BATCH 1

TOCAO V. COURT OF APPEALS

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.

342 SCRA 20 (2000)

Facts:
Petitioner William T. Bello introduced private respondent
Nenita Anay to petitioner Tocao, who conveyed her desire to
enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo acted the capitalist,
Tocao as president and general manager, and Anay as head of
the marketing department (considering her experience and
established relationship with West Bend Company,c a
manufacturer of kitchen wares in Wisconsin, U.S.A) and later,
vice-president for sales. The parties agreed further that Anay
would be entitled to:

However, Tocao and Belo asserted that the alleged agreement

was not reduced to writing nor ratified, hence, unenforceable,
void, or nonexistent. Also, they denied the existence of a
partnership because, as Anay herself admitted, Geminesse
Enterprise was the sole proprietorship of Marjorie Tocao. Belo
also contended that he merely acted as a guarantor of Tocao
and denied contributing capital. Tocao, on the other hand,
denied that they agreed on a ten percent (10%) commission on
the net profits.
Both trial court and court of appeals ruled that a business
partnership existed and ordered the defendants to pay.
Issue: Whether or not a partnership existed YES

(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 same was not reduced to writing on the strength of Belos
assurances.
Later, Anay was able to secure the distributorship of cookware
products from the West Bend Company. They operated under
the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocaos name. Anay attended
distributor/dealer meetings with West Bend Company with the
consent of Tocao.
Due to Anays excellent job performance she was given a
plaque of appreciation. Also, in a memo signed by Belo, Anay
was given 37% commission for her personal sales "up Dec
31/87, apart from the 10% share in profits.
On October 9, 1987, Anay learned that Marjorie Tocao
terminated her as vice-president of Geminesse Enterprise.
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. Belo did not answer.
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 a complaint for sum of
money with damages against Tocao and Belo before the RTC
of Makati. She prayed that she be paid (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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Ratio:
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. It may be constituted in
any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto. This
implies that since a contract of partnership is consensual, an
oral contract of partnership is as good as a written one.
Private respondent Anay contributed her expertise in the
business of distributorship of cookware to the partnership and
hence, under the law, she was the industrial or managing
partner.
Petitioner Belo had an proprietary interest. He presided over
meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing giving
Anay 37% of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in
the business. This is inconsistent with his claim that he merely
acted as a guarantor. If indeed he was, he should have
presented documentary evidence. Also, Art. 2055 requires that
a guaranty must be express and the Statute of Frauds requires
that it must be in writing. Petitioner Tocao was also a
capitalist in the partnership. She claimed that she herself
financed the business.
The business venture operated under Geminesse Enterprise did
not result in an employer-employee relationship between
petitioners and private respondent. First, Anay had a voice in
the management of the affairs of the cookware distributorship
and second, Tocao admitted that Anay, like her, received only
commissions and transportation and representation allowances
and not a fixed salary. If Anay was an employee, it is difficult
to believe that they recieve the same income.
Also, the fact that they operated under the name of Geminesse
1

Enterprise, a sole proprietorship, is of no moment. Said

business name 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.
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.
Petitioners 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. 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.
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. Petitioners are ordered
to pay Anays 10% share in the profits, after accounting, 5%
overriding commission for the 150 cookware sets available for
disposition since the time private respondent was wrongfully
excluded from the partnership by petitioner, overriding
commission on the total production, as well as moral and
exemplary damages, and attorneys fees

The lower court rendered judgment in favor of the plaintiff

and ordered the defendant to restore possession of the land to
the plaintiff, as well as to pay corresponding rent from January
1940 until he vacates the land. On appeal defendant raised a
number of assignments or errors in the decision, one of which
is that the trial court erred in not dismissing the case on the
ground that the case was not brought by the real party in
interest.
Issue: Whether or not the lower court erred in not dismissing
the case on the ground that it was not brought by the real party
in interest? NO
Ratio:
What the Rules of Court require is that an action be broughtin
the name of, but not necessarily by, the real party in 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. That
practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and 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."

JM TUAZON and CO v. BOLANOS

95 PHIL 106

AGUILA, JR. v. COURT OF APPEALS 316 SCRA 246

(1999)

Facts:
Facts:
This is an action to recover possession of registered land
situated in Barrio Tatalon, Quezon City. The complaint of
plaintiff JM Tuason & Co Inc was amended 3 times with
respect to the extent and description of the land sough to be
recovered. Originally, the land sought to be recovered was
said to be more or less 13 hectares, but it was later amended to
6 hectares, after the defendant had indicated the plaintiff's
surveyors the portion of land claimed and occupied by him.
The second amendment is that the portion of the said land was
covered in another TCT and the 3rd amendment was made
after the defendant' surveyor and a witness, Quirino Feria
testified that the land occupied by the defendant was about 13
hectares.
Defendant raised the defense of prescription and title thru
"open, continuous, exclusive and public and notorious
possession of land in dispute. He also alleged that the
registration of the land was obtained by plaintiff's predecessor
through fraud or error.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C.

Aguila & Sons, Co., a partnership engaged in lending
activities. Felicidad S. Vda. de Abrogar (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
that A.C. Aguila & Sons, Co. shall buy the property from
private respondent for P200,000 subject to an option to
repurchase for P230,000 (valid for 90 days), etc. On the same
day, the parties likewise executed a deed of absolute sale,
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
2

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.
Private respondent failed to redeem the property. 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. 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. 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. MeTC, Marikina, MM (April 3,
1992): Ruled in favor of A.C. Aguila & Sons, Co. Private
respondent appealed to RTC Pasig, CA, and then SC but she
still lost. Private respondent then filed a petition for
declaration of nullity of a deed of sale filed by Felicidad S.
Vda. de Abrogar against Alfredo N. Aguila, Jr. 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.
RTC,Marikina,MM(April11,1995):Dismissed.
CA(November29,1990):Reversed ruling of the RTC. Hence,
this petition for review on certiorari.
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.
Issue: Whether the real party in interest is A.C. Aguila & Co.
and not petitioner. YES
Ratio:
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. 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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

rule will result in the dismissal of the complaint.

HEIRS OF TAN ENG KEE v. COURT OF APPEALS 341
SCRA 740 (2000)
Facts:
The heirs of Tan Eng Kee filed a suit against the decedents
brother Tan Eng Lay. The complaint alleged that after the
Second World War, the brothers, pooling their resources and
industry together, entered into a partnership engaged in the
selling of lumber and hardware and construction supplies.
They named their enterprise Benguet Lumber which they
jointly managed until Tan Kees death. Petitioners 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,
and winding up of the alleged partnership formed after the
World War II between Tan Eng Kee and Tan Eng Lay. The
Regional Trial court found that Benguet Lumber is a joint
venture which is akin to a particular partnership, and declared
that the assets of Benguet Lumber are the same assets turned
over to Benguet lumber Co. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right
to share in the said assets. The Court of Appeals reversed the
judgment of the Trial Court.
Issue: Whether or not a partnership existed between Tan Eng
Kee and Tan Eng Lay- NO
Ratio:
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. The best
evidence of the partnerships existence 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. 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.
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. Each has the right
to demand an accounting as long as the partnership exists. A
3

demand for periodic accounting is evidence of a partnership.

