[G.R. No. 127405.

October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A.
ANAY, respondents.
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, vicepresident for sales. Anay organized the administrative staff and sales force while Tocao hired and fired
employees, determined commissions and/or salaries of the employees, and assigned them to different
branches. The parties agreed that Belos name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use Anays name in securing
distributorship of cookware from that company. The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two
percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of
Belos assurances that he was sincere, dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos
name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay
accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years
now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,
1987, she received a plaque of appreciation from the administrative and sales people through Marjorie
Tocao[4] for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a
memo[5] entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87.
Belo explained to her that said commission was apart from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao had signed a letter[6] addressed to the Cubao sales
office to the effect that she was no longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred
her from holding office and conducting demonstrations in both Makati and Cubao offices.[7] Anay
attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net

profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter.
Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following year,
1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages[8] against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch
140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following:
(1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed
for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she
was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was
neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo
was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an
agreed 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 names, they had to hire
counsel for a fee of P23,000.00.
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 thirtyseven 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:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
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;
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 P100,000.00 as exemplary damages,
and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.
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, Anays 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 Marjories financial contribution and Anays experience, the combination of the two
would be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely a
guarantor has no basis since there was no written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus
his issuance of a memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not the business was
managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as
damages or share in the profits realized from the appropriation of the partnership business and goodwill.
An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and
in the trade name of the co-partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages awarded by
the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.[12] Petitioners
Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that

there was no business partnership between them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed
between them and private respondent Anay because Geminesse Enterprise came into being exactly a
year before the alleged partnership was formed, and that it was very unlikely that petitioner Belo would
invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum
whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain
of both the trial and appellate courts. This Court cannot set aside factual findings of such courts absent
any showing that there is no evidence to support the conclusion drawn by the court a quo.[14] In this
case, both the trial court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on
the part of the partners to divide the profits among themselves.[15] It may be constituted in any form; a
public instrument is necessary only where immovable property or real rights are contributed thereto.[16]
This implies that since a contract of partnership is consensual, an oral contract of partnership is as good
as a written one. Where no immovable property or real rights are involved, what matters is that the parties
have complied with the requisites of a partnership. The fact that there appears to be no record in the
Securities and Exchange Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of distributorship of
cookware. Private respondent contributed such expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was through her reputation with the West Bend Company
that the partnership was able to open the business of distributorship of that companys cookware
products; it was through the same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-president for sales,
she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me
there then her and then two (2) people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does
not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory
Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They
will continue to gather other key people and build up the organization. All they need is the finance and the
products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the
established fact that he presided over meetings regarding matters affecting the operation of the business.
Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own business firm,

Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the proceeds of her
personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil
Code,[20] he should have presented documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that a
special promise to answer for the debt, default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She claimed that she
herself financed the business. Her and petitioner Belos roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend
and that the partnership was not their only business venture together. They also established a firm that
they called Wiji, the combination of petitioner Belos first name, William, and her nickname, Jiji.[23] The
special relationship between them dovetails with petitioner Belos claim that he was acting in behalf of
petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West
Bend Company to allow them to utilize their banking and trading facilities in Singapore in the matter of
importation and payment of the cookware products.[24] The inevitable conclusion, therefore, was that
petitioners merged their respective capital and infused the amount into the partnership of distributing
cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a percentage of
net profits constitutes only prima facie evidence that the recipient is a partner in the business,[25] the
evidence in the case at bar controverts an employer-employee relationship between the parties. In the
first place, private respondent had a voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the administrative staff and the
sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship.
She admitted that, like her who owned Geminesse Enterprise,[27] private respondent received only
commissions and transportation and representation allowances[28] and not a fixed salary.[29] Petitioner
Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please
go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever came across this document and know
of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer her
the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there
you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses.[31] As an
industrial partner, private respondent had the right to demand for a formal accounting of the business and
to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19,
1987 was merely the name of that enterprise.[33] While it is true that in her undated application for
renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of
kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the enterprise was only 60% to
70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale of
water sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used only
for practical reasons - it was utilized as the common name for petitioner Tocaos various business
activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted
stocks of Geminesse Enterprise amounting to P208,250.00.[36] Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than anything else, proves the existence of a partnership
between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained as
co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the
partnership in October 1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for
herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the
business venture a success. Thus, as petitioner Tocao became adept in the business operation, she
started to assert herself to the extent that she would even shout at private respondent in front of other
people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation,[39] and resulted in a falling out between
the two. However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization.[40] The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no fixed term and is therefore a partnership
at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it, and the absence of cause for dissolution provided
by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership but that it can result in a liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by
her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse Enterprise.[43] By that memo, petitioner Tocao effected
her own withdrawal from the partnership and considered herself as having ceased to be associated with
the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in
petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnership
business.
The determination of the amount of damages commensurate with the factual findings upon which it is
based is primarily the task of the trial court.[45] The Court of Appeals may modify that amount only when
its factual findings are diametrically opposed to that of the lower court,[46] or the award is palpably or
scandalously and unreasonably excessive.[47] However, exemplary damages that are awarded by way
of example or correction for the public good,[48] should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted
on account of the award of exemplary damages and petitioners evident bad faith in refusing to satisfy

private respondents plainly valid, just and demandable claims,[49] appear to have been excessively
granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners
and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded
to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of
the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs
for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private
respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the
total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount
of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of
P25,000.00.
SO ORDERED.

[G.R. No. L-4935. May 28, 1954.]

J.M. TUASON & CO., INC., represented by its Managing PARTNER, GREGORIO ARANETA, INC.,
Plaintiff-Appellee, v. QUIRINO BOLAOS, Defendant-Appellant.
SYLLABUS
1. PARTIES; REAL PARTY IN INTEREST; ATTORNEY MAY BRING ACTION IN THE PLAINTIFFS
NAME. Section 2 of the Rules of Court requires that an action be brought in the name of, but not
necessarily by, the real property interest. In fact the practice is for an attorney-at-law to bring the action,
that is, to file the complaint, in the name of the plaintiff.
2. ID.; CORPORATION AS PARTY MAY BE REPRESENTED BY ANOTHER PERSON. NATURAL OR
JUDICIAL. There is nothing against one corporation being represented by another person, natural or
juridical, in a suit in court, for the true rule is that "although a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is
in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. v. Weston, 80 A.L.R.,
1043, citing 2 Fletcher Cyc. E. 1082.)
3. COMPLAINTS; AMENDMENTS TO CONFIRM TO EVIDENCE NOT NECESSARY TO RENDER
JUDGMENT ON FACTS PROVED THOUGH NOT ALLEGED. Where the facts shown entitled plaintiff
to relief other than that asked for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and the appellate court may treat the
pleading as amended to confirm to the evidence, although the pleadings were not actually amended.
(Citing Maran, Rules of Court, 1952 ed., 389-390.)

4. LAND REGISTRATION; REOPENING OF DECREE AFTER ONE YEAR, NOT ALLOWED. A

decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to
defendant, after one year has elapsed from the issuance and entry of the decree. Neither could the
decree be collaterally attacked by any person claiming title to, or interest in, the land prior to the
registration proceedings, nor could title to that land in derogation of that of plaintiff be acquired by adverse
possession or prescription since adverse, notorious and continuous possession under claim of ownership
is ineffective against Torrens title ands the right to secure possession under a decree of registration does
not prescribe.
5. ACTIONS; IDENTITY OF CAUSE OF ACTION. Where one action is for the recovery of ownership
and the other is for recovery of possession, there is no identity of cause of action.
6. ID.; CLASS SUIT. Where the action seeks relief for each individual plaintiff and not relief for and on
behalf of others, the action is not a class suit.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover
possession of registered land situated in barrio Tatalon, Quezon City.
Plaintiffs complaint was amended three times with respect to the extent and description of the land
sought to be recovered. The original complaint described the land as a portion of a lot registered in
plaintiffs name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and as
containing an area of 13 hectares more or less. But the complaint was amended by reducing the area to 6
hectares, more or less, after defendant had indicated the plaintiffs surveyors the portion of land claimed
and occupied by him. The second amendment became necessary and was allowed following the
testimony of plaintiffs surveyors that a portion of the area was embraced in another certificate of title,
which was plaintiffs Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendants surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by
defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court,
amended its complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and
public and notorious possession (of the land in dispute) under claim of ownership, adverse to the entire
world by defendant and his predecessors in interest" from "time immemorial." The answer further alleges
that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or notice either personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the complaint be dismissed with costs and
plaintiff required to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to
the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter a
monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant makes the
following assignment of errors:jgc:chanrobles.com.ph
"I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real
party in interest.
"II. The trial court erred in admitting the third amended complaint.
"III. The trial court erred in denying defendants motion to strike.
"IV. The trial court erred in including in its decision land not involved in the litigation.

"V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos.
37686 and 37677.
"VI. The trial court erred in not finding that the defendant is the true and lawful owner of the land.
"VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62
monthly from January, 1940, until he vacates the premises.
"VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the
defendant."cralaw virtua1aw library
As to the first assigned error, there is nothing to the contention that the present action is not brought by
the real party in interest, that is, by J. M. Tuason & Co., Inc. What the Rules of Court require is that an
action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In
fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the
plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the
law firm of Araneta & Araneta, "counsel for plaintiff" and commences with the statement "Comes now
plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another person, natural or juridical, in a suit in
court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the
theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is
that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint
venture with another where the nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. v. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp.,
1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of
them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere
reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:chanrob1es
virtual 1aw library
SEC. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in all respects, as if they had been raised
in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at my time, even after
judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may
allow the pleadings to be amended and shall be so freely when the presentation of the merits of the
action will be subserved thereby and the objecting party fails to satisfy the court that the admission of
such evidence would prejudice him in maintaining his action or defense upon the merits. The court may
grant a continuance to enable the objecting party to meet such evidence."cralaw virtua1aw library
Under this provision amendment is not even necessary for the purpose of rendering judgment on issues
proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in his Rules of
Court:jgc:chanrobles.com.ph
"Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that
where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint
is necessary, especially where defendant has himself raised the point on which recovery is based, and
that the appellate court treat the pleadings as amended to conform to the evidence, although the
pleadings were not actually amended." (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit.

Let us now pass on the errors V and VI. Admitting, through his attorney, at the early stage of the trial, that
the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil
with the name Quirino Bolaos," defendant later changed his lawyer and also his theory and tried to prove
that the land in dispute was not covered by plaintiffs certificate of title. The evidence, however, is against
defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio
Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer
certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the
same barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of title
No. 37677 of the land records of the same province, both lots having been originally registered on July 8,
1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of
Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof
claimed by defendant was established by the testimony of his own witness, Quirico Feria. The combined
testimony of these three witnesses clearly shows that the portion claimed by defendant is made up of a
part of lot 4 B- 3-C and major on portion of lot 4-B-4, and is well within the area covered by the two
transfer certificates of title already mentioned. This fact also appears admitted in defendants answer to
the third amended complaint.
As the land in dispute is covered by plaintiffs Torrens certificate of title and was registered in 1914, the
decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to
defendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither
could the decree be collaterally attacked by any person claiming title to, or interest in, the land prior to the
registration proceedings. (Sorogon v. Makalintal, 1 45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession.
(Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of ownership for
the period fixed by law is ineffective against a Torrens title. (Valiente v. Judge of CFI of Tarlac, 2 etc., 45
Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of
registration does not prescribe. (Francisco v. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of
this Court on this point is that rendered in the case of Jose Alcantara Et. Al., v. Marinao Et. Al., 92 Phil.,
796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that there was no evidence to sustain the finding that defendant should be
sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises." But it
appears from the record that the reasonable compensation for the use and occupation of the premises,
as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a
month. It also appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as
1939 an action of ejectment had already been filed against defendant. And it cannot be supposed that
defendant has been paying rents, for he has been asserting all along that the premises in question "have
always been since time immemorial in open, continuous, exclusive and public and notorious possession
and under claim of ownership adverse to the entire world by defendant and his predecessors in interest."
This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss
alleging that there is pending before the Court of First Instance of Rizal another action between the same
parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed in
said action. But an examination of that complaint reveals that appellants allegation is not correct, for the
pretended identity of parties and cause of action in the two suits does not appear. That other case is one
for recovery of ownership, while the present one is for recovery of possession. And while appellant claims
that he is also involved in that other action because it is a class suit, the complaint does not show that
such is really the case. On the contrary, it appears that the action seeks relief for each individual plaintiff
and not relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the Appellant.

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

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.

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. L-19342

May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA,
LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as
above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject to
the payment of the deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5%
surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the
suit, 1 as well as the resolution of said court denying petitioners' motion for reconsideration of said
decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five
children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of the
estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted

the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because three
of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project
of partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition in
Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors.
On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamed
minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided onehalf (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This
amount was not divided among them but was used in the rehabilitation of properties owned by them in
common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00
(t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator
thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of
the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to
divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T.
Oa who used said properties in business by leasing or selling them and investing the income derived
therefrom and the proceeds from the sales thereof in real properties and securities. As a result,
petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in
1956 as can be gleaned from the following year-end balances:
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such incomes as profits from installment sales
of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p.
32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T.
Oa where the corresponding shares of the petitioners in the net income for the year are also known.
Every year, petitioners returned for income tax purposes their shares in the net income derived from said
properties and securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26).
However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
100). The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out,
invested them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against
the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have formed
an unregistered partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit 17,
p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50

Compromise for non-filing .......................... 50.00

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

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the
Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them
from the deceased Julia Buales and the profits derived from transactions involving the same, or, must
they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and 84(b)
of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership,
should this not be only in the sense that they invested as a common fund the profits earned by the
properties owned by them in common and the loans granted to them upon the security of the said
properties, with the result that as far as their respective shares in the inheritance are concerned, the total
income thereof should be considered as that of co-owners and not of the unregistered partnership? And
(3) assuming again that they are taxable as an unregistered partnership, should not the various amounts
already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and presumably petitioners have been holding their
respective shares in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case, and We see no
reason how it could be otherwise, it is easily understandable why petitioners' position that they are coowners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed earlier
by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management of
Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income
derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of
which said properties and investments steadily increased yearly from P87,860.00 in "land account" and
P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all these became possible because,
admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa
and instead, they allowed him to continue using said shares as part of the common fund for their
ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the
profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted
that all the profits from these ventures were divided among petitioners proportionately in accordance with
their respective shares in the inheritance. In these circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from their respective shares of the inheritance but even
the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking
several transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned
provisions of the Tax Code.

