formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter
and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited
partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership and control of the business; consequently
the income tax return of respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal
Revenue Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-residents,
only one consolidated return for the taxable year shall be filed by either spouse to cover the income of
both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage
with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948 is not a ground
for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since its
juridical personality had not been affected and since, as a limited partnership, as contra distinguished from a
duly registered general partnership, it is taxable on its income similarly with corporations, Suter was not bound to
include in his individual return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of
law because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia
Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58,
that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under the Civil
Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited
from making donations to each other are prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-
existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was not
a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code,
of 1889 (which was the law in force when the subject firm was organized in 1947), a universal partnership
requires either that the object of the association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was
not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition, 1952,
Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro
Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los
Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece
cambiar de rumbo en la de 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the
causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single proprietorship, is
equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned
and contributed by them before their marriage; and after they were joined in wedlock, such contributions
remained their respective separate property under the Spanish Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common
property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own,
distinct and separate from that of its partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only
be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of the component
members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compañias
colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in
its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited
partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the
fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in
the present case, to do so would exempt the limited partnership from income taxation but would throw the tax
burden upon the partners-spouses in their individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter
into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design
to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in
the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal
treatment, tax wise, of a general copartnership (compañia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the
case of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for
any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.;
Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the spouses
and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo
50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the expenses for the administration and preservation of
the paraphernal capital of the wife. Then again, the appellant's argument erroneously confines itself to the
question of the legal personality of the limited partnership, which is not essential to the income taxability of the
partnership since the law taxes the income of even joint accounts that have no personality of their
own. 1 Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities.
Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their consequences would be different, as their contributions in
the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with, and when split
from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently
stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee, JJ.,
concur.
Barredo, J., took no part.