During his lifetime, Tan Eng Kee appeared never to have
made any such demand for accounting from his brother.
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. 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:

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.
PASCUAL vs. COMMISSIONER OF INTERNAL
REVENUE

In determining whether a partnership exists, these rules shall

apply:
XXX (4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
business, 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; (b) 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.
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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

166 SCRA 560 (1988)

Facts:
On June 22, 1965, petitioners Mariano Pascual and Renato
Dragon 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
to Marenir 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 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 asserting that they had availed of
tax amnesties way back in 1974.
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 the National Internal
Revenue Code.
Issue: Whether or not respondent is correct in its presumptive
determination that petitioners formed an unregistered
partnership thus subject to corporate income tax. NO
Ratio:
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 Evangelista, there was a series of
transactions where petitioners purchased twenty-four (24) lots
4

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. Reliance of the lower court to the case of Evangelista
v. Collector is untenable. 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.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.
LORENZO T. OA v. THE COMMISSIONER OF
INTERNAL REVENUE
G.R. No. L-19342 May 25, 1972
Facts:
Julia Bunales died on March 23, 1944, leaving as heirs her
surviving spouse. Lorenzo T. Oa and her five children.
Lorenzo T. Oa, the surviving spouse was appointed
administrator of the estate of said deceased. A partition was
thereafter approved by the Court. The Court also appointed
Lorenzo, upon petition to the CFI of Manila, to be appointed
guardian of the persons and property of Luz, Virginia and
Lorenzo, Jr., who were minors at the time.
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. However,
petitioners did not actually receive their shares in the yearly
income. The income was always left in the hands of Lorenzo
T. Oa who, as heretofore pointed out, invested them in real
properties and securities.
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. The
defense of petitioners revolved mainly in the contention that
they are co-owners of the properties inherited from Julia
Buales and the profits derived therefrom rather than having
formed a partnership.
Issue: Whether or not it was proper to consider petitioners as
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

an unregistered partnership. YES

Ratio:
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.
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 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 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
tantamount to actually contributing such incomes to a
common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the
abovementioned provisions of the Tax Code.
GATCHALIAN v. COLLECTOR OF INTERNAL
REVENUE 67 Phil. 666 (1939)
Facts:
5

Plaintiffs (15 persons), in order to enable them to purchase one

sweepstakes ticket valued at two pesos (P2), subscribed and
paid each varied amounts aggregating 2 pesos. The said ticket
was registered in the name of Jose Gatchalian and Company .
The above-mentioned ticket bearing No. 178637 won one of
the third prizes in the amount of 50, 000. 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. 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
participacin), association or insurance company, organized in
the Philippine Islands, no matter how created or organized, but
not including duly registered general copartnerships
(compaias colectivas), a tax of three per centum upon such
income;
Issue: Whether or not 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.
Ratio:
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 stipulated
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 Philippine Charity Sweepstakes, in his capacity as copartner, as such collected 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.
OBILLOS, JR. v. COMMISSIONER OF INTERNAL
REVENUE 139 SCRA 436 (1985)

children (petitioners) to enable them to build their residences.

The company sold the two lots to petitioners, and the torrens
title issued to them show that they were co-owners of the two
lots. In 1974, petitioners resold the lots to Walled City
Securities Corporation and Olga Cruz and divided among
themselves the profit. They treated the profit as capital gain
and paid an income tax on one-half thereof. In 1980, or a day
before the expiration of the five-year prescriptive period, the
CIR required the petitioners to pay corporate income tax on
the total profit, in addition to individual income tax on their
shares thereof. A total of Php 127,781.76 was ordered to be
paid by the petitioners, including the corporate income tax,
50% fraud surcharge, accumulated interest, income taxes and
distributive dividend. Such was ordered by the Commissioner,
acting on the theory that the four petitioners had formed an
unregistered partnership or joint venture.
Issue:
Whether or not the petitioners formed an unregistered
partnership by the act of selling the two lots, of which they
were co-owners. NO
Ratio:
It is wrong to consider petitioners as having formed a
partnership under Article 1767 of the Civil Code simply
because they allegedly contributed money to buy the two lots,
resold the same and divided the profit among themselves.
They were co-owners, pure and simple. 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.
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.
Evangelista, et al. v. CIR, GR No. L-9996, October 15,
1957
Facts:

Facts:
On 2 March 1973, Jose Obillos, Sr. completed payment to
Ortigas & Co Ltd. on two lots located at Greenhills, San Juan,
Rizal. The next day, he transferred his rights to his four
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Herein petitioners seek a review of CTAs decision

holding them liable for income tax, real estate dealers tax and
residence tax. As stipulated, petitioners borrowed from their
father a certain sum for the purpose of buying real properties.
Within February 1943 to April 1994, they have bought parcels
6

of land from different persons, the management of said

properties was charged to their brother Simeon evidenced by a
document. These properties were then leased or rented to
various tenants.
On September 1954, CIR demanded the payment of
income tax on corporations, real estate dealers fixed tax, and
corporation residence tax to which the petitioners seek to be
absolved from such payment.
Issue: Whether petitioners are subject to the tax on
corporations.
Ruling:
The Court ruled that with respect to the tax on
corporations, the issue hinges on the meaning of the terms
corporation and partnership as used in Section 24
(provides that a tax shall be levied on every corporation no
matter how created or organized except general copartnerships) and 84 (provides that the term corporation
includes among others, partnership) of the NIRC. Pursuant to
Article 1767, NCC (provides for the concept of partnership),
its essential elements are: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent
to divide the profits among the contracting parties.
It is of the opinion of the Court that the first element is
undoubtedly present for petitioners have agreed to, and did,
contribute money and property to a common fund. As to the
second element, the Court fully satisfied that their purpose
was to engage in real estate transactions for monetary gain and
then divide the same among themselves as indicated by the
following circumstances:
1.
The common fund was not something they found
already in existence nor a property inherited by them pro
indiviso. It was created purposely, jointly borrowing 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. The number of lots acquired and
transactions undertake 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. In other words, one cannot but perceive
a character of habitually peculiar to business transactions
engaged in the purpose of gain;
3.
Said properties were not devoted to residential purposes,
or to other personal uses, of petitioners but were leased
separately to several persons;
4.
They were under the management of one person where
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.
Existed for more than ten years, or, to be exact, over
fifteen years, since the first property was acquired, and over
twelve 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.
The collective effect of these circumstances is such as to leave
no room for doubt on the existence of said intent in petitioners
herein.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Also, petitioners argument that their being mere coowners did not create a separate legal entity was rejected
because, according to the Court, the tax in question is one
imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When the NIRC
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. The qualifying expression found
in Section 24 and 84(b) 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. Accordingly, the
lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein
referred to. For purposes of the tax on corporations, NIRC
includes these partnerships - with the exception only of duly
registered general co partnerships - within the purview of the
term "corporation." It is, therefore, clear 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 CA No. 465), it is analogous to that of section 24
and 84 (b) of the NIRC. 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.
Finally, on the issues of being liable for real estate dealers
tax, they are also liable for the same because the records show
that they have habitually engaged in leasing said properties
whose yearly gross rentals exceeds P3,000.00 a year.
AFISCO v. COURT OF APPEALS 302 SCRA 1 (1999)
Facts:
The petitioners are 41 non-life insurance corporations,
organized and existing under the laws of the Philippines,
entered into a Quota Share Reinsurance Treaty and a Surplus
Reinsurance Treaty with the Munchener Ruckversi-cherungsGesselschaft (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.
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.
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,
7

interest, and with[h]olding tax.

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.
Issue: 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
YES
Ratio:
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. Its requisites are: (1) mutual contribution to
a common stock, and (2) a joint interest in the profits. 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.
Meanwhile, an association implies associates who enter into a
joint enterprise x x x for the transaction of business.
In the case before us, the ceding companies entered into a Pool
Agreement or an association that would handle all the
insurance businesses covered under their quota- share
reinsurance treaty and surplus reinsurance treaty 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. This
common fund pays for the administration and operation
expenses of the pool. (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. (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. Profit motive or business is,
therefore, the primordial reason for the pools formation.
TORRES v. COURT OF APPEALS G.R. No. 134559
December 9, 1999
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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

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. 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
Issue: Whether or not there was a contract of partnership
YES
Ratio:
Under the 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.
Petitioners also contend that the Joint Venture Agreement is
void under Article 1422 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.
LIM TONG LIM v. PHILIPPINE FISHING GEAR
INDUSTRIES
G.R. No. 136448. November 3, 1999
Facts:
Antonio Chua and Peter Yao entered into a contract for the
purchase of fishing nets from the Philippine Fishing Gear
Industries. They claimed that they were engeged in a business
venture with petitioner Lim Tong Lim. The buyers however
failed to pay for the nets and the floats. Private respondent
filed a collection suit against Yao, Chua an Lim Tong Lim
with preliminary attachment. Trial court rendered its decision
in favor of Phil. Fishing Gear and that Chua, Yao and Lim, as
general partners were jointly liable to pay respondents. It
based its decision on a compromise agreement wherein joint
liability was presumed from the equal distribution of the profit
and loss. The Court of Appeals affirmed. Hence, this petition.
Issue: Whether or not, by their acts, Lim, Chua and Yao could
be deemed to have entered into a partnership. YES
Ratio:
8