It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as
co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them becoming thereby unregistered copartners, but it does not necessarily follow that such status as co-owners continues until the inheritance is
actually and physically distributed among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and engage in business on
that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a property inherited by them pro indiviso,"
but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for
this is simple. From the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his coheirs under a single management to be used with the intent of making profit thereby in proportion to his
share, there can be no doubt that, even if no document or instrument were executed for the purpose, for
tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners
in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the returns are derived," and, for
that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, this
Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered
partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal
Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are
not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general partnerships," which constitute
precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the
standard forms, or in confirmity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section
84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en participacion)" and
"associations", none of which has a legal personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the aforementioned personality have been expressly
excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." ....
xxx

xxx

xxx

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes not only a
partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal
Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on. ... .
(8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships
with the exception only of duly registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R.
Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership
pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the
corporate taxes in question, of their inherited properties from those acquired by them subsequently, We
consider as justified the following ratiocination of the Tax Court in denying their motion for
reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by petitioners. In
other words, the taxable income of the partnership should be limited to the income derived from the
acquisition and sale of real properties and corporate securities and should not include the income derived
from the inherited properties. It is admitted that the inherited properties and the income derived therefrom
were used in the business of buying and selling other real properties and corporate securities.
Accordingly, the partnership income must include not only the income derived from the purchase and sale
of other properties but also the income of the inherited properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered as
individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at
least, partitioned, but the moment their respective known shares are used as part of the common assets
of the heirs to be used in making profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear
intent of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in
the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court.
Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an
unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners
in their individual income tax returns reported their shares of the profits of the unregistered partnership.
We think it only fair and equitable that the various amounts paid by the individual petitioners as income
tax on their respective shares of the unregistered partnership should be deducted from the deficiency
income tax found by this Honorable Court against the unregistered partnership. (page 7, Memorandum
for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income of the partnership must be reduced
by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not
correct; rather, it should be the other way around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in
question, but the income tax due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass
upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid
as individual income tax cannot be credited as part payment of the taxes herein in question. It is argued
that to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same
income, and, worse, considering the time that has lapsed since they paid their individual income taxes,
they may already be barred by prescription from recovering their overpayments in a separate action. We
do not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of
a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question
was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has erroneously
paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar of
prescription. And since the period for the recovery of the excess income taxes in the case of herein
petitioners has already lapsed, it would not seem right to virtually disregard prescription merely upon the
ground that the reason for the delay is precisely because the taxpayers failed to make the proper return
and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-avis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm
with costs against petitioners.

[G.R. No. 127347. November 25, 1999]

ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S.
VDA. DE ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November 29,
1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated
April 11, 1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed by
private respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private
respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot,
covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private
respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the
FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said
property within a period of ninety (90) days from the execution of this memorandum of agreement
effective April 18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a
period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the expiration of the said 90 day grace
period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or
whatever claims on the property nor shall be cause the annotation of say claim at the back of the title to
the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the
property and shall defend the rights of the SECOND PARTY against any party whom may have any
interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST
PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY
after the expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay
an amount equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90) days
period above-mentioned, this memorandum of agreement shall be deemed cancelled and the Deed of
Absolute Sale, executed by the parties shall be the final contract considered as entered between the
parties and the SECOND PARTY shall proceed to transfer ownership of the property above described to
its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale,[3] dated June 11,
1991, wherein private respondent, with the consent of her late husband, sold the subject property to A.C.
Aguila & Sons, Co., represented by petitioner, for P200,000.00. In a special power of attorney dated the
same day, April 18, 1991, private respondent authorized petitioner to cause the cancellation of TCT No.
195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the
event she failed to redeem the subject property as provided in the Memorandum of Agreement.[4]
Private respondent failed to redeem the property within the 90-day period as provided in the
Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned above,
petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the
name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel
for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the
letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would
bring the appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an
ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a
decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the
ground that private respondent did not redeem the subject property before the expiration of the 90-day
period provided in the Memorandum of Agreement. Private respondent appealed first to the Regional
Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to this Court, but she
lost in all the cases.

Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial
Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her
husband on the deed of sale was a forgery because he was already dead when the deed was supposed
to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification against
petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not personally
appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the execution of the Deed of Absolute
Sale, while the plaintiff was still in the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The Court is convinced
that the three required documents, to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties on the same date on April 18,
1991. It is a common and accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various reasons, foremost of
which is the evasion of taxes and surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common sense dictates that an established
lending and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar
spouses, who are virtual strangers to it, without the simultaneous accomplishment and signing of all the
required documents, more particularly the Deed of Absolute Sale, to protect its interest.
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED,
with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is
indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong application in the case
at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The
property is a two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant
stands. The property is inside a subdivision/village. The property is situated in Marikina which is already
part of Metro Manila. The alleged sale took place in 1991 when the value of the land had considerably
increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for
both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is obliged
to deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15) days after
the expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant is to retain
physical possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if they were still the absolute
owners. There was no provision for maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property sold. It is
well-known that payment of taxes accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under whose name the real taxes were
declared has a claim of right over the land.

It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil Code
is sufficient to declare a contract of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has
retained possession of the subject property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it must
be conclusively presumed that the transaction the parties actually entered into is an equitable mortgage,
not a sale with right to repurchase. The factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the
loan extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same with the
amount of the purchase price.
Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase price:
the transaction shall then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium
which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code
reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a stipulation for an automatic appropriation
by the creditor of the thing pledged and mortgaged in the event of non-payment of the principal obligation
within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by a
mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90) days, the period
within which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay P230,000.00 and
not P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of plaintiff-appellee
to pay the P230,000,00 within the ninety (90) days period, the property shall automatically belong to
defendant-appellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore,
the deed of sale should be declared void as we hereby so declare to be invalid, for being violative of law.
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE.
The questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiffappellant and the issuance of TCT No. 267073 issued in favor of defendant-appellee pursuant to the
questioned Deed of Sale is hereby declared VOID and is hereby ANNULLED. Transfer Certificate of Title
No. 195101 of the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this decision. In case of failure to
pay the amount of P230,000.00 from the period therein stated, the property shall be sold at public auction
to satisfy the mortgage debt and costs and if there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which
this case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the
complaint for declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila
& Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as held by the
appellate court.

The petition is meritorious.

Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that
every action must be prosecuted and defended in the name of the real party in interest. A real party in
interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the
suit.[7] This ruling is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case cannot be executed.[8]
Hence, a complaint filed against such a person should be dismissed for failure to state a cause of
action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that
of each of the partners. The partners cannot be held liable for the obligations of the partnership unless it
is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or
illegal purposes.[10] In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of her late husband, and A. C. Aguila & Sons,
Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A violation of this rule will result in
the dismissal of the complaint.[11] We cannot understand why both the Regional Trial Court and the
Court of Appeals sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action should be
prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against
petitioner is DISMISSED.
SO ORDERED.

G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of
P1,863.44, with legal interest thereon, which they paid under protest by way of income tax. They
appealed from the decision rendered in the case on October 23, 1936 by the Court of First Instance of the
City of Manila, which dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and
hereby agree to respectfully submit to this Honorable Court the case upon the following statement of
facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector
of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor the amounts as follows:

1. Jose Gatchalian ....................................................................................................

P0.18
2. Gregoria Cristobal ............................................................................................... .18
3. Saturnina Silva .................................................................................................... .08
4. Guillermo Tapia ................................................................................................... .13
5. Jesus Legaspi ......................................................................................................
.15
6. Jose Silva .............................................................................................................
.07
7. Tomasa Mercado ................................................................................................ .08
8. Julio Gatchalian ...................................................................................................
.13
9. Emiliana Santiago ................................................................................................
.13
10. Maria C. Legaspi ............................................................................................... .16
11. Francisco Cabral ............................................................................................... .13
12. Gonzalo Javier ....................................................................................................
.14
13. Maria Santiago ...................................................................................................
.17
14. Buenaventura Guzman ......................................................................................
.13
15. Mariano Santos ................................................................................................. .14
Total ........................................................................................................
2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course
of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of
Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding
check covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which check was
cashed during the latter part of December, 1934 by Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to
file the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that
on December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is
enclosed as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan,
giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of
which marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen (15) separate individual income tax returns filed
separately by each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to
D-15, respectively, in order of their names listed in the caption of this case and made parts hereof; a
statement of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover
up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by
Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10,
1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a

warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I
is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said
plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan,
as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part
hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and
penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject
to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a
part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at
the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of
P602.51, a copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the
terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which
is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within
five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the
plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano
Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93
representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced
by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and
that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund thereof;
copy of which is attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred
and sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant
refused and still refuses to refund the said amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of
August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated
below and the part of may share remaining is also shown to wit:
Purchaser
Amount Address
1. Mariano Santos ...........................................
2. Buenaventura Guzman ...............................
3. Maria Santiago ............................................
4. Gonzalo Javier ..............................................

P0.14
.13
.17
.14

Pulilan, Bulacan.
- Do - Do - Do -

5. Francisco Cabral .......................................... .13

6. Maria C. Legaspi .......................................... .16
7. Emiliana Santiago ......................................... .13
8. Julio Gatchalian ............................................ .13
9. Jose Silva ...................................................... .07
10. Tomasa Mercado ....................................... .08
11. Jesus Legaspi ............................................. .15
12. Guillermo Tapia ........................................... .13
13. Saturnina Silva ............................................ .08
14. Gregoria Cristobal ....................................... .18
15. Jose Gatchalian ............................................ .18

- Do - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do -

2.00
Total cost of said
ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might
be won by said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY
19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
Name Exhibit
No.
Purchase
Price Price
Won
Expenses
Net
prize
1. Jose Gatchalian ..........................................
2. Gregoria Cristobal ......................................
3. Saturnina Silva .............................................
4. Guillermo Tapia ..........................................
5. Jesus Legaspi by Maria Cristobal .........
6. Jose Silva ....................................................
7. Tomasa Mercado .......................................
8. Julio Gatchalian by Beatriz Guzman .......
9. Emiliana Santiago ......................................
10. Maria C. Legaspi ......................................
11. Francisco Cabral ......................................
12. Gonzalo Javier ..........................................
13. Maria Santiago ..........................................
14. Buenaventura Guzman ...........................
15. Mariano Santos ........................................

D-1
D-2
D-3
D-4
D-5
D-6
D-7
D-8
D-9
D-10
D-11
D-12
D-13
D-14
D-15

P0.18
.18
.08
.13
.15
.08
.07
.13
.13
.16
.13
.14
.17
.13
.14

P4,425
4,575
1,875
3,325
3,825
1,875
1,875
3,150
3,325
4,100
3,325
3,325
4,350
3,325
3,325

P 480
2,000
360
360
720
360
360
240
360
960
360
360
360
360
360

3,945
2,575
1,515
2,965
3,105
1,515
1,515
2,910
2,965
3,140
2,965
2,965
3,990
2,965
2,965

2.00
50,000
The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two
following: (1) Whether the plaintiffs formed a partnership, or merely a community of property without a
personality of its own; in the first case it is admitted that the partnership thus formed is liable for the
payment of income tax, whereas if there was merely a community of property, they are exempt from such
payment; and (2) whether they should pay the tax collectively or whether the latter should be prorated
among them and paid individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by
section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three per centum upon such income; and a like tax shall be
levied, assessed, collected, and paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of
section two of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the
payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay
the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be
prorated among them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs
appellants. So ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

G.R. No. L-68118

October 29, 1985

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

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high cost of construction, then they had no choice but
to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad
presupone necesariamente la convencion, mentras que la comunidad puede existir y existe
ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su
conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro
Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de
bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica seala como nota
fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la
finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y
aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons
contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they
would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit.
Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:
Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the
De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question proindiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or
expand the inherited properties; they merely continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in their tax returns their corresponding shares in the
income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in
order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA
Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which
produce income should not automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income
of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals
or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in
Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and
son purchased a lot and building, entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
where the three Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated the
two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not
prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled.
No costs.
SO ORDERED.

G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,

vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate
dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance with the
respondent's assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the
petition for review filed by petitioner is hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1.
That the petitioners borrowed from their father the sum of P59,1400.00 which amount together
with their personal monies was used by them for the purpose of buying real properties,.
2.
That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has an
assessed value of P57,517.00 as of 1948;
3.
That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an
assessed value of P82,255.00 as of 1948;
4.
That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as
of 1948;

5.
That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;
6.
That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in
default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for
and in their behalf, and to endorse and deposit all notes and checks for them;
7.
That after having bought the above-mentioned real properties the petitioners had the same rented
or leases to various tenants;
8.
That from the month of March, 1945 up to an including December, 1945, the total amount
collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00
thereby leaving them a net rental income of P5,948.33;
9.
That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which
amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;
10.
That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was
deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the
years 1945-1949, computed, according to assessment made by said officer, as follows:
INCOME TAXES
1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and compromise

REAL ESTATE DEALER'S FIXED TAX
1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

P6,157.09

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3,
1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated September 24, 1954" be reversed, and
that they be absolved from the payment of the taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and new trial having been subsequently denied, the case is
now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24
of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compaias colectivas), a tax upon such income equal
to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not
include duly registered general copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves, because:
1.
Said common fund was not something they found already in existence. It was not property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2.
They invested the same, not merely not merely in one transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for

P18,000.00. This was soon followed on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots
(24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly
the last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.
3.
The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization thereof.
4.
Since August, 1945, the properties have been under the management of one person, namely
Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5.
The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.
6.
Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the
cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense
was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are
not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general partnerships which constitute
precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the
standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among other, joint accounts, (cuentas en participation)" and
"associations," none of which has a legal personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have been expressly
excluded by law (sections 24 and 84 [b] from the connotation of the term "corporation" It may not be
amiss to add that petitioners' allegation to the effect that their liability in connection with the leasing of the
lots above referred to, under the management of one person even if true, on which we express no

opinion tends to increase the similarity between the nature of their venture and that corporations, and
is, therefore, an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from
"partnerships". By specific provisions of said laws, such "corporations" include "associations, joint-stock
companies and insurance companies." However, the term "association" is not used in the aforementioned
laws.
. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed
affairs, or the attainment of some object, which like a corporation, continues notwithstanding that its
members or participants change, and the affairs of which, like corporate affairs, are conducted by a single
individual, a committee, a board, or some other group, acting in a representative capacity. It is immaterial
whether such organization is created by an agreement, a declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is not, within the
meaning of the Code, a trust or an estate, or a partnership. (7A Mertens Law of Federal Income Taxation,
p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only a
partnership as known at common law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal
Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on, . .
.. ( 8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships
with the exception only of duly registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in
part:
Entities liable to residence tax.-Every corporation, no matter how created or organized, whether domestic
or resident foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of
five pesos and an annual additional tax which in no case, shall exceed one thousand pesos, in
accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account
(cuentas en participacion), association or insurance company, no matter how created or organized.
(emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our
National Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved on June
15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June 14, 1939), it is
apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the
same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from June
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in section 193
(q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194
(s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing,
or renting property or his own account as principal and holding himself out as a full or part time dealer in
real estate or as an owner of rental property or properties rented or offered to rent for an aggregate
amount of three thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with express
purpose of engaging in real estate business for profit. The series of transactions which they had
undertaken attest to this. This appears in the following portion of the decision:
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. On April 3, 1944, they purchase 21 lots for P18,000.
This was soon followed on April 23, 1944, by the acquisition of another real state for P108,825. Five (5)
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of the property acquired by the petitioner in
February, 1943, In other words, we cannot but perceive a character of habitually peculiar to business
transactions engaged in for purposes of gain.
I wish however to make 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 of itself establish a partnership, whether such coowners 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 partnership, whether or not the person
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 shared or do not
share any profits made by the use of 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 judicial 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 Floyd R. Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a copartnership in respect thereto; nor does
not agreement to share the profits and loses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of reality, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiff's commissions, no partnership existed as between the parties, whatever relation may
have been as to third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
a 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 Ill. 470.)
The common ownership of property does not itself create a partnership between the owners, though they
may use it for 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.)
This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not
suffice to establish the intent necessary to constitute a partnership, the collective effect of these
circumstances (referring to the series of transactions) such as to leave no room for doubt on the
existence of said intent in petitioners herein."