There is a partnership between Lim, Chua and Yao. Petitioner

Lim requested Yao who was engaged in commercial fishing to
join him, while Antonio Chua was already Yaos partner. The
three verbally agreed to acquire two fishing boats, FB Lourdes
and FB Nelson for the sum of 3.35 million. They also
borrowed 3.25 million from Jesus Lim, brother of petitioner
Lim Tong Lim. They purchased the boats and later the nets
and floats, which constituted the main asets of the partnership
and they agreed to divide tha proceeds form the sale and
operation thereof. The sale of the boats as well as the division
among the three of the balance remaining after the payment of
their loans prove that F/B Lourdes was not his own property
but an asset of the partnership. Although the corporation 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. 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.
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.
AGAD v. MABOLO and AGAD CO.
23 SCRA 1223 (1968)
Facts:
Petitioner Mauricio Agad claims that he and defendant
Severino Mabato are partners in a fishpond business to which
they contributed P1000 each. As managing partner, Mabato
yearly rendered the accounts of the operations of the
partnership. However, for the years 1957-1963, defendant
failed to render the accounts despite repeated demands.
Petitioner filed a complaint against Mabato to which a copy of
the public instrument evidencing their partnership is attached.
Aside from the share of profits (P14,000) and attorneys fees
(P1000), petitioner prayed for the dissolution of the
partnership and winding up of its affairs.
Mabato denied the existence of the partnership alleging that
Agad failed to pay his P1000 contribution. He then filed a
motion to dismiss on the ground of lack of cause of action.
The lower court dismissed the complaint finding a failure to
state a cause of action predicated upon the theory that the
contract of partnership 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.
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.
Issue: Whether or not immovable property or real rights have
been contributed to the partnership. NO
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Ratio:
Based on the copy of the public instrument attached in the
complaint, the partnership was established to operate a
fishpond", and not to "engage in a fishpond business. Thus,
Mabatos contention that it is really inconceivable how a
partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the
partnership is without merit. Their contributions were limited
to P1000 each and neither a fishpond nor a real right thereto
was contributed to the partnership. Therefore, Article 1773 of
the Civil Code finds no application in the case at bar. Case
remanded to the lower court for further proceedings.

Benjamin Yu v. National Labor Relations Commission &

Jade Mountain Products
Co. Ltd., Willy Co, Rhodora Bendal, Lea Bendal, Chiu
Shian Jeng and Chen Ho-Fu
Facts:
Yu ex-Assistant General Manager of the marble quarrying
and export business operated by a registered partnership called
Jade Mountain Products Co. Ltd. partnership was originally
organized with Bendals as general partners and Chin Shian
Jeng, Chen Ho-Fu and Yu Chang as limited partners;
partnership business consisted of exploiting a marble deposit
in Bulacan
Yu , a s A s s i s t a n t G e n e r a l M a n a g e r, h a d a m o n t h l y
s a l a r y o f 4 0 0 0 . Yu , h o w e v e r, a c t u a l l y r e c e i v e d
o n l y h a l f o f h i s s t i p u l a t e d s a l a r y, s i n c e
h e h a d a c c e p t e d t h e p r o m i s e o f t h e partners
that the balance would be paid when the firm shall
have secured additional operating funds from
a b r o a d . Yu a c t u a l l y m a n a g e d t h e o p e r a t i o n s a n d
f i n a n c e s o f t h e 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
firms products. general partners Bendals sold and transferred
their interests in the partnership to Co and Emmanuel Zapanta
partnership was constituted solely by Co and
Zapanta; it continued to use the old firm
name of Jade Mountain Yu dismissed by the new partners
Issues:
1. WON the partnership which had hired
Yu a s A s s t . G e n . M a n a g e r h a d b e e n
extinguished and replaced by a new partnership composed of
Co and Zapanta; 2. if indeed a new partnership had come into
existence, WON Yu could nonetheless assert his rights under
his employment contract with the old partnership as against
the new partnership
Held:
1. Yes. Changes in the membership of the partnership resulted
in the dissolution of
the old partnership which had hired Yu and the emergence of a
new partnership composed of Co and Zapanta.
9

Legal bases:
A r t . 1 8 2 8 . T h e d i s s o l u t i o n o f a
p a r t n e r s h i p
i s
t h e
c h a n g e
i n
t h e r e l a t i o n o f t h e
partners
caused
by
any
partner
ceasing
to
be
associated
in
the
c a r r y i n g o n a s distinguished from the winding up of
the business.
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
(b) by the express will of any partner, who must act in good
faith, when no definite term
or particular undertaking is specified;
(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;
No winding up of affairs in this case as
contemplated in Art 1829: on dissolution
t h e partnership is not terminated, but continues until the
winding up of partnership affairs is completed t h e n e w
partnership
simply
took
over
the
business enterprise owned by the
o l d 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
2. Yes. the new partnership is liable for the debts of the old
partnership
Legal basis: Art. 1840 (see codal)
ROJAS V. MAGLANA
December 10, 1990
Paras, C.J.
Raeses, Roberto Miguel
SUMMARY: Maglana and Rojas executed their articles of
co-partnership called EDE. It had an indefinite term, was
registered with the SEC, and had a Timer License. Later,
Agustin Pahamitang became an industrial partner and
another articles of co-partnership was executed. The term of
the second co-partnership was fixed to 30 years. After some
time, the three executed a conditional sale of interest in the
partnership where Magalana and Rojas shall purchase the
interest, share, and participation of Pahamotang. It was
agreed that, after payment of such including the loan secured
by Pahamotang, the two shall become owners of all
equipment contributed by Pahamotang. The two continued
the partnership without any written agreement or
reconstitution of the articles of partnership. Subsequently,
Rojas entered into a contarct with CMS Estate. Maglana
reminded him of his contribution to the capital investments
and his duties to the partnership. Rojas said he would not be
able to comply. Maglana told Rojas that the latter is only
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

entitled to 20% of the profits, which was the sharing from

1957-1959 without dispute. Rojas took funds from the
partnership which was more than his share. Maglana notified
Rojas that he had dissolved the partnership. Rojas filed an
action against Magallana. The CFI ruled that the partnership
of the two after Pahamotang left was one de facto and at
will. The SC said that it was not, considering that the first
partnership was never dissolved. With regard to the issue of
unilateral dissolution, the SC held that Maglana had the
power to do so.
DOCTRINE: 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.
FACTS:
Maglana and Rojas executed their Articles
of Co-partnership called Eastcoast Development Enterpises
(EDE) which had an indefinite term of existence and was
registered with the SEC and had a Timber License. One of the
EDEs purposes was to apply or secure timber and/or private
forest lands and to operate, develop and promote such forests
rights and concessions. Maglana shall manage the business
affairs while Rojas shall be the logging superintendent. All
profits and losses shall be divided share and share alike
between them.
Later on, the two availed the services of Agustin Pahamotang
as industrial partner and executed another articles of copartnership with the latter. The purpose of this second
partnership was to hold and secure renewal of timber license
and the term of which was fixed to 30 years.
Still later on, the three executed a conditional sale of interest
in the partnership wherein Maglana and Rojas shall purchase
the interest, share and participation in the partnership of
Pahamotang. It was also agreed that after payment of such
including amount of loan secured by Pahamotang in favor of
the partnership, the two shall become owners of all equipment
contributed by Pahamotang. After this, the two continued the
partnership without any written agreement or reconstitution of
their articles of partnership.
Subsequently, Rojas entered into a management contract with
CMS Estate Inc. Maglana wrote him regarding his
contribution to the capital investments as well as his duties as
logging superintendent. Rojas replied that he will not be able
to comply with both. Maglana then told Rojas that the latters
share will just be 20% of the net profits. Such was the sharing
from 1957 to 1959 without complaint or dispute. Rojas took
10

funds from the partnership more than his contribution.

Maglana notified Rojas that he dissolved the partnership.
Rojas filed an action against Maglana for the recovery of
properties and accounting of the partnership and damages.
CFI RULING:
1. The partnership of Maglana and Rojas after
Pahamotang retired is one of de facto and at will; the
sharing of profits and losses is on the basis of actual
contributions;
2. there is no evidence these properties were acquired
by the partnership funds thus it should not belong to
it;
3. neither is entitled to damages; the letter of Maglana
in effect dissolved the partnership;
4. sale of forest concession is valid and binding and
should be considered as Maglanas contribution;
5. Rojas must pay or turn over to the partnership the
profits he received from CMS and pay his personal
account to the partnership;
6. Maglana must be paid 85k which he shouldve
received but was not paid to him and must be
considered as his contribution
ACTION AND PRAYER: N/A
ISSUE:
1. WON the partnership carried on after the second
partnership was a de facto partnership and at will.
2. WON Magalana may unilaterally dissolve the
partnership.
HELD:
1. No.
2. Yes.
RATIO:
1. There was no intention to dissolve the first
partnership upon the constitution of the second as
everything else was the same except for the fact that
they took in an industrial partner: they pursued the
same purposes, the capital contributions call for the
same amounts, all subsequent renewals of Timber
License were secured in favor of the first partnership,
all businesses were carried out under the registered
articles. To all intents and purposes therefore, the
First Articles of Partnership were only amended, in
the form of Supplementary Articles of CoPartnership.
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. Maglana even reminded
Rojas of his obligation to contribute either in cash or
in equipment, to the capital investment of the
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

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.
2.

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.
According to the Commissioners report, Rojas is not
entitled to any profits as he failed to give the amount
he had undertaken to contribute thus, had become a
debtor of the partnership. Maglana cannot be liable
for damages as Rojas abandoned the partnership thru
his acts and also took funds in an amount more than
his contribution

DISPOSITIVE: 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.
TACAO v CA
William Belo introduced Nenita Anay to his girlfriend,
Marjorie Tocao. The three agreed to form a joint venture for
the sale of cooking wares. Belo was to contribute P2.5 million;
Tocao also contributed some cash and she shall also act as
president and general manager; and Anay shall be in charge of
marketing. Belo and Tocao specifically asked Anay because of
her experience and connections as a marketer. They agreed
further that Anay shall receive the following:
1. 10% share of annual net profits
11

2. 6% overriding commission for weekly sales

3. 30% of sales Anay will make herself
4. 2% share for her demo services
They operated under the name Geminesse Enterprise, this
name was however registered as a sole proprietorship with the
Bureau of Domestic Trade under Tocao. The joint venture
agreement was not reduced to writing because Anay trusted
Belos assurances.
The venture succeeded under Anays marketing prowess.
But then the relationship between Anay and Tocao soured.
One day, Tocao advised one of the branch managers that Anay
was no longer a part of the company. Anay then demanded
that the company be audited and her shares be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing, for a
partnership can be instituted in any form. The fact that it was
registered as a sole proprietorship is of no moment for such
registration was only for the companys trade name.
Anay was not even an employee because when they ventured
into the agreement, they explicitly agreed to profit sharing this
is even though Anay was receiving commissions because this
is only incidental to her efforts as a head marketer.
The Supreme Court also noted 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.
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.
Tocaos unilateral exclusion of Anay from the partnership is
shown by her memo to the Cubao office plainly stating that
Anay was, as of October 9, 1987, no longer the vice-president
for sales of Geminesse Enterprise. 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.

Meliton Zabat started a lending Business venture together

proposed by Nieves. It was agreed on the Articles of
Agreement that petitioner will get 70% of the profits and
Nieves and Zabat would earn 15% each.
- Nievas introduced Gragera (chairman of Monte Maria
Development Corporation) to petitioner, and sought short term
loans for its members and with an agreement that Monte
Maria will be entitled to P1.31 commission per thousand paid
daily. Nieves acted as bookkeeper while her husband Arsenio
acted as credit investigator.
- Gragera complained that his commissions were inadequately
remitted. This prompt petitioner to file a complaint against
respondent allegedly in their capacities as employees of
petitioner, with having misappropriated funds.
ISSUE: Whether or not the business relationship between
petitioner and respondent was one of partnership
HELD
YES
Nieves herself provided the initiative in the lending activities
with Monte Maria.
- The fact that in their Articles of Agreement, the parties
agreed to divide the profits of a lending business in a 70-1515, manner, with petitioner getting the lions share proved the
establishment of a partnership, even when the other parties to
the agreement were given separate compensation as
bookkeeper and creditor investigator.
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. (Art. 1767 NCC)
MORAN JR. v. COURT OF APPEALS 133 SCRA 88
(1984)
Facts:
Moran and Pecson agreed to contribute P15 000 each for the
purpose of printing 95 000 posters of the delegates to the then
1971 Constitutional Commission. It was further agreed that
Pecson will receive a commission of P 1000 a month and that
the partnership is to be liquidated on December 15, 1971.

SANTOS VS REYES 368 SCRA 261

Pecson partially fulfilled his obligation when he issued P10k

in favor of the partnership. He gave the P10k to Moran as the
managing partner. Moran however did not add anything and,
instead, he only used P4k out of the P10k in printing 2,000
posters. He only printed 2,000 posters. All the posters were
sold for a total of P10k.

- Petitioner Fernando Santos, Respondent Nieves Reyes and

Pecson sued Moran. The trial court ordered Moran to pay

Pecson damages. The Court of Appeals affirmed the decision
but modified the same as it ordered Moran to pay P47.5k for

FACTS:

BUSORG CASE DIGESTS

Atty. Charlie Mendoza

12

unrealized profit; P8k for Pecsons monthly commissions; P7k

as return of investment because the venture never took off;
plus interest.
Issue: Whether or not the Court of Appeals erred in holding
Moran liable to respondent Pecson in the sum of P47,500 as
the supposed expected profits due him.

expired, Menzi proceeded to liquidate the fertilizer business in

question. The plaintiff refused to agree to this. It argued,
among others, that the written contract entered into by the
parties is a contract of general regular commercial partnership,
wherein Menzi was the capitalist and the plaintiff the
industrial partner.
Issue: Is the relationship between the petitioner and Menzi
that of partners?

Ratio:

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

Held: The relationship established between the parties was not

that of partners, but that of employer and employee, whereby
the plaintiff was to receive 35% of the net profits of the
fertilizer business of Menzi in compensation for his services
for 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. The written contract was, in fact, a
continuation of the verbal agreement between the parties,
whereby the plaintiff worked for the defendant corporation for
onehalf of the net profits derived by the corporation form
certain fertilizer contracts. According to Art. 116 of the Code
of Commerce, 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 it class may be,
provided it has been established in accordance with the
provisions of the Code. However in this case, there was no
common fund. The business belonged to Menzi & Co. The
plaintiff was working for Menzi, and instead of receiving a
fixed salary, he was to receive 35% of the net profits as
compensation for his services. The phrase in the written
contract en sociedad con, which is used as a basis of the
plaintiff to prove partnership in this case, merely means en
reunion con or in association with. It is also important to note
that although Menzi 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.