AFISCO Insurance Corp v. CA

PANGANIBAN, J.:
Pursuant to reinsurance treaties, a number of local insurance firms formed themselves into a pool in
order to facilitate the handling of business contracted with a nonresident foreign reinsurance company.
May the clearing house or insurance pool so formed be deemed a partnership or an association that is
taxable as a corporation under the National Internal Revenue Code (NIRC)? Should the pools
remittances to the member companies and to the said foreign firm be taxable as dividends? Under the
facts of this case, has the governments right to assess and collect said tax prescribed?
The Case
These are the main questions raised in the Petition for Review on Certiorari before us, assailing the
October 11, 1993 Decision[1] of the Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners
appeal of the October 19, 1992 Decision[3] of the Court of Tax Appeals[4] (CTA) which had previously
sustained petitioners liability for deficiency income tax, interest and withholding tax. The Court of
Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5]

The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution[6] denying
reconsideration.
The Facts
The antecedent facts,[7] as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the
Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and
Contractors All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener RuckversicherungsGesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance
treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was formed
on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an
Information Return of Organization Exempt from Income Tax for the year ending in 1975, on the basis of
which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the
amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the
petitioners through its auditors Sycip, Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the
petitioners, assessed as Pool of Machinery Insurers, to pay deficiency income tax, interest, and
with[h]olding tax, itemized as follows:
Net income per information
return

Income tax due thereon

Add: 14% Int. fr. 4/15/76
to 4/15/79
TOTAL AMOUNT DUE &
COLLECTIBLE
Dividend paid to Munich
Reinsurance Company

35% withholding tax at

source due thereon
Add: 25% surcharge
14% interest from
1/25/76 to 1/25/79
Compromise penaltynon-filing of return
late payment
TOTAL AMOUNT DUE &
COLLECTIBLE
Dividend paid to Pool Members

10% withholding tax at

P3,737,370.00
===========
P1,298,080.00
545,193.60
P1,843,273.60
===========

P3,728,412.00
===========

P1,304,944.20
326,236.05
137,019.14
300.00
300.00
P1,768,799.39
===========
P 655,636.00
===========

source due thereon

Add: 25% surcharge
14% interest from
1/25/76 to 1/25/79
Compromise penaltynon-filing of return
late payment
TOTAL AMOUNT DUE &
COLLECTIBLE

65,563.60
16,390.90
6,884.18

300.00
300.00
P 89,438.68
===========[8]

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation,
and that the latters collection of premiums on behalf of its members, the ceding companies, was taxable
income. It added that prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the
taxes due, because the taxpayer cannot be located at the address given in the information return filed.
Hence, this Petition for Review before us.[9]
The Issues
Before this Court, petitioners raise the following issues:
1.Whether or not the Clearing House, acting as a mere agent and performing strictly administrative
functions, and which did not insure or assume any risk in its own name, was a partnership or association
subject to tax as a corporation;
2.Whether or not the remittances to petitioners and MUNICHRE of their respective shares of reinsurance
premiums, pertaining to their individual and separate contracts of reinsurance, were dividends subject to
tax; and
3.Whether or not the respondent Commissioners right to assess the Clearing House had already
prescribed.[10]
The Courts Ruling
The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is taxable as a
corporation, and that the governments right to assess and collect the taxes had not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that the pool or clearing house was an
informal partnership, which was taxable as a corporation under the NIRC. They point out that the
reinsurance policies were written by them individually and separately, and that their liability was limited
to the extent of their allocated share in the original risks thus reinsured.[11] Hence, the pool did not act or
earn income as a reinsurer.[12] Its role was limited to its principal function of allocating and distributing
the risk(s) arising from the original insurance among the signatories to the treaty or the members of the
pool based on their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions,
such as records, maintenance, collection and custody of funds, etc.[13]
Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers, did not
share the same risk or solidary liability;[14] (2) there was no common fund;[15] (3) the executive board
of the pool did not exercise control and management of its funds, unlike the board of directors of a
corporation;[16] and (4) the pool or clearing house was not and could not possibly have engaged in the
business of reinsurance from which it could have derived income for itself.[17]
The Court is not persuaded. The opinion or ruling of the Commission of Internal Revenue, the agency
tasked with the enforcement of tax laws, is accorded much weight and even finality, when there is no

showing that it is patently wrong,[18] particularly in this case where the findings and conclusions of the
internal revenue commissioner were subsequently affirmed by the CTA, a specialized body created for
the exclusive purpose of reviewing tax cases, and the Court of Appeals.[19] Indeed,
[I]t has been the long standing policy and practice of this Court to respect the conclusions of quasijudicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated
exclusively to the study and consideration of tax problems and has necessarily developed an expertise on
the subject, unless there has been an abuse or improvident exercise of its authority.[20]
This Court rules that the Court of Appeals, in affirming the CTA which had previously sustained the
internal revenue commissioner, committed no reversible error. Section 24 of the NIRC, as worded in the
year ending 1975, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby imposed
upon the taxable net income received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized, but not
including
duly registered
general
co-partnership (compaias colectivas), general professional
partnerships, private educational institutions, and building and loan associations xxx.
Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled
them such as unregistered partnerships and associations. Parenthetically, the NLRCs inclusion of such
entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997,[21] which
amended the Tax Code. Pertinent provisions of the new law read as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent (35%)
is hereby imposed upon the taxable income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable under
this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx

xxx

(B) The term corporation shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not
include general professional partnerships [or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract without the Government.
General professional partnerships are partnerships formed by persons for the sole purpose of exercising
their common profession, no part of the income of which is derived from engaging in any trade or
business.
xxx xxx

xxx."

Thus, the Court in Evangelista v. Collector of Internal Revenue[22] held that Section 24 covered these
unregistered partnerships and even associations or joint accounts, which had no legal personalities apart
from their individual members.[23] The Court of Appeals astutely applied Evangelista:[24]
xxx Accordingly, a pool of individual real property owners dealing in real estate business was considered
a corporation for purposes of the tax in sec. 24 of the Tax Code in Evangelista v. Collector of Internal
Revenue, supra. The Supreme Court said:

The term partnership includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on. * *
* (8 Mertens Law of Federal Income Taxation, p. 562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a contract of partnership when two or more
persons bind themselves to contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.[25] Its requisites are: (1) mutual contribution to a common
stock, and (2) a joint interest in the profits.[26] In other words, a partnership is formed when persons
contract to devote to a common purpose either money, property, or labor with the intention of dividing the
profits between themselves.[27] Meanwhile, an association implies associates who enter into a joint
enterprise x x x for the transaction of business.[28]
In the case before us, the ceding companies entered into a Pool Agreement[29] or an association[30] that
would handle all the insurance businesses covered under their quota-share reinsurance treaty[31] and
surplus reinsurance treaty[32]with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables that are deposited in the
name and credit of the pool.[33] This common fund pays for the administration and operation expenses of
the pool.[34]
(2) The pool functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies.[35]
(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is
indispensable, beneficial and economically useful to the business of the ceding companies and Munich,
because without it they would not have received their premiums. The ceding companies share in the
business ceded to the pool and in the expenses according to a Rules of Distribution annexed to the
Pool Agreement.[36] Profit motive or business is, therefore, the primordial reason for the pools
formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit or income does not obliterate an antecedent fact, that
of the pool being used in the transaction of business for profit. It is apparent, and petitioners admit, that
their association or coaction was indispensable [to] the transaction of the business. x x x If together they
have conducted business, profit must have been the object as, indeed, profit was earned. Though the
profit was apportioned among the members, this is only a matter of consequence, as it implies that profit
actually resulted.[37]
The petitioners reliance on Pascual v. Commissioner[38] is misplaced, because the facts obtaining
therein are not on all fours with the present case. In Pascual, there was no unregistered partnership, but
merely a co-ownership which took up only two isolated transactions.[39] The Court of Appeals did not err
in applying Evangelista, which involved a partnership that engaged in a series of transactions spanning
more than ten years, as in the case before us.
Second Issue:
Pools Remittances Are Taxable
Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not
dividends subject to tax. They insist that taxing such remittances contravene Sections 24 (b) (I) and 263
of the 1977 NIRC and would be tantamount to an illegal double taxation, as it would result in taxing the
same premium income twice in the hands of the same taxpayer.[40] Moreover, petitioners argue that
since Munich was not a signatory to the Pool Agreement, the remittances it received from the pool cannot
be deemed dividends.[41] They add that even if such remittances were treated as dividends, they would
have been exempt under the previously mentioned sections of the 1977 NIRC,[42] as well as Article 7 of
paragraph 1[43] and Article 5 of paragraph 5[44] of the RP-West German Tax Treaty.[45]

Petitioners are clutching at straws. Double taxation means taxing the same property twice when it should
be taxed only once. That is, xxx taxing the same person twice by the same jurisdiction for the same
thing.[46] In the instant case, the pool is a taxable entity distinct from the individual corporate entities of
the ceding companies. The tax on its income is obviously different from the tax on the dividends received
by the said companies. Clearly, there is no double taxation here.
The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto remains
unproven and unsubstantiated. It is axiomatic in the law of taxation that taxes are the lifeblood of the
nation. Hence, exemptions therefrom are highly disfavored in law and he who claims tax exemption
must be able to justify his claim or right.[47] Petitioners have failed to discharge this burden of proof.
The sections of the 1977 NIRC which they cite are inapplicable, because these were not yet in effect
when the income was earned and when the subject information return for the year ending 1975 was filed.
Referring to the 1975 version of the counterpart sections of the NIRC, the Court still cannot justify the
exemptions claimed. Section 255 provides that no tax shall xxx be paid upon reinsurance by any
company that has already paid the tax xxx. This cannot be applied to the present case because, as
previously discussed, the pool is a taxable entity distinct from the ceding companies; therefore, the latter
cannot individually claim the income tax paid by the former as their own.
On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign corporations; hence, it cannot be
claimed by the ceding companies which are domestic corporations. Nor can Munich, a foreign
corporation, be granted exemption based solely on this provision of the Tax Code, because the same
subsection specifically taxes dividends, the type of remittances forwarded to it by the pool. Although not
a signatory to the Pool Agreement, Munich is patently an associate of the ceding companies in the entity
formed, pursuant to their reinsurance treaties which required the creation of said pool.
Under its pool arrangement with the ceding companies, Munich shared in their income and loss. This is
manifest from a reading of Articles 3[49] and 10[50] of the Quota Share Reinsurance Treaty and Articles
3[51] and 10[52] of the Surplus Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is
in line with the doctrine that a tax exemption must be construed strictissimi juris, and the statutory
exemption claimed must be expressed in a language too plain to be mistaken.[53]
Finally, the petitioners claim that Munich is tax-exempt based on the RP-West German Tax Treaty is
likewise unpersuasive, because the internal revenue commissioner assessed the pool for corporate taxes
on the basis of the information return it had submitted for the year ending 1975, a taxable year when said
treaty was not yet in effect.[54] Although petitioners omitted in their pleadings the date of effectivity of the
treaty, the Court takes judicial notice that it took effect only later, on December 14, 1984.[55]
Third Issue: Prescription
Petitioners also argue that the governments right to assess and collect the subject tax had prescribed.
They claim that the subject information return was filed by the pool on April 14, 1976. On the basis of this
return, the BIR telephoned petitioners on November 11, 1981, to give them notice of its letter of
assessment dated March 27, 1981. Thus, the petitioners contend that the five-year statute of limitations
then provided in the NIRC had already lapsed, and that the internal revenue commissioner was already
barred by prescription from making an assessment.[56]
We cannot sustain the petitioners. The CA and the CTA categorically found that the prescriptive period
was tolled under then Section 333 of the NIRC,[57] because the taxpayer cannot be located at the
address given in the information return filed and for which reason there was delay in sending the
assessment.[58] Indeed, whether the governments right to collect and assess the tax has prescribed
involves facts which have been ruled upon by the lower courts. It is axiomatic that in the absence of a
clear showing of palpable error or grave abuse of discretion, as in this case, this Court must not overturn
the factual findings of the CA and the CTA.

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

[G.R. No. 134559. December 9, 1999]

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

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said
amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City
Councils approval of the subdivision project which he advertised in a local newspaper. He also caused

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

In the same breath, however, they assert that under those very same contracts, respondent is liable for
his failure to implement the project. Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to
60 percent of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by
and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted by
the SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the
respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal
amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the
sub-division project is terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid
by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed
upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned
provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the

SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by
the FIRST PARTY, and the FIRST PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated.[10]
A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form
of land which was to be developed into a subdivision; while respondent would give, in addition to his
industry, the amount needed for general expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated percentage. Clearly, the contract manifested the
intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to
the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the
land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered
into a contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to the partnership.
Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also
industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the
contract they voluntarily signed. If it was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact
that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow the relationship formed from such agreement due
to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which
provides:
ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of
the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo
M. Tolentino states that under the aforecited provision which is a complement of Article 1771,[12] the
execution of a public instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will result in fraud to those who
contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made. The case at bar
does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent
should pay them 60 percent of the value of the property.[13] They cannot in one breath deny the contract
and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties rights and obligations to each other may be
inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422[14] of the Civil Code,
because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale
was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or promise of a thing or service by
another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for which the land was intended to be used. As
explained by the trial court, the land was in effect given to the partnership as [petitioners] participation
therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they [would] get sixty percent of the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of the
failure of the project.[16] But it also ruled that neither was respondent responsible therefor.[17] In imputing
the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings
of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for
review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine.[18] Accordingly, we find no reversible error in the CA's
ruling that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED. Costs against
petitioners.

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business
and to divide the profits or losses that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or
industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or
on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not have directly transacted on its
behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision
of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby
affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA,
reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts and circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement
plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective
amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets
and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of
P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be

rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of
the nets during the pendency of this case, it was ordered sold at public auction for not less than
P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff
to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by
plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in
this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached
nets and floats. Considering, however, that the total judgment obligation as computed above would
amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the amount
of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason,
the defendants are hereby relieved from any and all liabilities arising from the monetary judgment
obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract
dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the
Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the
allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.[5] On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board
F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to crossexamine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and upon motion of
private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable
to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of
the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No.

1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise Agreement provided:
a)
That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b)
If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00
whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c)
If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency
shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but
that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business
and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following
grounds:
I
THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT
THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II
SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE
COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III
THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua
and Yao only, and that he has not even met the representatives of the respondent company. Petitioner
further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased to the two the main asset of the purported
partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly
showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil
Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the following
factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these
two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other
expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in
the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the partieslitigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in
a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term common fund under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of
the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired
in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in
buying the boat but not in the acquisition of the aforesaid equipment, without which the business could
not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be divided
among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of
law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In assailing the
factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless.
The Agreement was but an embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all
relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the
two lower courts factual findings mentioned above nullified petitioners argument that the existence of a
partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and
Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the
nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of
his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in
which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which

would be used in their fishing business. The sale of the boats, as well as the division among the three of
the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the lender trusts, who in this case
is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he
did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of
partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua
and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped
from denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated
association has no personality and would be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act
in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as the principal, possessed of all the right and
subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the
first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith
on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it
as a corporation and received benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who benefited from the transaction
made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for
contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the
nets it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held liable.

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

G.R. No. L-24193

June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of
Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the contract
of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August 29,
1952, copy of which is attached to the complaint as Annex "A" partners in a fishpond business, to the
capital of which Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952 up to
and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the

operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to
render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato &
Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad)
the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in
addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the
winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said
partnership, upon the ground that the contract therefor had not been perfected, despite the execution of
Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the partnership capital.
Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared void ab initio; and
that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of
action and that the lower court had no jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due hearing, the court issued the order
appealed from, granting the motion to dismiss the complaint for failure to state a cause of action. This
conclusion was predicated upon the theory that the contract of partnership, Annex "A", is null and void,
pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument
had not been attached thereto. A reconsideration of this order having been denied, Agad brought the
matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have been contributed
to the partnership under consideration. Mabato alleged and the lower court held that the answer should
be in the affirmative, because "it is really inconceivable how a partnership engaged in the fishpond
business could exist without said fishpond property (being) contributed to the partnership." It should be
noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond", not
to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a real
right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of
Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which
One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
xxx

xxx

xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof,
even if a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed
from should be, as it is hereby set aside and the case remanded to the lower court for further
proceedings, with the costs of this instance against defendant-appellee, Severino Mabato. It is 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.
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.
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 copartnership 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 copartnership 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 CoPartnership (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 PlaintiffAppellant, 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 19561961 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.

[G.R. No. 135813. October 25, 2001]

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding
on the Supreme Court. However, there are several exceptions to this principle. In the present case, we
find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,[1] as well as
the August 17, 1998 and the October 9, 1998 Resolutions,[2] issued by the Court of Appeals (CA) in CAGR CV No. 34742. The Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby
DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts decision
dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is AFFIRMED in toto,
with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of the
August 17, 1998 Resolution.[5]
The Facts
The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced
to each other by one Meliton Zabat regarding a lending business venture proposed by Nieves. It was
verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan payments. The venture was launched on June 13, 1986,
with the understanding that [petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.

In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte
Maria Development Corporation[6] (Monte Maria, for brevity), sought short-term loans for members of the
corporation. [Petitioner] and Gragera executed an agreement providing funds for Monte Marias
members. Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending business
in competition with their partnership[.] Zabat was thereby expelled from the partnership. The operations
with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner]
charged [respondents], allegedly in their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Grageras complaint that his commissions were inadequately remitted, [petitioner] entrusted P200,000.00
to x x x Nieves to be given to Gragera. x x x Nieves allegedly failed to account for the amount.
[Petitioner] asserted that after examination of the records, he found that of the total amount of
P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby leaving
the balance of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere employees of [petitioner].
The complaint, they alleged, was filed to preempt and prevent them from claiming their rightful share to
the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner]
learned of Zabats activities. Arsenio resigned from his job at the Asian Development Bank to join the
partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986
through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over to
Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made
on worksheets were based on this assumptive 100% collection of all loans. The loan releases were
made less Grageras agreed commission. Because of this arrangement, she neither received payments
from borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15
to 15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners with
respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he ceased
infusing funds, thereby causing the extinguishment of the partnership. The agreement with Gragera was
a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were
hired as salaried employees with respect to the partnership between [petitioner] and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from
which Nieves deducted Grageras commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were
employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for delivery to
Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to Gragera and
whether [respondents] were entitled to their counterclaim for share in the profits.[7]

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees,
of petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his partner.
Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus, respondents
counterclaim for their share in the partnership and for damages was granted. The trial court disposed as
follows:
39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES,
the following:
39.2.1.
P3,064,428.00
- The 15 percent share of the
[respondent] NIEVES S. REYES in the profits of her joint venture with the [petitioner].
39.2.2.
Six (6) percent of
P3,064,428.00 August 3, 1987 until the P3,064,428.00 is fully paid.
39.2.3.

P50,000.00

As moral damages

39.2.4.

P10,000.00

As exemplary damages

- As damages from

39.3.
The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO
REYES, the following:
39.3.1.
P2,899,739.50
- The balance of the 15 percent
share of the [respondent] ARSENIO REYES in the profits of his joint venture with the [petitioner].
39.3.2.
Six (6) percent of
P2,899,739.50 August 3, 1987 until the P2,899,739.50 is fully paid.

As damages from

39.3.3.

P25,000.00

As moral damages

39.3.4.

P10,000.00

As exemplary damages

39.4.

The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:

39.4.1.

P50,000.00

39.4.2

The cost of the suit.[8]

As attorneys fees; and

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was
reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the parties:
(1) it was Nieves who broached to petitioner the idea of starting a money-lending business and introduced
him to Gragera; (2) Arsenio received dividends or profit-shares covering the period July 15 to August
7, 1986 (Exh. 6); and (3) the partnership contract was executed after the Agreement with Gragera and
petitioner and thus showed the parties intention to consider it as a transaction of the partnership. In their

common venture, petitioner invested capital while respondents contributed industry or services, with the
intention of sharing in the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts
due, while hers was merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to keep
track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess
or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees of Santos in
connection with the agreement between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves
Reyes signified receipt of copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to
Gragera;
5. Affirming the dismissal of Santos [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents counterclaim;
7. Denying Santos motion for reconsideration dated September 11, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship was
one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of money
allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether respondents were
entitled to the partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending venture
with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves introduced
Gragera to Santos did not make her a partner. She was only a witness to the Agreement between the
two. Separate from the partnership between petitioner and Gragera was that which existed among
petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:

[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it was organized and
as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by
the expulsion of Zabat therefrom, the remaining partners simply continued the business of the partnership
without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to participate as a
partner in their operations. There was therefore, no intent to dissolve the earlier partnership. The
partnership between [petitioner,] Nieves and Arsenio simply took over and continued the business of the
former partnership with Zabat, one of the incidents of which was the lending operations with Monte Maria.
xxx

xxx

xxx

Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria
was done in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat
(later Arsenio) was organized. Gragera who represented Monte Maria was merely paid commissions in
exchange for the collection of loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of gross returns does not in itself
establish a partnership.[11]
We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves.[12] The Articles of Agreement stipulated that the signatories shall share the
profits of the business in a 70-15-15 manner, with petitioner getting the lions share.[13] This stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending money
to the members of the Monte Maria Community Development Group, Inc., which later on changed its
business name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely
petitioners employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of
the Agreement, which states as follows:
2.
That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the loan payments
of the borrowers that they each solicited.
3.
That the bookkeeping and daily balancing of account of the business operation shall be
handled by the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand,
Arsenios duties as credit investigator are subsumed under the phrase screening of prospective
borrowers. Because of this Agreement and the disbursement of monthly allowances and profit shares
or dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in
the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact that it
was formalized only after the Memorandum of Agreement had been signed by petitioner and Gragera.
Contrary to petitioners contention, there is no evidence to show that a different business venture is
referred to in this Agreement, which was executed on August 6, 1986, or about a month after the
Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement itself attests
to this fact:

WHEREAS, the parties have decided to formalize the terms of their business relationship in order that
their respective interests may be properly defined and established for their mutual benefit and
understanding.[15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit
B (the Schedule of Daily Payments), which bears her signature under the words received by. For the
period July 1986 to March 1987, Gragera should have earned a total commission of P4,282,429.30.
However, only P3,068,133.20 was received by him. Thus, petitioner infers that she misappropriated the
difference of P1,214,296.10, which represented the unpaid commissions. Exhibit H is an untitled
tabulation which, according to him, shows that Gragera was also entitled to a commission of P200,000,
an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery
to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come, and
that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that
Nieves received amounts from Monte Marias members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period
of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due execution
and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court
which states:
Sec. 20. Proof of Private Document Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a)

By anyone who saw the document executed or written; or

(b)

By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial
stroke of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures of
NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This difference in the
start of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence to
Nieves claim that the signature Exh. E-1 is a forgery.
xxx

xxx

xxx

Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with the
evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the
entries were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the total
amount recorded on Exh. B is exactly the number of borrowers multiplied by the projected collection of
P150.00 per borrower. This holds true for Exh. F.

Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more believable
than [petitioners] assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves received
P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the document showed a
liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by Gragera
believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the loans, he
took charge of the collections. As [petitioners] representative, Nieves merely prepared the daily cash
flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of Grageras operations.
Gragera on the other hand devised the schedule of daily payment (Exhs. B and F) to record the
projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA [were]
paid to him[,] that of NIEVES is more logical and practical and therefore, more believable. SANTOS
version would have given rise to this improbable situation: GRAGERA would collect the daily
amortizations and then give them to NIEVES; NIEVES would get GRAGERAs commissions from the
amortizations and then give such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the additional
cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then
his claim is not true. This is so because it is a liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA when
he received the latters letter complaining of its delayed release. Assuming as true SANTOS claim that
he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not give it to
GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not even present
the letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending business of SANTOS were
covered by petty cash vouchers. It is therefore strange why SANTOS did not present any voucher or
receipt covering the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits B and F are merely computations of what Gragera should
collect for the day; they do not show that Nieves received the amounts stated therein. Neither is there
sufficient proof that she misappropriated P200,000, because Exhibit H does not indicate that such
amount was received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Wellentrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court
are binding and conclusive on the Supreme Court.[19] Although there are exceptions to this rule,
petitioner has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership

Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains that
both business propositions were flops, as his investments were consumed and eaten up by the
commissions orchestrated to be due Gragera a situation that could not have been rendered possible
without complicity between Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it
was about time to get her share of the profits which had already accumulated to some P3 million.
Respondents add that while the partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses show that from
June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.).
Based on that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. 10-I3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash
Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming the
trial courts ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review of the
records of this case, however, there appears to be sufficient basis to determine the amount of shares of
the parties and damages incurred by [respondents]. The fact is that the court a quo already made such a
determination [in its] decision dated August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
27.
The defendants counterclaim for the payment of their share in the profits of their joint venture
with SANTOS is supported by the evidence.
27.1.
NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5,
5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to SANTOS.
The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986
to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about
P2,926,000.00, in the profits.
27.1.1
SANTOS never denied NIEVES testimony that the money-lending business he was engaged
in netted a profit and that the originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture with NIEVES and ZABAT resulted
in a loss of about half a million pesos to him. But such loss, even if true, does not negate NIEVES claim
that overall, the joint venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is
no reason for the Court to doubt the veracity of [the testimony of] NIEVES.
27.2
The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and
6-B) should be deducted from his total share.[21]
After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit 10I[22] shows that the partnership earned a total income of P20,429,520 for the period June 13, 1986
until April 19, 1987. This entry is derived from the sum of the amounts under the following column
headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee, Net Interest
Income and Interest Income on Investment. Such entries represent the collections of the moneylending business or its gross income.

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

G.R. No. L-59956

October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.
This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered
petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw
xxx

xxx

xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a
commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were
printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a
sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits
that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the court that by virtue of the partnership
agreement entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and
another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000
copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however,
were sold at P5.00 each. Nothing more was done after this and it can be said that the venture did not
really get off the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00.
Thus, each party is entitled to rescind the contract which right is implied in reciprocal obligations under
Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which
were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads: t.hqw
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby
rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under
their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is
made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in a way
not in accord with law and with Supreme Court decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE
HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED
BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great risks
involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private respondent. It
is a contract of partnership. The latter in his complaint alleged that he was induced by the petitioner to
enter into a partnership with him under the following terms and conditions: t.hqw
1. That the partnership will print colored posters of the delegates to the Constitutional Convention;
2.

That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3.