Bastida vs Menzi

Estanislao, Jr. v. Court of Appeals

Facts: Bastida offered to assign to Menzi & Co. his contract

with Phil Sugar Centrals Agency and to supervise the mixing
of the fertilizer and to obtain other orders for 50 % of the net
profit that Menzi & Co., Inc., might derive therefrom. J. M.
Menzi (gen. manager of Menzi & Co.) accepted the offer. The
agreement between the parties was verbal and was confirmed
by the letter of Menzi to the plaintiff on January 10, 1922.
Pursuant to the verbal agreement, the defendant corporation on
April 27, 1922 entered into a written contract with the
plaintiff, marked Exhibit A, which is the basis of the present
action. Still, the fertilizer business as carried on in the same
manner as it was prior to the written contract, but the net profit
that the plaintiff herein shall get would only be 35%. The
intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in the bodegas of Menzi. Prior to the
expiration of the contract (April 27, 1927), the manager of
Menzi notified the plaintiff that the contract for his services
would not be renewed. Subsequently, when the contract

G.R. No. L-49982 April 27, 1988

Facts:
Petitioner and private respondents are brothers and sisters who
are co-owners of certain lots 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. 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. It was agreed that petitioner would apply for the
dealership. Respondent Remedios helped in managing the
business with petitioner.
Later 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

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 award of speculative damages
has no basis in fact and law.
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. In this case, 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.
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

BUSORG CASE DIGESTS

Atty. Charlie Mendoza

13

that said agreement cancels and supersedes the Joint

Affidavit executed by the co-owners.
For sometime, the petitioner submitted financial statements
regarding the operation of the business to private respondents,
but therafter petitioner failed to render subsequent accounting.
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 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. The
trial court dismissed the complaint. Private respondents moved
for reconsideration. The dismissal was set aside and the trial
court rendered in their favor. Petitioner appealed,
the appellate court affirmed in toto the decision of the trial
court and denied the subsequent motion for reconsideration.
Hence, this petition for certiorari.
Petitioner argued 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.
Issue(s):
Whether or not a partnership exists between members of the
same family arising from their joint ownership of certain
properties
Held:
We find no merit in [petitioners] 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. Petitioner
gave a written authority to private respondent Remedies
Estanislao, his sister, to examine and audit the books of their
common business (aming negosyo). 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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

intention of dividing the profits among themselves. 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.
VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING
CORPORATION, and SBT[1] TRUCKING
CORPORATION, petitioners, vs. HON. COURT OF
APPEALS and JAIME SAHOT, respondents.
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. 0009-06717-94.
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.
14

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.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Petitioners assailed the decision of the NLRC before

the Court of Appeals. In its decision dated February 29, 2000,
the appellate court affirmed with modification the judgment of
the NLRC. It held that private respondent was indeed an
employee of petitioners since 1958. It also increased the
amount of separation pay awarded to private respondent to
P74,880, computed at the rate of P2,080 per year for 36 years
of service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED
with MODIFICATION. SB Trucking Corporation is hereby
directed to pay complainant Jaime Sahot the sum of
SEVENTY-FOUR THOUSAND EIGHT HUNDRED
EIGHTY (P74,880.00) PESOS as and for his separation
pay.[10]
Hence, the instant petition anchored on the following
contentions:
I
RESPONDENT
COURT
OF
APPEALS
IN
PROMULGATING THE QUESTION[ED] DECISION
AFFIRMING WITH MODIFICATION THE DECISION OF
NATIONAL
LABOR
RELATIONS
COMMISSION
DECIDED NOT IN ACCORD WITH LAW AND PUT AT
NAUGHT ARTICLE 402 OF THE CIVIL CODE.[11]
II
RESPONDENT COURT OF APPEALS VIOLATED
SUPREME COURT RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION IS BOUND BY THE
FACTUAL FINDINGS OF THE LABOR ARBITER AS THE
LATTER WAS IN A BETTER POSITION TO OBSERVE
THE DEMEANOR AND DEPORTMENT OF THE
WITNESSES IN THE CASE OF ASSOCIATION OF
INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS
NATIONAL CAPITAL REGION (305 SCRA 233).[12]
III
PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY
RESPONDENT SBT TRUCKING CORPORATION.[13]
Three issues are to be resolved: (1) Whether or not an
employer-employee relationship existed between petitioners
and respondent Sahot; (2) Whether or not there was valid
dismissal; and (3) Whether or not respondent Sahot is entitled
to separation pay.
Crucial to the resolution of this case is the
determination of the first issue. Before a case for illegal
dismissal can prosper, an employer-employee relationship
must first be established.[14]
Petitioners invoke the decision of the Labor Arbiter
Ariel Cadiente Santos which found that respondent Sahot was
not an employee but was in fact, petitioners industrial
partner.[15] It is contended that it was the Labor Arbiter who
15

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:

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.

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]

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]

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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

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
16

causes of terminating an employment. The insistence of

respondent in making complainant work did not change the
scenario.
It is worthy to note that respondent is engaged in the trucking
business where physical strength is of utmost requirement
(sic). Complainant started working with respondent as truck
helper at age twenty-three (23), then as truck driver since
1965. Complainant was already fifty-nine (59) when the
complaint was filed and suffering from various illness
triggered by his work and age.
x x x[27]
In termination cases, the burden is upon the employer
to show by substantial evidence that the termination was for
lawful cause and validly made.[28] Article 277(b) of the
Labor Code puts the burden of proving that the dismissal of an
employee was for a valid or authorized cause on the employer,
without distinction whether the employer admits or does not
admit the dismissal.[29] For an employees dismissal to be
valid, (a) the dismissal must be for a valid cause and (b) the
employee must be afforded due process.[30]
Article 284 of the Labor Code authorizes an employer
to terminate an employee on the ground of disease, viz:
Art. 284. Disease as a ground for termination- An employer
may terminate the services of an employee who has been
found to be suffering from any disease and whose continued
employment is prohibited by law or prejudicial to his health as
well as the health of his co-employees: xxx
However, in order to validly terminate employment on
this ground, Book VI, Rule I, Section 8 of the Omnibus
Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the
employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or
to the health of his co-employees, the employer shall not
terminate his employment unless there is a certification by
competent public health authority that the disease is of such
nature or at such a stage that it cannot be cured within a
period of six (6) months even with proper medical treatment. If
the disease or ailment can be cured within the period, the
employer shall not terminate the employee but shall ask the
employee to take a leave. The employer shall reinstate such
employee to his former position immediately upon the
restoration of his normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services,
Inc. vs. NLRC,[31] the requirement for a medical certificate
under Article 284 of the Labor Code cannot be dispensed
with; otherwise, it would sanction the unilateral and arbitrary
determination by the employer of the gravity or extent of the
employees illness and thus defeat the public policy in the
protection of labor.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

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
17

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.
HEIRS OF JOSE LIM, represented by ELENITO LIM vs.
JULIET VILLA LIM G.R. No. 172690, March 3, 2010
NACHURA, J.:
FACTS: Petitioners are the heirs of the late Jose Lim (Jose).
They filed a Complaint 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
alleged that Elfledo 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.
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 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
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

participation or contribution from petitioners or from Jose.

ISSUE: Whether or not a partnership exists.
HELD: YES. 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.
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; (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; (3) all of the properties 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; and (5) none of the petitioners, as heirs
of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime.
G.R. No. 31057 September 7, 1929 ADRIANO ARBES, ET
AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET
AL., defendants-appellants.
This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico & Co."
The plaintiffs were members or shareholders, and the
defendants were designated as president-treasurer, directors
and secretary of said association.
By agreement of the parties, the court appointed a
commissioner to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co. The commissioner
rendered his report, showing a balance of the cash on hand in
the amount of P24,607.80. The trial court in accepting the
report, 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.
There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership, 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, particularly the second paragraph, which
provides: 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
18

of the province.
ISSUE:
WHETHER OR NOT A CHARITABLE INSTITUTION IS A
NECESSARY PARTY IN THIS CASE.
RULING:
NO, 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. 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.
In so ruling, the court had the occasion of explaining the scope
and spirit of the provision of Article 1666 of the Civil Code
(now Article 1770 of the New Civil Code).
With regard to Contributions of an Illegal Partnership: the
court holds that (1) 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
since said contract 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.
(2) 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.
(3) 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.
With regard to Profits of an Illegal Partnership: the court
holds that (1) 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, 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. (2) Profits earned in the course of
the partnership, because they do not constitute or represent the
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