That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15,
1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, 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 (Art. 1786, Civil Code) and
for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil
Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because
the appellant therein was remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a particular set of facts. We awarded
compensatory damages in the Uy case because there was a finding that the constructing business is a
profitable one and that the UP construction company derived some profits from its contractors in the
construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that
the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from
January 1, 1958 up to September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a profitable venture. In
fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private respondent
failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must share in the profits and losses of the venture. That is
the essence of a partnership. And even with an assurance made by one of the partners that they would
earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover
the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case,
on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month
for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were
sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors
into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies
of the posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And

since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment
in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the
Veterans" magazine venture, the respondent court ruled that: t.hqw
xxx

xxx

xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question
the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence
indicates that the P20,000 was assigned by Moran to cover the following: t.hqw
(a) P 7,000 the amount of the PNB check given by Pecson to Moran representing Pecson's investment
in Moran's other project (the publication and printing of the 'Voice of the Veterans');
(b) P10,000 to cover the return of Pecson's contribution in the project of the Posters;
(c) P3,000 representing Pecson's commission for three months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project,
for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on
appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits
of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA
734), we held that this Court retains the power to review and rectify the findings of fact of the Court of
Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) when the inference made is manifestly mistaken absurd and impossible; (3) where there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that
his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00
was the amount of profit that the private respondent expected to receive.
The records show the following exhibits- t.hqw

E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant.
Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4,
Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in the
printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment
of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000
dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff
as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit),
defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and
Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital
investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit
was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The
authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n.,
pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note
(t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.
xxx

xxx

xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject
matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which,
together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory note
(Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is
being offered for the purpose of further showing the transaction as explained in connection with Exhibits E
and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in connection with Exhibits E, L, and M to
show the transaction mentioned therein.
xxx

xxx

xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of
showing the transaction as explained in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw
Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount
of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note?
A

Yes, sir.

What is this promissory note, in connection with your transaction with the defendant?

A This promissory note is for the printing of the "Voice of the Veterans".
Q

What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.t.hqw

(T.S.N., p. 19, Nov. 29, 1972)

Q

And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National
Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E,
is this the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your
investment and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I
gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to
him, what happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your
capital investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of
Identification I request the same to be marked as Exhibit M. . .
Court t.hqw
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the
promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment
and the P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground because the project
did take place. Only it failed. It was the private respondent himself who presented a copy of the book
entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that
the project never took place and on this basis decree the return of the private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon
the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the
grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests at
the legal rate on both amounts from the date the complaint was filed until full payment is made.
SO ORDERED.

G.R. No. L-35840

March 31, 1933

FRANCISCO BASTIDA, plaintiff-appellee,

vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First
Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants'
amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein
the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of
the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore

believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C.
Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M.
Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in
the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit A, attached to
the original complaint as a part thereof, and likewise made a part of the amended complaint, as if it were
here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture
prepared fertilizers, the former superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled
"FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept; the plaintiff had no participation in the making of these
entries, which were wholly in the defendants' charge, under whose orders every entry was made;
IV
That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to
render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff had
no intervention in the preparation of these yearly balances, nor was he permitted to have any access to
the books of account; and when the balance sheets were shown him, he, believing in good faith that they
contained the true statement of the partnership business, and relying upon the good faith of the
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last
balance sheet having been rendered in the year 1926;
V
That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the
plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature
and amount of which it is impossible to ascertain, even after the examination of the books of the
business, due to the defendants' refusal to furnish all the books and data required for the purpose, and
the constant obstacles they have placed in the way of the examination of the books of account and
vouchers;
VI
That when the plaintiff received the information mentioned in the preceding paragraph, he demanded that
the defendants permit him to examine the books and vouchers of the business, which were in their
possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to the examination until after
the original complaint was filed in this case; but up to this time they have refused to furnish all the books,
data, and vouchers necessary for a complete and accurate examination of all the partnership's accounts;
and
VII
That as a result of the partial examination of the books of account of the business, the plaintiff has,
through his accountants, discovered that the defendants, conspiring and confederating together,

presented to the plaintiff during the period covered by the partnership contract false and incorrect
accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and
were in fact paid by the defendant Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which should have been paid for its own
account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of
materials for the manufacture of fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the sale
of fertilizers belonging to the partnership and bought with its own funds; and
(f)
For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon
materials for fertilizer bought abroad, no entries of said rebates having been made on the books to the
credit of the partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and concealing the books and
papers of the partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true account of all facts relating to the
partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the beginning to April 27, 1927, and a
true statement of all merchandise of whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount thereof, besides the sums received by
the partnership from every source together with their exact nature, and a true and complete account of
the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to
1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and disbursements of the partnership
during the period of its existence, besides granting the plaintiff any other remedy that the court may deem
just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco
Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para
diversas aplicaciones agricolas;
2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma;
3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio;

4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del
negocio;
5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras
personas, o de manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique comunmente a la fertilizacion de suelos y plantas,
durante la vigencia de este contrato, a menos que obtenga autorizacion expresa de la Primera Parte para
ello;
6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas o
entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados, ya preparados en las Islas Fllipinas; tampoco podra dedicarse a la
venta o negocio de materias o productos que tengan aplicacion como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si ellos son productos de suelo de la manufactura filipinos,
pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los Estados
Unidos o del Extranjero;
7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y
cinco por ciento) de las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a
cuenta de su parte de beneficios.
9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas
por un periodo de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte
con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except the formal allegations as to the
parties, and as a special defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise
business in the Philippine Islands since its organization in October, 1921, including the importation and
sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer
ingredients, and as a part of that business, it has been engaged since its organization in the manufacture
and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks
belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an
employment agreement with the plaintiff, who represented that he had had much experience in the mixing
of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers in its
fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a

compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers
prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and
received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said
Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is
marked Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed
that the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated,
should be for a definite period of five years from that date and under the other terms and conditions
stated therein, but with the understanding and agreement that the said Francisco Bastida should receive
as compensation for his said services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as
provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of December, 1922, the
defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did
assume the full management and direction of said business;
3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept
in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said agreement, for the purpose of convenience
in determining the amount of compensation due to the plaintiff under his agreement, separate books of
account for its said fertilizer business were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and the
said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business
due to the said plaintiff as compensation for his services under said agreement would be made as of
December 31st, instead of June 30th, of each year, during the period of said agreement; that the
accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers
and records supporting the same, for each year of said business have been duly audited by Messrs.
White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the
end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit
and loss account and balance sheet, showing the status of said business and the share of the net profits
pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the business of its said fertilizer
department up to and including the year 1926, had been prepared by the said auditors and certified by
them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him, with
full knowledge of their contents, and as evidence of such approval, he signed his name on each of them,
as shown on the copies of said manufacturing and profit and loss account and balance sheet for each
year up to and including the year 1926, which are attached to the record of this case, and which are
hereby referred to and made a part of this amended answer, and in accordance therewith, the said
plaintiff has actually received the portion of the net profits of its said business for those years pertaining to
him for his services under said agreement; that at no time during the course of said fertilizer business and
the liquidation thereof has the plaintiff been in any way denied access to the books and records pertaining
thereto, but on the contrary, said books and records have been subject to his inspection and examination
at any time during business hours, and even since the commencement of this action, the plaintiff and his
accountants, Messrs. Haskins & Sells, of Manila, have been going over and examining said books and
records for months and the defendant, Menzi & Co. Inc., through its officers, have turned over to said
plaintiff and his accountant the books and records of said business and even furnished them suitable
accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not under any conditions renew his said agreement or continue his said
employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the
said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of the
business of its said fertilizer department for the four months of 1927 covered by plaintiff's agreement and
prepare a manufacturing and profit and loss account and balance sheet of said business showing the
status of said business at the termination of said agreement, a copy of which was shown to and explained
to the plaintiff; that at that time there were accounts receivable to be collected for business covered by

said agreement of over P100,000, and there was guano, ashes, fine tobacco and other fertilizer
ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or valued by the
parties, before the net profits of said business for the period of the agreement could be determined; that
Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of the other
properties for the purpose of determining the profits of said business for that period, and to pay to the
plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to accept, and
being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said
plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M.
Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations against
the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts
receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately
P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final liquidation
and amounting of the net profits of the business covered by said agreement for the last four months
thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff
has been informed from time to time as to the status of the disposition of such properties, and he and his
auditors have fully examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were
furnished by the defendants disclosed the fact that said defendants had charged to "purchases" of the
business, undue interest, the amount of which the plaintiff is unable to determine, as he has never had at
his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact that
the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own
cash book, but that its funds were maliciously included in the private funds of the defendant entity, neither
was there a separate BANK ACCOUNT of the partnership, such account being included in the
defendant's bank account.
III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the
partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants
by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or P64,551.38,
belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to
pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from the
defendants to the plaintiff upon this ground, with legal interest from the filing of the original complaint until
payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi &
Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business, as
it had been doing before the plaintiff was employed under the said agreement; that the said defendant,
Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened letters of credit
through the banks of Manila, accepted and paid drafts drawn upon it under said letters of credit, and
obtained loans and advances of moneys for the purchase of materials to be used in mixing and
manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all,
such business enterprises, and that such payments of interest as were actually made on such drafts,

loans and advances during the period of the said employment agreement constituted legitimate expenses
of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm,
nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever
by way of salary for services rendered to the partnership between the plaintiff and the defendant,
inasmuch as such services were compensated with the 65% of the net profits of the business constituting
their share.
III. That the plaintiff has, on his on account and with his own money, paid all the employees he has placed
in the service of the partnership, having expended for their account, during the period of the contract, over
P88,000, without ever having made any claim upon the defendants for this sum because it was included
in the compensation of 35 per cent which he was to receive in accordance with the contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and
excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries
of a number of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership
funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and
severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special
defense the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its
said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation
for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments
had special experienced Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer business, after its manager took
charge of it, became very successful, and owing to the large volume of business transacted, said
business required great deal of time and attention, and actually consumed at least one-half of the time of
the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co.,
furnished office space, stationery and other incidentals, for said business, and had its employees perform
the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason the said
Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which
pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional
part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the
several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922, a
just proportion of said overhead expenses were charged to said fertilizer departments and entered on the
books thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports, which
were examined, accepted and approved by him, and he is now estopped from saying that such expenses
were not legitimate and just expenses of said business.
FOURTH CAUSE OF ACTION

As fourth cause of action, the plaintiff alleged:

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has
paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due
from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own money the income tax
corresponding to his share which consists in 35 per cent of the profits of the fertilizer business, expending
about P5,000 without ever having made any claim for reimbursement against the partnership, inasmuch
as it has always been understood among the partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the
sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the
Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the
income of its whole business, including its fertilizer department; that the proportional share of such
income taxes found to be due on the business of the fertilizer department was charged as a proper and
legitimate expense of that department, in the same manner as was done in the other departments of its
business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was
required to make his own return under the Income Tax Law and to pay his own income taxes, instead of
having them paid at the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc.,
pertaining to the business, were duly entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were examined, accepted and approved by the
plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are not
a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the
period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission
was not entered by the defendants in the books of the business, to the credit and benefit of the
partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff
cannot be determined, because the entries referring to these items do not appear in the partnership
books, although the plaintiff believes and alleges that they do appear in the private books of the
defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made
therefore by the auditors and the lawyers of the plaintiff.

IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership
during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff
the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have adduced
their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and has
now what is called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B., of
Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive for its
propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on all
orders of potash received by it from the Philippine Islands; that during the period of said agreement,
Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent
of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission,
amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands;
that said commissioners were not in any sense discounts on the purchase price of said potash, and have
no relation to the fertilizer business of which the plaintiff was to receive a share of the net profits for his
services, and consequently were not credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of
commissions, which were received from the United Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi &
Co., Inc., but due allowance has now been given to the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers
in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with
the latter's money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons,
thereby appropriating to itself the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the
real amount obtained from such sales can only be ascertained from the examination of the private books
of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established,
even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by merely
examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to all the profits received from the sale to third persons of the fertilizers pertaining to
the partnership, and the profits they have appropriated, ordering them jointly and severally to pay 35 per
cent of the net amount, with legal interest from the filing of the original complaint until the payment
thereof.

Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro its
exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and sold
during the period of said agreement were simple fertilizer ingredients, which had nothing whatever to do
with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits as a
part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of
the partnership constituted between itself and the plaintiff, and with the latter's money, purchased from a
several foreign firms various simple fertilizing material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the cost price of the
merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent
and were later credited by the selling firms to the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and
P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for
rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter them
upon the books to the credit of the partnership constituted between the defendant and the plaintiff, but
entered or had them entered to the credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35 per
cent of the value of such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an
examination of the private books of Menzi & Co., Inc., which the latter has refused to permit
notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc.,
received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business in
the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total
sum of P1,402.54; that all of department as received, but it has just recently been discovered that through
error an additional sum of P216.22 was credited to said department, which does not pertain to said
business in the profits of which the plaintiff is interested.
EIGHT CAUSE OF ACTION

A eighth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compaia General de Tabacos de Filipinas for
the sale of said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at the rate of
P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were delivered, according to
information received by the plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff
estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the
defendants have not rendered a true accounting of the profits obtained by the business during the last
four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the
inventory of merchandise, transportation equipment, and the value of the trade marks, for which reason
such proposed balance did not represent the true status of the business of the partnership on April 30,
1927.
V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during
the last four months of its existence, was likewise incorrect, inasmuch as it did not include the profit
realized or to be realized from the contract entered into with the Compaia General de Tabacos de
Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the
partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into with the Compaia General de
Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed
account of the business during the last four months of the existence of the partnership, i. e., from January
1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia
General de Tabacos Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer
business, and was to be manufactured and delivered in December, 1927, and up to April, 1928; that the
employment agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in
any way in the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have
any interest in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration
of his contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the
Bureau of Commerce and Industry the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and
"HOZ", the plaintiff and the defendant having by their efforts succeeded in making them favorably known
in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business
a prosperous concern to such an extent that the profits obtained from the business during the five years it
has existed, amount to approximately P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks of a business of this nature amounts to at least
P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in
spite of the plaintiff's insistent opposition, has assumed the charge of liquidating the fertilizing business,
without having rendered a monthly account of the state of the liquidation, as required by law, thereby
causing the plaintiff damages.
VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining
property of the plaintiff, and may only be truly and correctly ascertained by compelling the defendants J.
M. Menzi and P. C. Schlobohm to declare under oath and explain to the court in detail the sums obtained
from the sale of the remaining merchandise, after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the
good-will and trade marks belonging to the partnership, as well as its transportation equipment and other
machinery, thereby indicating its intention to retain such good-will, trade marks, transportation equipment
and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound to pay the
plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery employed in the preparation of
the fertilizers amounts of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed
account of the state of the liquidation of the partnership business, but said defendants has ignored such
demands, so that the plaintiff does not, and this date, know whether the liquidation of the business has
been finished, or what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the
status of business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants
to pay the plaintiff jointly and severally 35 per cent of the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35
per cent of the value of the goodwill and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per
cent of the value of the transportation equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this
Honorable Court may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment
agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from
and since its organization, and the plaintiff can have no rights to or interest therein under his said
employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi &
Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said business; that the machinery pertaining to
the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum of
P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per
cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and the
costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it taken
into consideration in arriving at the net profits due to him under his said employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general
regular commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to
C-8, is not estopped from questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P
60,385.67 with legal interest from the date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41,
with legal interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum
of P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business,
until paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20
with legal interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business
accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum
charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A,
to pay the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and