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. (3) Furthermore, it would be immoral and unjust for
the law to permit a profit from an industry prohibited by it.
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs. FORTUNATO F. HALILI, defendant-appellant. G.R.
No. L-4811
July 31, 1953
FACTS: On November 29, 1947, plaintiff Woodhouse
entered into a written agreement with defendant Halili stating
among others that: 1) that they shall organize a partnership for
the bottling and distribution of Missionsoft drinks, plaintiff to
act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefore; 2) that
plaintiff was to secure the Mission Soft Drinks franchise for
and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the
business. Prior to entering into this agreement, plaintiff had
informed the Mission Dry Corporation of Los Angeles,
California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest
half a milliondollars 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. Pursuant to this request,
plaintiff was given a thirty days option on exclusive bottling
and distribution rights for the Philippines. The contract was
finally signed by plaintiff on December 3, 1947. When the
bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. Defendant
Halili gave excuses and would not execute said agreement,
thus the complaint by the plaintiff. Plaintiff prays for the :
1.execution of the contract of partnership; 2) accounting of
profits and 3)share thereof of 30 percent with 4) damages in
the amount of P200,000. The Defendant on the other hand
claims that: 1) the defendants consent to the agreement, 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 that 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 and 3)that plaintiff agreed to
contribute to the exclusive franchise to the partnership, but
plaintiff failed to do so with a 4) counterclaim for P200,00 as
damages. The CFI ruling: 1) accounting of profits and to pay
plaintiff 15 % of the profits and that the 2) execution of
contract cannot be enforced upon parties. Lastly, the 3) fraud
wasnt proved

ISSUES 1. WON plaintiff falsely represented that he had an

exclusive franchise to bottle Mission beverages 2. WON false
representation, if it existed, annuls the agreement to form the
19

partnership

HELD 1. Yes. Plaintiff did make false representations and

this can be seen through his letters to Mission Dry Corporation
asking for the latter to grant him temporary franchise so that
he could settle the agreement with defendant. 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. The 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, plaintiffs 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.

2. No. In consequence, article 1270 of the Spanish Civil Code

distinguishes two kinds of (civil) fraud, the causal fraud,
which may be ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages only. The Supreme Court has held that in
order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente)
inducement to the making of the contract. The record abounds
with circumstances indicative of 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 defendants counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But
if plaintiff 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. 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 per cent 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. Having arrived at the
conclusion that the contract cannot be declared null and void,
may the agreement be carried out or executed? The SC finds
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. , The
defendant may not be compelled against his will to carry out
the agreement nor execute the partnership papers. The law
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

recognizes the individuals freedom or liberty to do an act he

has promised to do, or not to do it, as he pleases.

Aurelio Litonjua Jr vs Eduardo Litonjua Sr. et al

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged

that Eduardo entered into a contract of partnership with him.
Aurelio showed as evidence a letter sent to him by Eduardo
that the latter is allowing Aurelio to manage their family
business (if Eduardos away) and in exchange thereof he will
be giving Aurelio P1 million or 10% equity, whichever is
higher. A memorandum was subsequently made for the said
partnership agreement. The memorandum this time stated that
in exchange of Aurelio, who just got married, retaining his
share in the family business (movie theatres, shipping and land
development) and some other immovable properties, he will
be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is
greater.

In 1992 however, the relationship between the brothers went

sour. And so Aurelio demanded an accounting and the
liquidation of his share in the partnership. Eduardo did not
heed and so Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent.
The documentary evidence presented by Aurelio, i.e. the letter
from Eduardo and the Memorandum, did not prove
partnership.
The 1973 letter from Eduardo on its face, contains typewritten
entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that said letter
does not meet the public instrumentation requirements exacted
under Article 1771 (how partnership is constituted) of the
Civil Code. Moreover, being unsigned and doubtless referring
to a partnership involving more than P3,000.00 in money or
property, said letter cannot be presented for notarization, let
alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772
(capitalization of a partnership) 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 Aurelios contribution, if any, to the
supposed partnership.
The Memorandum is also not a proof of the partnership for the
same is not a public instrument and again, no inventory was
made of the immovable property and no inventory was
attached to the Memorandum. Article 1773 of the Civil Code
requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the
contract.
20

BATCH 2
DAN FUE LEUNG vs HON. INTERMEDIATE
APPELLATE COURT and LEUNG YIU
G.R. No. 70926, January 31, 1989
GUTIERREZ, JR., J.
FACTS:
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First Instance of
Manila, Branch II to recover the sum equivalent to (22%) of
the annual profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan Fue
Leung. The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and
in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave P4,000.00 as
his contribution to the partnership. This is evidenced by a
receipt wherein the petitioner acknowledged his acceptance of
the P4,000.00 by affixing his signature thereto. The receipt
was written in Chinese characters. Witnesses So Sia and
Antonio Ah Heng corroborated the private respondents
testimony to the effect that they were both present when the
receipt was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt
evidencing delivery of his own investment in another amount
of P4,000.00 An examination was conducted by the PC Crime
Laboratory. The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner appearing in the
pay envelopes of employees of the restaurant, namely Ah
Heng and Maria Wong showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 covered by the latter's
Equitable Banking Corporation Check No. 13389470-B from
the profits of the operation of the restaurant for the year 1974.
The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested and
impugned the genuineness of the receipt. His evidence is
summarized as follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. He used his savings
from his salaries as an employee at Camp Stotsenberg in Clark
Field and later as waiter at the Toho Restaurant amounting to a
little more than P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the sole
owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah
Panciteria was and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt and the
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Equitable Banking Corporation's Check No. 13389470 B in

the amount of P12,000.00.
As between the conflicting evidence of the parties,
the trial court gave credence to that of the plaintiffs. Ordering
the defendant to deliver and pay to the former, the sum
equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955. The
private respondent filed a verified motion for reconsideration
in the nature of a motion for new trial and he requested that
the decision rendered should include the net profit of the Sun
Wah Panciteria which was not specified in the decision, and
allow private respondent to adduce evidence so that the said
decision will be comprehensively adequate and thus put an
end to further litigation. The motion was granted over the
objections of the petitioner. After hearing the trial court
rendered an amended decision, ordering the defendant to pay
the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand. The
petitioner appealed the trial court's amended decision to the
then Intermediate Appellate Court. The questioned decision
was further modified by the appellate court. Later, the
appellate court, in a resolution, modified its decision and
affirmed the lower court's decision.
Both the trial court and the appellate court found that
the private respondent is a partner of the petitioner in the
setting up and operations of the panciteria. While the
dispositive portions merely ordered the payment of the
respondents share, there is no question from the factual
findings that the respondent invested in the business as a
partner. The petitioner, however, claims that this factual
finding is erroneous. Thus, the petitioner argues: "The
complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment
of the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a
serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate
Appellate Court to interpret or construe 'financial assistance' to
mean the contribution of capital by a partner to a partnership;"
ISSUES:
1.) Whether or not private respondent is a partner.
2.) Whether the petitioner's contention of prescription is
correct.
HELD:
1.) In essence, the private respondent alleged that
when Sun Wah Panciteria was established, he gave P4,000.00
to the petitioner with the understanding that he would be
entitled to 22% of the annual profit derived from the operation
of the said panciteria. These allegations, which were proved,
make the private respondent and the petitioner partners in the
establishment of Sun Wah Panciteria because Article 1767 of
the Civil Code provides that "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
21

dividing the profits among themselves". Therefore, the lower

courts did not err in construing the complaint as one wherein
the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance
therein. We agree with the appellate court's observation to the
effect that "... given its ordinary meaning, financial assistance
is the giving out of money to another without the expectation
of any returns therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But this
circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.'The complaint
explicitly stated that "as a return for such financial assistance,
plaintiff (private respondent) would be entitled to 22% of the
annual profit derived from the operation of the said panciteria.
The well-settled doctrine is that the '"... nature of the action
filed in court is determined by the facts alleged in the
complaint as constituting the cause of action."
2.) The petitioner raises the issue of prescription. he
alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days. From
October 1, 1955 to July 13, 1978, no written demands were
ever made by private respondent. The petitioner's argument is
based on Article 1144 of the Civil Code in relation to Article
1155 thereof.
The argument is not well-taken. The private
respondent is a partner of the petitioner in Sun Wah Panciteria.
The requisites of a partnership which are 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 have been
established. It would be incorrect to state that if a partner does
not assert his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of
Sun Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article 1842
states:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against the winding
up partners or the surviving partners or the person or
partnership continuing the business, at the date of dissolution,
in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807,
and 1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to run
only upon the dissolution of the partnership when the final
accounting is done.
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

HON. JOSE R. RAMOLETE as Presiding Judge, Branch

III, CFI, Cebu and TAN PUT, respondents.
G.R. No. L-40098 August 29, 1975
Ponente: J. Barredo
FACTS:
On February 9, 1971, respondent Tan Put filed a
complaint in CFI Cebu Branch 3, an action for accounting of
properties and money totaling to about P15 million against
spouses-petitioner Antonio Lim Tanhu and Dy Ochay.
Subsequently, in an amended complaint filed on Sept. 26,
2972, the son of spouses Tan Hu herein, Lim Tek Chuan and
other spouses petitioners Alfonso Leonardo Ng Sua and Co
Oyo and their son Eng Chong Leonardo were included as
defendants.
Respondent Tan Put averred that he is the widow of
of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company with
Antonio Lim Tanhu and Alfonso Ng Sua. Defendant Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and
Eng Chong Leonardo, through fraud and machination, took
actual and active management of the partnership and although
Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Company, defendants managed to use the funds
of the partnership to purchase lands and building's in the cities
of Cebu, Lapulapu, Mandaue, and the municipalities of
Talisay and Minglanilla.
In addition respondent alleged the followings that: 1)
after the death of Tee Hoon Lim Po Chuan, the defendants,
without liquidation continued the business of Glory
Commercial Company by purportedly organizing a
corporation known as the Glory Commercial Company,
Incorporated, with paid up capital in the sum of P125,000.00,
which money and other assets of the said Glory Commercial
Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the
plaintiff has a share equivalent to one third (/ 3) thereof; 2)
On several occasions after the death of her husband, has asked
defendants of the above-mentioned properties and for the
liquidation of the business of the defunct partnership,
including investments on real estate in HongKong, but
defendants kept on promising to liquidate said properties. 3)
Sometime in the month of November, 1967, defendants,
Antonio Lim Tanhu, by means of fraud deceit and
misrepresentations convince the respondent to execute a
quitclaim of all her rights and interests, in the assets of the
partnership of Glory Commercial Company, 4) As a matter of
fact, after the execution of said quitclaim, defendant Antonio
Lim Tanhu offered to pay the respondent the amount
P65,000.00 within a period of one (1) month, for which
respondent was made to sign a receipt for the amount of
P65,000.00 although no such amount was given and
respondent was not even given a copy of said document; 5)
Thereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and
assets in favor among others of plaintiff and until the middle
of the year 1970 when the plaintiff formally demanded from
22

the defendants the accounting of real and personal properties

of the Glory Commercial Company, defendants refused and
stated that they would not give the share of the plaintiff.
On their defense, petitioners denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok
Tin still living and with whom he had four (4) legitimate
children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the truth
being, according to them, that proper liquidation had been
regularly made of the business of the partnership and Tee
Hoon used to receive his just share until his death, as a result
of which the partnership was dissolved and what corresponded
to him were all given to his wife and children. In a addition
petitioners interposed the following:
1. That in the event that plaintiff is filing the present complaint
as an heir of Tee Hoon Lim Po Chuan, then, she has no legal
capacity to sue. 2. That her demand was extinguish by a
quitclaim. 3. That even before the death of Tee Hoon Lim Po
Chuan, the plaintiff was no longer his common law wife and
even though she was not entitled to anything left by Tee Hoon
Lim Po Chuan, yet, out of the kindness and generosity on the
part of the defendants, particularly Antonio Lain Tanhu, who,
was inspiring to be monk and in fact he is now a monk,
respondent was given a substantial amount evidenced by the
'quitclaim'. 4. That the defendants have acquired properties out
of their own personal fund and certainly not from the funds
belonging to the partnership, just as Tee Hoon Lim Po Chuan
had acquired properties out of his personal fund and which are
now in the possession of the widow and neither the defendants
nor the partnership have anything to do about said properties;
5. That it would have been impossible to buy properties from
funds belonging to the partnership without the other partners
knowing about it considering that the amount taken allegedly
is quite big and with such big amount withdrawn the
partnership would have been insolvent; 6. That respondent and
Tee Hoon Lim Po Chuan were not blessed with children who
would have been lawfully entitled to succeed to the properties
left by the latter together with the widow and legitimate
children;
However, petitioners were declared in default by the
Court of First Instance. The trial court then declared a decision
in favor of Tan Put stating among others that The plaintiff is
is the widow of the late Tee Hoon Po Chuan (Po Chuan, for
short) who was then one of the partners in the commercial
partnership, Glory Commercial Co. with defendants Antonio
Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng
Sua (Ng Sua, for short) as co-partners; that after the death of
her husband on March 11, 1966 she is entitled to share not
only in the capital and profits of the partnership but also in the
other assets, both real and personal, acquiredby the partnership
with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to
the following effect: .
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

That the herein plaintiff Tan Put and her late husband Po
Chuan married at the Philippine Independent Church of Cebu
City on December, 20, 1949; that Po Chuan died on March 11,
1966; that the plaintiff and the late Po Chuan were childless
but the former has a foster son Antonio Nuez whom she has
reared since his birth with whom she lives up to the present;
that prior to the marriage of the plaintiff to Po Chuan the latter
was already managing the partnership Glory Commercial Co.
then engaged in a little business in hardware at Manalili St.,
Cebu City; that prior to and just after the marriage of the
plaintiff to Po Chuan she was engaged in the drugstore
business; that not long after her marriage, upon the suggestion
of Po Chuan the plaintiff sold her drugstore for P125,000.00
which amount she gave to her husband in the presence of
defendant Lim Tanhu and was invested in the partnership
Glory Commercial Co. sometime in 1950; that after the
investment of the above stated amount in the partnership its
business flourished and it embarked in the import business and
also engaged in the wholesale and retail trade of cement and
GI sheets and under huge profits;
That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the
one who made the final decisions and approved the
appointments of new personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu
and Ng Sua are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas the late Po
Chuan until the time of his death was a Chinese citizen; that
the three (3) brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of the partnership
having the controlling interest; that defendants Lim Tanhu and
Ng Sua were partners in name but they were mere employees
of Po Chuan.
ISSUES:
1) Whether or not the trial court erred in its ruling.
2) Whether or not the claim of respondent Tan Put
for an accounting and money claim against the
partnership is valid.
HELD:
The trial courts conclusion of the supposed
marriage of Tan Put to deceased Tee Hoon Lim Po Chuan is
contrary to the weight of the evidence brought before it during
the trial and the pre-trial.
TAN PUT is not a widow of deceased Tee Hoon Lim Po
Chuan.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and
wife "shall be set forth in an instrument" signed by the parties
as well as by their witnesses and the person solemnizing the
marriage. Accordingly, the primary evidence of a marriage
must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the
23

absence of the contract must first be satisfactorily explained.

Surely, the certification of the person who allegedly
solemnized a marriage is not admissible evidence of such
marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to
the court. In the case at bar, the purported certification issued
by a Mons. Jose M. Recoleto, Bishop, Philippine Independent
Church, Cebu City, is not, therefore, competent evidence,
there being absolutely no showing as to unavailability of the
marriage contract and, indeed, as to the authenticity of the
signature of said certifier, the jurat allegedly signed by a
second assistant provincial fiscal not being authorized by law,
since it is not part of the functions of his office. Besides,
inasmuch as the bishop did not testify, the same is hearsay.
Tan Put claim of accounting and money claim against the
PARTNERSHIP not valid.
2. If, as We have seen, plaintiff's evidence of her alleged status
as legitimate wife of Po Chuan is not only unconvincing but
has been actually overcome by the more competent and
weighty evidence in favor of the defendants, her attempt to
substantiate her main cause of action that defendants Lim
Tanhu and Ng Sua have defrauded the partnership
GloryCommercial Co. and converted its properties to
themselves is even more dismal. From thevery evidence
summarized by His Honor in the decision in question, it is
clear that not an iota f reliable proof exists of such alleged
misdeeds.
The claim of Tan Put of 1/3 share in the asset of the
partnership is unavailing.
Of course, the existence of the partnership has not been
denied, it is actually admitted impliedly in defendants'
affirmative defense that Po Chuan's share had already been
duly settled with and paid to both the plaintiff and his
legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as
widow of Po Chuan she is entitled to / 3 share of the assets
and properties of the partnership. According to the decision,
plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the
marriage of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for
P125,000 which amount she gave to her husband in the
presence of Tanhu and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after the investment
of the above-stated amount in the partnership, its business
flourished and it embarked in the import business and also
engaged in the wholesale and retail trade of cement and GI
sheets and under (sic) huge profits."
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