(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff,
Francisco Bastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully
charged to the fertilizer business in question the sum of P10,918.33 as income taxes partners' balances,
foreign drafts, local drafts, and on other credit balances in the sum of P172,530.49, and that 35 per cent
thereof, or the sum of P60,358.67, with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of P10,918.33 as income taxes for the years 1923, 1924,
1925 and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his complaint, and in disallowing the item of P2,410 charged as
income tax in the liquidation in Exhibits 51 and 51 A for the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract,
Exhibit A was daring the whole period thereof considered by the parties and performed by them as a
contract of employment in relation to the fertilizer business of the defendant, and that the accounts of said
business were kept by the defendant, Menzi & Co., Inc., on that theory with the knowledge and consent of
the plaintiff, and that at the end of each year for five years a balance sheet and profit and loss statement
of said business were prepared from the books of account of said business on the same theory and
submitted to the plaintiff, and that each year said balance sheet and profit and loss statement were
examined, approved and signed by said contract in accordance therewith with full knowledge of the
manner in which said business was conducted and the charges for interest and income taxes made
against the same and that by reason of such facts, the plaintiff is now estopped from raising any question
as to the nature of said contract or the propriety of such charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent
of the net profits in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its contract
with the Compaia General de Tabacos de Filipinas, or the sum of P6.578.38, with legal interest thereon
from January 1, 1929, the date upon which the liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in
question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with legal interest thereon from the date of filing his complaint.
VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi & Co.,
Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal interest thereon from the
date of filing the complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal interest
thereon from the date of filing the complaint; (c) on the eight cause of action, for the sum of P6,578.38,
with legal interest thereon from January 1, 1929; and (d) on the ninth cause of action, for the sum of
P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e) for the costs
of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and
52-A, as true and correct, and entering judgment against said defendant only for the amounts admitted
therein as due the plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new trial.
It appears from the evidence that the defendants corporation was organized in 1921 for purpose of
importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will, trade-marks, business, and other

assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910
until that firm was taken over the Alien Property Custodian in 1917. Among the trade-marks thus acquired
by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were registered in the
Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks "ARADO" and "HOZ" had
been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark "CORONA"
had been used in its other business. The "HOZ" trade-mark was used by John Bordman and the MenziBordman Co. in the continuation of the fertilizer business that had belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different departments, each of which was in
charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had to
borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for interest
was charged against the department concerned, and the interest charges were taken into account in
determining the net profits of each department. The practice of the corporation was to debit or credit each
department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc.,
was carried on in accordance with this practice under the "Sundries Department" until July, 1923, and
after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to
see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he
could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did
not have the money to buy the ingredients to fill the order and carry on the on the business. He offered to
assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise the
mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that Menzi & Co., might
derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted plaintiff's offer. Plaintiff
assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit
B:
MANILA, 10 de enero de 1922
Sr. FRANCISCO BASTIDA
Manila
MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la
explotacion del negocio de abono y fertilizantes, por la presente venimos en confirmar su derecho de 50
por ciento de las untilidades que se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals
(por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como de cuantos contratos se cierren
con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que
hacemos para garantia y seguridad de Vd.
MENZI & CO.,
Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It
ordered ingredients from the United States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer
business had no separate capital. A fertilizer account was opened in the general ledger, and interest at
the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the daily
balances of the fertilizer business. This was in accordance with appellant's established practice, to which
the plaintiff assented.

On or about April 24, 1922 the net profits of the business carried on under the oral agreement were
determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent
and salaries and wages, and the other expenses of said business, and the plaintiff was paid some twenty
thousand pesos in full satisfaction of his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the basis
of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically
the same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in
the name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to the
fertilizer business, in which the plaintiff was interested. Only the fees for registering the formulas in the
Bureau of Science were charged to the fertilizer business, and the total amount thereof was credited to
this business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps
to tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other
countries. This contract is rendered to in the record as the "Vastago Contract". Menzi & Co., Inc.,
advanced the plaintiff, paying the salaries of his employees, and other expenses in performing his
contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and
at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer
business. These statements were delivered to the plaintiff for examination, and after he had had an
opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer
business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
Total . . . . . . . . . . . . . . . . . . . .
P196,483.92
To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927,
amounting to P34,766.87, making a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that
the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on
hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and
accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the
net profits could be finally determined, it was necessary to dispose of the materials and equipment, collect
the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement
for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept
it, and filed the present action.

Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed
to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the
defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between
the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court
for an order for the sale of the remaining property at public auction, but apparently the court did not act on
the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was
completed in December, 1928 and a final balance sheet and a profit and loss statement were submitted
to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the whole period of
the contract in question were reaudited by White, Page & Co.., certain errors of bookkeeping were
discovered by them. After making the corrections they found the balance due the plaintiff to be
P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers
of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi &
Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally
reached very different conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and
the arguments of counsel, we are unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as
appears from the statement of facts, was in effect a continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived by
the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests.
Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written agreement, Exhibit A, and for four years
the plaintiff never made any objection. On the contrary he approved and signed every year the balance
sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff began to make
objections.
The trial court relied on article 116 of the Code of Commerce, which provides that articles of association
by which two or more persons obligate themselves to place in a common fund any property, industry, or
any of these things, in order to obtain profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the provisions of this Code; but in the case at bar
there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The
business belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35
per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him P300
a month on account of his participation in the profits. It will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well
settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem, second
edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become
partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation not
engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con).
The fact is that en sociedad con as there used merely means en reunion con or in association with, and
does not carry the meaning of "in partnership with".

The trial judge found that the defendant corporation had not always regarded the contract in question as
an employment agreement, because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said
business. The trial judge concluded that the phrase "associated with", used by the defendant corporation,
indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded by the amended complaint and the
answer thereto, and the answer to the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have been
filed, allegations in the original pleadings are held admissible, but in such case the original pleadings can
have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan,
27 Phil., 148.)
In the second place, although the word "associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to
the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on
account of his share of the profits, and to grant him permission during 1923 to absent himself from the
Philippines for not more than one year are utterly incompatible with the claim that it was the intention of
the parties to form a copartnership. Various other reasons for holding that the parties were not partners
are advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish to
add that in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the
owners of the fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges
and erroneously disallowed, and this would true even if the parties had been partners. Although Menzi &
Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary
credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without
merit as not to merit serious consideration. For instance, they objected to the interest charges on draft for
materials purchased abroad. Their contention is that the corporation should have furnished the money to
purchase these materials for cash, overlooking the fact that the interest was added to the cost price, and
that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems to us
the height of absurdity, that the defendant corporation should have furnished free of charge such financial
assistance as would have made it unnecessary to discount customers' notes, thereby enabling the
business to reap the interest. In other words, the defendant corporation should have enabled the fertilizer
department to do business on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the same as those made under the
verbal agreement, upon the termination of which the parties made a settlement; the charges in question
were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision of
this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A portion of the
syllabus of that case reads as follows:
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the
parties to a contract in the course of its performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing
a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had
been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That this
action of the parties under the prior contract could properly be considered upon the question of the
interpretation of the same clause in the later contract.

3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation
placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution
thereof that the other placed a certain interpretation upon a provision of doubtful application, nevertheless
proceeded, without raising any question upon the point, to perform the services which he was bound to
render under the contract. Upon the termination of the contract by mutual consent a question was raised
as to the proper interpretation of the doubtful provision. Held: That the party raising such question had
acquiesced in the interpretation placed upon the contract by the other party and was bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by
Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not
justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's
contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for himself.
When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to
participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the
accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi
& Co., Inc., were partners; but even if they had been partners there would have been no good-will to
dispose of. The defendant corporation had a fertilizer business before it entered into any agreement with
the plaintiff; plaintiff's agreement was for a fixed period, five years, and during that time the business was
carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right to do. There
was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks
used in the fertilizer business during the time that he was connected with it acquired great value, and that
they have been appropriated by the appellant to its own use. That seems to be the only basis of the
alleged good-will, to which a fabulous valuation was given. As we have seen, the trade- marks were not
new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for
fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of
registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was
interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no
interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence
that said balance is correct.
For the foregoing reasons, the decision appealed from is modified and the defendant corporation is
sentenced to pay the plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June 17,
1927, without a special finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.

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:
I
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).
V
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. Bolaos, 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. L-49982

April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.
GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between members of
the same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the
corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of
the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as
Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance
rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint
affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They
agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline
service station of the family. They negotiated with SHELL. For practical purposes and in order not to run
counter to the company's policy of appointing only one dealer, it was agreed that petitioner would apply
for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3,
1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty.
Angeles, a demand was made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make a profit of P
87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
against petitioner praying among others that the latter be ordered:
1.
to execute a public document embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;

2.
to render a formal accounting of the business operation covering the period from May 6, 1966 up
to December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be
subject to proper audit;
3.
to pay the plaintiffs their lawful shares and participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until
full payment thereof for the entire duration of the business; and
4.
to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding
judge of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and
ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent
filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and
rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new
judgment is hereby rendered in favor of the plaintiffs and as against the defendant:
(1)
Ordering the defendant to execute a public instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil
Code of the Philippines;
(2)
Ordering the defendant to render a formal accounting of the business operation from April 1969
up to the time this order is issued, the same to be subject to examination and audit by the plaintiff,
(3)
Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of
the business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;
(4)
Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that
the respondent court erred:
1.
In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2","6", and "L"); and
2.
In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced(a)

The joint Affidavit of April 11, 1966, Exhibit A reads:

(1)
That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;
(2)
That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we
can use the said amount to augment our capital investment in the operation of that gasoline station
constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company;
(3)
That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and
desire to help us in aumenting our capital investment in the operation of the said gasoline station, has
agreed to give us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED
RENTALS;
(4)
That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said
sum as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our Lease
Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be applicable,
which time to our estimate and one-half months from May 25, 1966 or until the 10th of October, 1966
more or less;
(5)
That we have likewise agreed among ourselves that the SHELL COMPANY OF THE
PHILIPPINES LIMITED execute an instrument for us to sign embodying our conformity that the said
amount that it will generously grant us as requested be applied as ADVANCED RENTALS; and
(6)

FURTHER AFFIANTS SAYETH NOT.,

(b)

The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407,
Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and
another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by COOWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land
at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental of PESOS
THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased
land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in
cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on
credit of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured
the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of
them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall
be treated as additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among
the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:
l.
The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all COOWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November
1963 and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to
SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby

irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall
due, monthly, commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be
equal to P l5,000.
2.
The above stated monthly rentals accumulated shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement,
therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.
3.
Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the amount of P 25,000.
4.
This increase in the credit shall also be subject to the same terms and conditions of the abovementioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P
15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the
operation of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6),
the private respondents and petitioners assigned to SHELL the monthly rentals due them commencing
the 24th of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00 which
private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit
as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes
the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint
Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of
reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and
supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the
Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline
station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter
document SHELL was a signatory and it would be against its policy if in the agreement it should be stated
that the business is a partnership with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement between
the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty.
Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4 Petitioner
gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the
books of their "common business' aming negosyo). 5 Respondent Remedios assisted in the running of
the business. There is no doubt that the parties hereto formed a partnership when they bound themselves
to contribute money to a common fund with the intention of dividing the profits among themselves. 6 The
sole dealership by the petitioner and the issuance of all government permits and licenses in the name of
petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of
having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion
based on the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This
decision is immediately executory and no motion for extension of time to file a motion for reconsideration
shag beentertained.

[G.R. No. 142293. February 27, 2003]

VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and SBT[1] TRUCKING
CORPORATION, petitioners, vs. HON. COURT OF APPEALS and JAIME SAHOT, respondents.
QUISUMBING, J.:
This petition for review seeks the reversal of the decision[2] of the Court of Appeals dated February 29,
2000, in CA-G.R. SP No. 52671, affirming with modification the decision[3] of the National Labor
Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also
pray for the reinstatement of the decision[4] of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners
family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the
same family business, renamed T. Paulino Trucking Service, later 6Bs Trucking Corporation in 1985, and
thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names and
for 36 years, private respondent continuously served the trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from
various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance
of his task as a driver. He inquired about his medical and retirement benefits with the Social Security
System (SSS) on April 25, 1994, but discovered that his premium payments had not been remitted by his
employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and
treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and heart enlargement (Annex G, p.
107).[8] On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a
formal request for extension of his leave. At the end of his week-long absence, Sahot applied for
extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly
threatened to terminate his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he
could not retire on pension because petitioners never paid his correct SSS premiums. The fact remained
he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. They carried out
their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless and
penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation
pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking,
T. Paulino Trucking Service, 6Bs Trucking and SBT Trucking, herein petitioners.
For their part, petitioners admitted they had a trucking business in the 1950s but denied employing
helpers and drivers. They contend that private respondent was not illegally dismissed as a driver
because he was in fact petitioners industrial partner. They add that it was not until the year 1994, when
SBT Trucking Corporation was established, and only then did respondent Sahot become an employee of
the company, with a monthly salary that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to
report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of
absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent never
reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its owners.

Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of absence,
he should be deemed to have voluntarily resigned from his work. They contended that Sahot had all the
time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited NLRC
Case No. RE-4997-76, entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a defense in
view of the alleged similarity in the factual milieu and issues of said case to that of Sahots, hence they
are in pari material and Sahots complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no
illegal dismissal in Sahots case. Private respondent had failed to report to work. Moreover, said the Labor
Arbiter, petitioners and private respondent were industrial partners before January 1994. The Labor
Arbiter concluded by ordering petitioners to pay financial assistance of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It
declared that private respondent was an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was terminated on account of his illness,
pursuant to Article 284[9] of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private
respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of
service.
Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February
29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that private
respondent was indeed an employee of petitioners since 1958. It also increased the amount of separation
pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of
service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking
Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR
THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]
Hence, the instant petition anchored on the following contentions:
I
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION
AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION
DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL
CODE.[11]
II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR
ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND
DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS
IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).[12]
III
PRIVATE RESPONDENT
CORPORATION.[13]

WAS

NOT

DISMISS[ED]

BY

RESPONDENT

SBT

TRUCKING

Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between
petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not
respondent Sahot is entitled to separation pay.

Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal
dismissal can prosper, an employer-employee relationship must first be established.[14]
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent
Sahot was not an employee but was in fact, petitioners industrial partner.[15] It is contended that it was
the Labor Arbiter who heard the case and had the opportunity to observe the demeanor and deportment
of the parties. The same conclusion, aver petitioners, is supported by substantial evidence.[16] Moreover,
it is argued that the findings of fact of the Labor Arbiter was wrongly overturned by the NLRC when the
latter made the following pronouncement:
We agree with complainant that there was error committed by the Labor Arbiter when he concluded that
complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that
he was only twenty-three (23) years when he started working with respondent as truck helper. How can
we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents
from the time complainant started working for respondent.[17]
Because the Court of Appeals also found that an employer-employee relationship existed, petitioners
aver that the appellate courts decision gives an imprimatur to the illegal finding and conclusion of the
NLRC.
Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no
written agreement, no proof that he received a share in petitioners profits, nor was there anything to
show he had any participation with respect to the running of the business.[18]
The elements to determine the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct. The most important element is the employers
control of the employees conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish it.[19]
As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and
by their own allegations, they determined private respondents wages and rest day.[20] Records of the
case show that private respondent actually engaged in work as an employee. During the entire course of
his employment he did not have the freedom to determine where he would go, what he would do, and
how he would do it. He merely followed instructions of petitioners and was content to do so, as long as he
was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of
petitioners not for his own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that in a contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves.[22] Not one of these circumstances is present in this case. No written
agreement exists to prove the partnership between the parties. Private respondent did not contribute
money, property or industry for the purpose of engaging in the supposed business. There is no proof that
he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business. Thus, the NLRC and the CA did
not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from
1958 to 1994.
On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot
was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of an
employer-employee relationship is ultimately a question of fact[23] and the findings thereon by the NLRC,
as affirmed by the Court of Appeals, deserve not only respect but finality when supported by substantial

evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion.[24]
Time and again this Court has said that if doubt exists between the evidence presented by the employer
and the employee, the scales of justice must be tilted in favor of the latter.[25] Here, we entertain no
doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the
trucking business.
Coming now to the second issue, was private respondent validly dismissed by petitioners?
Petitioners contend that it was private respondent who refused to go back to work. The decision of the
Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent Sahot
to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit to
continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did not
like to work as a driver anymore, then he could be given a job that was less strenuous, such as working
as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals, petitioners
assert that it is clear that Sahot was not dismissed but it was of his own volition that he did not report for
work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue working with respondents
despite his alleged illness, there is no direct evidence that will prove that complainants illness prevents or
incapacitates him from performing the function of a driver. The fact remains that complainant suddenly
stopped working due to boredom or otherwise when he refused to work as a checker which certainly is a
much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of Appeals,
held that:
While it was very obvious that complainant did not have any intention to report back to work due to his
illness which incapacitated him to perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one of those falling under the just
causes of terminating an employment. The insistence of respondent in making complainant work did not
change the scenario.
It is worthy to note that respondent is engaged in the trucking business where physical strength is of
utmost requirement (sic). Complainant started working with respondent as truck helper at age twentythree (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when the complaint
was filed and suffering from various illness triggered by his work and age.
x x x[27]
In termination cases, the burden is upon the employer to show by substantial evidence that the
termination was for lawful cause and validly made.[28] Article 277(b) of the Labor Code puts the burden
of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without
distinction whether the employer admits or does not admit the dismissal.[29] For an employees dismissal
to be valid, (a) the dismissal must be for a valid cause and (b) the employee must be afforded due
process.[30]
Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of
disease, viz:
Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee
who has been found to be suffering from any disease and whose continued employment is prohibited by
law or prejudicial to his health as well as the health of his co-employees: xxx

However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the
Omnibus Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a certification by competent public health
authority that the disease is of such nature or at such a stage that it cannot be cured within a period of six
(6) months even with proper medical treatment. If the disease or ailment can be cured within the period,
the employer shall not terminate the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon the restoration of his normal
health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,[31] the requirement for a medical
certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the
unilateral and arbitrary determination by the employer of the gravity or extent of the employees illness
and thus defeat the public policy in the protection of labor.
In the case at bar, the employer clearly did not comply with the medical certificate requirement before
Sahots dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter
should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have
been complied with. In the absence of the required certification by a competent public health authority,
this Court has ruled against the validity of the employees dismissal. It is therefore incumbent upon the
private respondents to prove by the quantum of evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified.
This Court will not sanction a dismissal premised on mere conjectures and suspicions, the evidence must
be substantial and not arbitrary and must be founded on clearly established facts sufficient to warrant his
separation from work.[32]
In addition, we must likewise determine if the procedural aspect of due process had been complied with
by the employer.
From the records, it clearly appears that procedural due process was not observed in the separation of
private respondent by the management of the trucking company. The employer is required to furnish an
employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee of
the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge; and
(2) the notice informing the employee of his dismissal, to be issued after the employee has been given
reasonable opportunity to answer and to be heard on his defense.[33] These, the petitioners failed to do,
even only for record purposes. What management did was to threaten the employee with dismissal, then
actually implement the threat when the occasion presented itself because of private respondents painful
left thigh.
All told, both the substantive and procedural aspects of due process were violated. Clearly, therefore,
Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation pay.
The law is clear on the matter. An employee who is terminated because of disease is entitled to
separation pay equivalent to at least one month salary or to one-half month salary for every year of
service, whichever is greater xxx.[34] Following the formula set in Art. 284 of the Labor Code, his
separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880.
We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate
court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated
worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six

percent (6%) interest per annum should be charged thereon, for any delay, pursuant to provisions of the
Civil Code.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29, 2000
is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36 years of
service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00, with
interest of six per centum (6%) per annum from finality of this decision until fully paid.
Costs against petitioners.
SO ORDERED.

HEIRS OF JOSE LIM,

represented by ELENITO LIM,
Petitioners,
- versus JULIET VILLA LIM,
Respondent.
G.R. No. 172690
Promulgated:
March 3, 2010
NACHURA, J.:

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

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a Complaint[4] for Partition, Accounting and
Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who
was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking business. Initially, with a contribution of
P50,000.00 each, they purchased a truck to be used in the hauling and transport of lumber of the sawmill.
Jose managed the operations of this trucking business until his death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of
Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held
in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said
funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as
his fathers driver in the trucking business. He was never a partner or an investor in the business and
merely supervised the purchase of additional trucks using the income from the trucking business of the
partners. By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's
name. Petitioners asseverated that it was also through Elfledos management of the partnership that he
was able to purchase numerous real properties by using the profits derived therefrom, all of which were
registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned properties, which belonged to
the estate of Jose, without their consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and rentals received from
the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner
of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980,
Jose gave Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto.
When Elfledo and respondent got married in 1981, the partnership only had one truck; but through the
efforts of Elfledo, the business flourished. Other than this trucking business, Elfledo, together with
respondent, engaged in other business ventures. Thus, they were able to buy real properties and to put
up their own car assembly and repair business. When Norberto was ambushed and killed on July 16,
1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due to a heart attack,
respondent talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy
suggested that three out of the nine trucks be given to him as his share, while the other three trucks be
given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles.
Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left
no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved
in this case were purchased and acquired through her and her husbands joint efforts and hard work, and
without any participation or contribution from petitioners or from Jose. Respondent submitted that these
are conjugal partnership properties; and thus, she had the right to refuse to render an accounting for the
income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and
heirs of Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by
her from said properties.
SO ORDERED.

Aggrieved, respondent appealed to the CA.

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

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

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

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner,
Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA
erred in not giving that testimony greater weight than that of Cresencia, who was merely the spouse of
Jose and not a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in a petition for review on
certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation,
calibration, and re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale
of the CA decision that, in light of the admissions of Cresencia and Edison and the testimony of
respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's
findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual
issues an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule
provides that the parties may raise only questions of law, because the Supreme Court is not a trier of
facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.[10] When supported by substantial evidence, the findings of fact of the
CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls
under any of the following recognized exceptions:
(1)
conjectures;

When the conclusion is a finding grounded entirely on speculation, surmises and

(2)

When the inference made is manifestly mistaken, absurd or impossible;

(3)

Where there is a grave abuse of discretion;

(4)

When the judgment is based on a misapprehension of facts;

(5)

When the findings of fact are conflicting;

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

When the findings are contrary to those of the trial court;

(8)
When the findings of fact are conclusions without citation of specific evidence on which
they are based;
(9)
When the facts set forth in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and

(10)
When the findings of fact of the Court of Appeals are premised on the supposed absence
of evidence and contradicted by the evidence on record.[11]

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our
review of such findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor, and skill
in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or
more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.[12]
Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the partner in
the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose,
having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence
against respondent. It must be considered and weighed along with petitioners' other evidence vis--vis
respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered synonymous with the term "greater weight of
the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that,
in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as
worthy of belief than that which is offered in opposition thereto.[13] Rule 133, Section 1 of the Rules of
Court provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden
of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all the
facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means
and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals[14] is enlightening. Therein,
we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1)
Except as provided by Article 1825, persons who are not partners as to each other are not
partners as to third persons;
(2)
Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property;

(3)
The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived;
(4)
The receipt by a person of a share of the profits of a business is a prima facie evidence that he is
a partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a)
As a debt by installments or otherwise;
(b)
As wages of an employee or rent to a landlord;
(c)
As an annuity to a widow or representative of a deceased partner;
(d)
As interest on a loan, though the amount of payment vary with the profits of the business;
(e)
As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to prove that
Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in
the partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of petitioners herein;[16] (3) all of
the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business;[17] and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly
stressed in Heirs of Tan Eng Kee,[18] a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of the estate of
Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.[19] Petitioners could not offer any credible evidence
other than their bare assertions. Thus, we apply the basic rule of evidence that between documentary
and oral evidence, the former carries more weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in the
trucking business, active and visible in the running of its affairs from day one until this ceased operations
upon his demise. The extent of his control, administration and management of the partnership and its
business, the fact that its properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at
that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter
on how the business was ran. Evidently it was through Elfredos efforts and hard work that the
partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in
the affairs of the partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it was Jose Lim
and not Elfledo who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation
continued under the helm of Elfledo and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to the business of their partnership but
engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply
supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June
29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 31057

September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
VILLAMOR, J.:
This is an action to bring about liquidation of the funds and property of the association called "Turnuhan
Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the consideration of this court for the second
time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the
defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include
all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then
that in an action against the officers of a voluntary association to wind up its affairs and enforce an
accounting for money and property in their possessions, it is not necessary that all members of the
association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and
by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the record, with the following resume:
The defendants objected to the commissioner's report, but the trial court, having examined the reasons
for the objection, found the same sufficiently explained in the report and the evidence, and accepting it,
rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing
the defendants jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the
members of the said association represented by said plaintiffs, with costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be
reduced to two points, to wit: (1) That not all persons having an interest in this association are included as
plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted by
the court below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are
of opinion that, the trial court having examined all the evidence touching the grounds for the objection and
having found that they had been explained away in the commissioner's report, the conclusion reached by
the court below, accepting and adopting the findings of fact contained in said report, and especially those
referring to the disposition of the association's money, should not be disturbed.

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

of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist in
the eyes of the law, the purpose from which the contribution was made has not come into existence, and
the administrator of the partnership holding said contribution retains what belongs to others, without any
consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to
recover it.
But this is not the case with regard to profits earned in the course of the partnership, because they do not
constitute or represent the partner's contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the proportional part of the said
profits, the partner would have to base his action on the contract which is null and void, since this partition
or distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract as
non-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the
basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit
from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this Code, providing that the profits
obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such,
to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former
law, which did not describe the purpose to which those profits denied the partners were to be applied, nor
state what to be done with them.
The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion
of the capital that he contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned by the partners, because it only deals with the disposition of the profits; but
the fact that said contributions are not included in the disposal prescribed profits, shows that in
consequences of said exclusion, the general law must be followed, and hence the partners should
reimburse the amount of their respective contributions. Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the manager or administrator who has refused to
return them, by denying to the partners the action to demand them. (Manresa, Commentaries on the
Spanish Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs
against the appellants; provided, however, the defendants shall pay the legal interest on the sum of
P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall
deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of
the trial court, in order that said court may distribute them among the members of said association, upon
being duly identified in the manner that it may deem proper. So ordered.
Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

G.R. No. L-4811

July 31, 1953

CHARLES F. WOODHOUSE, plaintiff-appellant,

vs.
FORTUNATO F. HALILI, defendant-appellant.
LABRADOR, J.:

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the
most important provisions of which are (1) that they shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of
general policy regarding the business, while the plaintiff was to attend to the operation and development
of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the
business. The above agreement was arrived at after various conferences and consultations by and
between them, with the assistance of their respective attorneys. Prior to entering into this agreement,
plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of
the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in the bottling and
distribution of the said beverages, and requested, in order that he may close the deal with him, that the
right to bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days"
option on exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations
between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their
lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II
or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired.
Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the
main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United
States without the agreement being not first signed. On that day plaintiff and defendant went to the United
States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the Mission Dry
Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive right,
license, and authority to produce, bottle, distribute, and sell Mision beverages in the Philippines. The
plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January,
1948, but operations were not begun until the first week of February, 1948. In January plaintiff was given
as advance, on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also
P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership
papers be executed. At first defendant executed himself, saying there was no hurry. Then he promised to
do so after the sales of the product had been increased to P50,000. As nothing definite was forthcoming,
after this condition was attained, and as defendant refused to give further allowances to plaintiff, the latter
caused his attorneys to take up the matter with the defendant with a view to a possible settlement. as
none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits,
and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer
defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the owner, or was about to become owner of an
exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise, but
was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was
plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but
plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues the
parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant to
render an accounting of the profits of the bottling and distribution business, subject of the action, and to
pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment
both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely represented that
he had an exclusive franchise to bottle Mission beverages, and whether this false representation or fraud,
if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable that

defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract prior
to the final one can not be considered for the purpose of determining the issue, as they are presumed to
have been already integrated into the final agreement; that fraud is never presumed and must be proved;
that the parties were represented by attorneys, and that if any party thereto got the worse part of the
bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as appellant,
insists that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of
fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the
consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to
this matter. I notice from the first draft of the document which I prepared which calls for the organization of
a corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of
a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first
paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the
Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding
the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to
the determination of said issue. The act or statement of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to prove how he induced the defendant to enter into it
to prove the representations or inducements, or fraud, with which or by which he secured the other party's
consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs.
Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil.,
602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural
act, not to its integration, and are not governed by the rules on integration. Were parties prohibited from
proving said representations or inducements, on the ground that the agreement had already been entered
into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule
expressly allows the evidence to be introduced when the validity of an instrument is put in issue by the
pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak with authority so that we could come to
terms as far as he and I were concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . .

I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time,
during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which to
bargain with defendant and close the deal with him, he must have used his said option for the aboveindicated purpose, especially as it appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when
plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to
operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of
1949 plaintiff went to see the defendant (and at that time he had already the option), he must have
exultantly told defendant that he had the authority already. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only,
and still more improbable for him to have disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The
existence of this provision in the final agreement does not militate against plaintiff having represented that
he had the exclusive franchise; it rather strengthens belief that he did actually make the representation.
How could plaintiff assure defendant that he would get the franchise for the latter if he had not actually
obtained it for himself? Defendant would not have gone into the business unless the franchise was raised
in his name, or at least in the name of the partnership. Plaintiff assured defendant he could get the
franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted,
with the difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above provision does not eliminate the probability of plaintiff
representing himself as the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff
was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was
to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one
half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the alleged representation took place before the
conferences were had, in other words, plaintiff had already represented to defendant, and the latter had
already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and they
were assisted by their lawyers only when said formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's
lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the
papers evidencing it.(t.s.n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder
of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had
the exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for
the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able
to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed about his
(plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that
defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate
the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from
the innocent praises of a salesman about the excellence of his wares to those malicious machinations
and representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil
Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment
of a contract, and the incidental deceit, which only renders the party who employs it liable for damages.
This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish
Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the fact
that the principal consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for
the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect
that plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same
original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected
draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the
substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the
exclusive franchise, but that the same was to be secured for or transferred to the partnership. The plaintiff
no longer had the exclusive franchise, or the option thereto, at the time the contract was perfected. But
while he had already lost his option thereto (when the contract was entered into), the principal obligation
that he assumed or undertook was to secure said franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led plaintiff to
enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration
or price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer,
Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable
shares of the said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par.
3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the
toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not
vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per
cent of the net profits; in other words, by pretending that he had the exclusive franchise and promising to
transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net
profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to
get the other party's consent to a big share in the profits, an incidental matter in the agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui,
el que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el
consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar
tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that
next comes before us is, May the agreement be carried out or executed? We find no merit in the claim of
plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is
evident from the very language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later date. They expressly agreed that they
shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from
the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this
agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his
own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act
of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art.
1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a
realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romano
nemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que
perciben la posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera obligar al
deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de
cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia
que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud.
xxx

xxx

xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya

precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio
Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho
ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la
conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las
relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada
dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues,
posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que
afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo puedan tampoco ser modificadas; pero no debe
serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las contractuales, y
cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo
dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)

The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because
of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of
the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably
expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount of
damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits. We can do no better than follow the appraisal that
the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was
to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant appears to
have readily given his assent. It was under this understanding, which amounts to a virtual modification of
the contract, that the bottling plant was established and plaintiff worked as Manager for the first three
months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision
of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the
said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the
case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's
share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of
this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement contains
the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to
plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these
damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of
15 per cent of the net profits shall continue to be paid while defendant uses the franchise from the
Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

AURELIO K. LITONJUA, JR.,

Petitioner,
- versus
EDUARDO K. LITONJUA, SR.,
Respondents.
G.R. NOS. 166299-300
Promulgated: December 13, 2005
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr.
seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 2004[1] in
consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004,[2] denying petitioners motion for reconsideration.
The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr.
(Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the
Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting. In
his complaint,[3] docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,[4]
Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in
the Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner
of lands and buildings, among other corporations. Yang is described in the complaint as petitioners and
Eduardos partner in their Odeon Theater investment.[5] The same complaint also contained the following
material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for
the continuation of their family business and common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by
Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex A and the portion referring to [Aurelio] submarked as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios]
retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued operation of these businesses, [Aurelio] will
be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them
whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo
had accumulated in their joint venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired [various other assets], but
Eduardo caused to be registered in the names of other parties.
4.04 The substantial assets of most of the corporate defendants consist of real properties . A list
of some of these real properties is attached hereto and made an integral part as Annex B.
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that
[Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but
these demands for complete accounting and liquidation were not heeded].
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate
defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is
therefore causing at this time the annotation on the titles of these real properties a notice of lis pendens
. (Emphasis in the original; underscoring and words in bracket added.)
For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have been meant
for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the pattern . You will be the
only one left with the company, among us brothers and I will ask you to stay as I want you to run this
office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and
I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years

from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of
what I have and what you are entitled to. . It will be you and me alone on this. If ever I pass away, I
want you to take care of all of this. You keep my share for my two sons are ready take over but give them
the chance to run the company which I have built.
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The
rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I
will also gladly give you the share of Wack-Wack and Valley Golf because you have been good.
The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint
ANSWER With Compulsory Counterclaim denying under oath the material allegations of the complaint,
more particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract of
partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged
that the complaint states no cause of action, since no cause of action may be derived from the actionable
document, i.e., Annex A-1, being void under the terms of Article 1767 in relation to Article 1773 of the
Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under
Annex A-1, are unenforceable under the provisions of the Statute of Frauds.[7]
For his part, Yang - who was served with summons long after the other defendants submitted their
answer moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and
the complaint does not state any.[8] Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.[9] To this
motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10]
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated
March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10,
2003.[11]
In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration[12] and Yangs motion to dismiss. The following then transpired insofar as Yang is
concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of
the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss[13] to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion
was denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65
of the Rules of Court, docketed as CA-G.R. SP No. 78774,[15] to nullify the separate orders of the trial
court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial courts aforementioned Omnibus Orders dated March
5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was
docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered the consolidation of CA G.R.
SP No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court
came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead
petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated
March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo
is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex A and A-1 attached to the complaint, and upon which
petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants
a quo is void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed
Resolution of December 7, 2004.[18] .
Hence, petitioners present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document because this
was not a public instrument and immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable right in favor of
petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang;
and
D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had
done was to support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or
payment to him, as Eduardos and Yangs partner, of his partnership/joint venture share, after an
accounting has been duly conducted of what he deems to be partnership/joint venture property.[19]
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses between them.[20] A contract of partnership is defined by the Civil Code as one where
two or more persons bound themselves to contribute money, property, or industry to a common fund with
the intention of dividing the profits among themselves.[21] A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their elements are similar, i.e.,
community of interests in the business and sharing of profits and losses. Being a form of partnership, a
joint venture is generally governed by the law on partnership.[22]
The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which
the other denies. And the issue bearing on the first assigned error relates to the question of what legal
provision is applicable under the premises, petitioner seeking, as it were, to enforce the actionable
document - Annex A-1 - which he depicts in his complaint to be the contract of partnership/joint venture
between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence,

or defining the formal requisites, of a partnership is indicated. Foremost of these are the following
provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable property or
real rights are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of
the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As
an unsigned document, there can be no quibbling that Annex A-1 does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned
and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex A-1
cannot be presented for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed
to the partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if any, to
the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of
immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioners] contribution to the
so-called partnership/joint venture was his supposed share in the family business that is consisting of
movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other words,
his contribution as a partner in the alleged partnership/joint venture consisted of immovable properties
and real rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the appellate courts observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned variable immovable properties.
Petitioners assertion in his motion for reconsideration[24] of the CAs decision, that what was to be
contributed to the business [of the partnership] was [petitioners] industry and his share in the family
[theatre and land development] business leaves no room for speculation as to what petitioner contributed
to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially brought into the partnership. In short, it is really of
no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in
question were not contributed, but were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty

development family businesses which already owned immovables even before Annex A-1 was allegedly
executed.
Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend Annex A-1 the legal effects that petitioner so desires
and pleads to be given. Annex A-1, in fine, cannot support the existence of the partnership sued upon
and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership
may be constituted in any form, save when immovable property or real rights are contributed thereto or
when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be
necessary.[25] And if only to stress what has repeatedly been articulated, an inventory to be signed by
the parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed Decision[26] about the
probative value and legal effect of Annex A-1 commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed immovable
properties to the alleged partnership, the Memorandum (Annex A of the complaint) which purports to
establish the said partnership/joint venture is NOT a public instrument and there was NO inventory of
the immovable property duly signed by the parties. As such, the said Memorandum is null and void
for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the failure
to comply with the essential formalities of a valid contract, the purported partnership/joint venture is
legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint,
including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual respondents] herein. As a
consequence, [petitioners] complaint does NOT state a valid cause of action because NOT all the
essential elements of a cause of action are present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs equally assailed
Resolution of December 7, 2004[27] denying petitioners motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as the
actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the
legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our
evaluation of [petitioners] complaint, the latter alleged inter alia to have contributed immovable properties
to the alleged partnership but the actionable document is not a public document and there was no
inventory of immovable properties signed by the parties. Both the allegations in the complaint and the
actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could
be violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex A-1, assuming its inefficacy or
nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions,
established an actionable contract even though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract
does create rights and obligations of the parties and which rights and obligations may be enforceable and
demandable. Just because the relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the
CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioners dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate courts certiorari
jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court in
grave abuse of discretion. As respondent Yang pointedly observed,[28] since the parties basic position
had been well-defined, that of petitioner being that the actionable document established a
partnership/joint venture, it is on those positions that the appellate court exercised its certiorari
jurisdiction. Petitioners act of changing his original theory is an impermissible practice and constitutes, as
the CA aptly declared, an admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now
contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now
changes [petitioners] theory of the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself has adopted, filed and prosecuted before the respondent
court is erroneous.
Be that as it may . . We hold that this new theory contravenes [petitioners] theory of the
actionable document being a partnership document. If anything, it is so obvious we do have to test the
sufficiency of the cause of action on the basis of partnership law xxx.[29] (Emphasis in the original; Words
in bracket added).
But even assuming in gratia argumenti that Annex A-1 partakes of a perfected innominate contract,
petitioners complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot
be over-emphasized that petitioner points to Eduardo as the author of Annex A-1. Withal, even on this
consideration alone, petitioners claim against Yang is doomed from the very start.
As it were, the only portion of Annex A-1 which could perhaps be remotely regarded as vesting
petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct,
reads:
xxx You will be the only one left with the company, among us brothers and I will ask you to
stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it
because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until
about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring
added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if
he indeed wrote Annex A-1, is a promise which is not to be performed within one year from contract
execution on June 22, 1973. Accordingly, the agreement embodied in Annex A-1 is covered by the
Statute of Frauds and ergo unenforceable for non-compliance therewith.[30] By force of the statute of
frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall
be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and
subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by
the statute of frauds is complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go to a common fund would be to read
something not written in Annex A-1. Thus, even this angle alone argues against the very idea of a
partnership, the creation of which requires two or more contracting minds mutually agreeing to contribute
money, property or industry to a common fund with the intention of dividing the profits between or among
themselves.[32]

In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance
anchored on an actionable document of partnership which is legally inexistent or void or, at best,
unenforceable does not state a cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against respondent Eduardo because no
valid partnership existed between him and petitioner, the Court cannot see its way clear on how the same
action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could
not have had any form of business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him
as his partner. In fact, attendant circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was for
the continuation of their family business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua family and petitioner has not
disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what
Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable document did not contain such
provision, let alone mention the name of Yang. How, indeed, could a person be considered a partner
when the document purporting to establish the partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are business partners in the
[respondent] corporations, while Bobby is his and Eduardos partner in their Odeon Theater investment
(par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became
their partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner
would contradict himself by alleging that his investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit income and direct investments in several
corporation including but not limited to [six] corporate respondents This simply means that the Odeon
Theatre business came before the corporate respondents. Significantly enough, petitioner refers to the
corporate respondents as progeny of the Odeon Theatre business.[34]
Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence
he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured
and formulated the legal situation in the following wise:
Respondent] Yang, is impleaded because, as alleged in the complaint, he is a partner of [Eduardo]
and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits
and direct investments in several corporations, thus:
Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner and the
respondent. However, there was NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner] and Yang. More importantly, however,
the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally
inexistent directly affects said claim against Yang. Since [petitioner] is trying to establish his claim
against Yang by linking him to the legally inexistent partnership . . . such attempt had become futile
because there was NOTHING that would contractually connect [petitioner] and Yang. To establish a
valid cause of action, the complaint should have a statement of fact upon which to connect [respondent]
Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they
would constitute the ultimate facts necessary to establish the elements of a cause of action against
Yang. [35]
Pressing its point, the CA later stated in its resolution denying petitioners motion for reconsideration the
following:

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

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long.
Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a
different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in
his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioners
statement in par. #8 of his motion for reconsideration of the CAs decision combined with what he said in
par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal
matter. What is determinative for purposes of sufficiency of the complainants allegations, is whether the
actionable document bears out an actionable contract be it a partnership, a joint venture or whatever or
some innominate contract It may be noted that one kind of innominate contract is what is known as du
ut facias (I give that you may do).[37]
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an
actionable contract even though it may not be a partnership. This actionable contract is what is known as
an innominate contract (Civil Code, Article 1307).[38]

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and
due process; hence, the proscription against a party shifting from one theory at the trial court to a new
and different theory in the appellate court.[39] On the same rationale, an issue which was neither averred
in the complaint cannot be raised for the first time on appeal.[40] It is not difficult, therefore, to agree with
the CA when it made short shrift of petitioners innominate contract theory on the basis of the foregoing
basic reasons.
Petitioners protestation that his act of introducing the concept of innominate contract was not a
case of changing theories but of supporting his pleaded cause of action that of the existence of a
partnership - by another legal perspective/argument, strikes the Court as a strained attempt to rationalize
an untenable position. Paragraph 12 of his motion for reconsideration of the CAs decision virtually
relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the
appellate court for reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to
pursue the original cause of action or altogether abandoning the same, thus:
12.
Incidentally,
assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and
[petitioner], no immovables were contributed to this partnership. xxx
14. All told, the Decision takes
off from a false premise that the actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and Eduardo, Sr. and Roberto T Yang simply because his
document does not create a partnership or a joint venture. This is a myopic reading of the actionable
document.
Per the Courts own count, petitioner used in his complaint the mixed words joint
venture/partnership nineteen (19) times and the term partner four (4) times. He made reference to the

law of joint venture/partnership [being applicable] to the business relationship between [him],
Eduardo and Bobby [Yang] and to his rights in all specific properties of their joint
venture/partnership. Given this consideration, petitioners right of action against respondents Eduardo
and Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an actionable
document of partnership, would strip petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership property based on such void or legally non-existent
actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The
Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the
Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.