To begin with, this theory of her having contributed of

P125,000 to the capital of the partnership by reason of which
the business flourished and amassed all the millions referred to
in the decision has not been alleged in the complaint, and
inasmuch as what was being rendered was a judgment by
default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was
her capital that made the partnership flourish, why would she
claim to be entitled to onlyto / 3 of its assets and profits?
Under her theory found proven by respondent court, she was
actually the owner of everything, particularly because His
Honor also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means
of livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does
she claim only / 3 share? Is this an indication of her
generosity towards defendants or of a concocted cause of
action existing only in her confused imagination engendered
by the death of her common-law husband with whom she had
settled her common-law claim for recompense of her services
as common law wife for less than what she must have known
would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial
court was confused as to the participation of defendants Lim
Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere employees
and then elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the
confusion is worse compounded in the judgment which allows
these "partners in name" and "partners-employees" or
employees who had no means of livelihood and who must not
have contributed any capital in the business, "as Po Chuan was
practically the owner of the partnership having the controlling
interest", / 3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture
that the decision has made Po Chuan play the inconsistent role
of being "practically the owner" but at the same time getting
his capital from the P125,000 given to him by plaintiff and
from which capital the business allegedly "flourished."
The allegation as to fraud that the partnership funds was
used to form the corporation is bereft of merit
Anent the allegation of plaintiff that the properties shown by
her exhibits to be in the names of defendants Lim Tanhu and
Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is
likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan in the
Glory Commercial Co. until the time of his death on March
11, 1966." (p. 30, id.) It Is Our considered view, however, that
this conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision
how said defendants could have extracted money from the
24

partnership in the fraudulent and illegal manner pretended by

plaintiff. Neither in the testimony of Nuez nor in that of
plaintiff, as these are summarized in the decision, can there be
found any single act of extraction of partnership funds
committed by any of said defendants. That the partnership
might have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision
are not in the names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily prove that Po
Chuan had not gotten his share of the profits of the business or
that the properties in the names of the defendants were bought
with money of the partnership. In this connection, it is
decisively important to consider that on the basis of the
concordant and mutually cumulative testimonies of plaintiff
and Nuez, respondent court found very explicitly that, and
We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory Commercial
Co. he was the one who made the final decisions and approved
the appointments of new Personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu
and Ng Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas the late Po
Chuan until the time of his death was a Chinese citizen;that
the three (3) brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of the partnership
having the controlling interest; that defendants Lim Tanhu and
Ng Sua were partners in name but they were mere employees
of Po Chuan; .... (Pp. 90-91, Record.) If Po Chuan was in
control of the affairs and the running of the partnership, how
could the defendants have defrauded him of such huge
amounts as plaintiff had made his Honor believe? Upon the
other hand, since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if defendants
had obtained any portion of the funds of the partnership for
themselves, it must have been with the knowledge and consent
of Po Chuan, for which reason no accounting could be
demanded from them therefor, considering that Article 1807
of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended
complaint to the effect that "defendants Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong
Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon
Lim Po Chuan was the manager of Glory Commercial Co.,
defendants managed to use the funds of the partnership to
purchase lands and buildings etc. (Par. 4, p. 2 of amended
complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally
did not know any better.
Properties supposed to have been acquired out of
partnership funds had been transferred long after the
partnership had been dissolved.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Moreover, it is very significant that according to the

very tax declarations and land titles listed in the decision, most
if not all of the properties supposed to have been acquired by
the defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had
been automatically dissolved as a result of the death of Po
Chuan.
Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence of clear
proof that they had violated the trust of Po Chuan during the
existence of the partnership. (See Hanlon vs. Hansserman and.
Beam, 40 Phil. 796.) There are other particulars which should
have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuez testified that "for about 18 years he was in
charge of the GI sheets and sometimes attended to the
imported items of the business of Glory Commercial Co."
Counting 18 years back from 1965 or 1966 would take Us to
1947 or 1948. Since according to Exhibit LL, the baptismal
certificate produced by the same witness as his birth
certificate, shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in 1949 when
he must have been barely six or seven years old? It should not
have escaped His Honor's attention that the photographs
showing the premises of Philippine Metal Industries after its
organization "a year or two after the establishment of Cebu
Can Factory in 1957 or 1958" must have been taken after
1959. How could Nuez have been only 13 years old then as
claimed by him to have been his age in those photographs
when according to his "birth certificate", he was born in 1942?
His Honor should not have overlooked that according to the
same witness, defendant Ng Sua was living in Bantayan until
he was directed to return to Cebu after the fishing business
thereat floundered, whereas all that the witness knew about
defendant Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only told to
him allegedly by Po Chuan, which testimonies are veritably
exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according to
plaintiff herself, "Lim Tanhu was employed by her husband
although he did not go there always being a mere employee of
Glory Commercial Co." (p. 22, Annex the decision.)The
decision is rather emphatic in that Lim Tanhu and Ng Sua had
no known income except their salaries. Actually, it is not
stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned.
The trial court failed to explain the amount of P12,223,
132. 55 which the petitioner (defendant in the trial court
case) have to account for.
On the other hand, with respect to Lim Tanhu, the
decision itself states that according to Exhibit NN-Pre trial, in
the supposed income tax return of Lim Tanhu for 1964, he had
an income of P4,800 as salary from Philippine Metal
Industries alone and had a total assess sable net income of
P23,920.77 that year for which he paid a tax of P4,656.00. (p.
14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he
had a net income of P32,000 for which be paid a tax of
P3,512.40. (id.) As early as 1962, "his fishing business in
25

Madridejos Cebu was making money, and he reported "a net

gain from operation (in) the amount of P865.64" (id., per
Exhibit VV-Pre-trial.) From what then did his Honor gather
the conclusion that all the properties registered in his name
have come from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the
aid of any accountant or without the same being explained by
any witness who had prepared them or who has knowledge of
the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions
His Honor made out of them. We do not hesitate to make the
observation that His Honor, unless he is a certified public
accountant, was hardly qualified to read such exhibits and
draw any definite conclusions therefrom, without risk of erring
and committing an injustice. In any event, there is no
comprehensible explanation in the decision of the conclusion
of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be
very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6Pre-trial, Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17. (p. 15,
id.) Under the circumstances, We are not prepared to permit
anyone to predicate any claim or right from respondent court's
unaided exercise of accounting knowledge. Additionally, We
note that the decision has not made any finding regarding the
allegation in the amended complaint that a corporation
denominated Glory Commercial Co., Inc. was organized after
the death of Po Chuan with capital from the funds of the
partnership. We note also that there is absolutely no finding
made as to how the defendants Dy Ochay and Co Oyo could
in any way be accountable to plaintiff, just because they
happen to be the wives of Lim Tanhu and Ng Sua,
respectively. We further note that while His Honor has
ordered defendants to deliver or pay jointly and severally to
the plaintiff P4,074,394.18 or / 3 of the P12,223,182.55, the
supposed cash belonging to the partnership as of December
31, 1965, in the same breath, they have also been sentenced to
partition and give / 3 share of the properties enumerated in
the dispositive portion of the decision, which seemingly are
the very properties allegedly purchased from the funds of the
partnership which would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming there has
not yet been any liquidation of the partnership, contrary to
the allegation of the defendants, then Glory Commercial
Co. would have the status of a partnership in liquidation
and the only right plaintiff could have would be to what
might result after such liquidation to belong to the
deceased partner, and before this is finished, it is
impossible to determine, what rights or interests, if any,
the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.
BATCH 3
ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, petitioner, vs. COURT OF
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

APPEALS and AMERICAN AIR-LINES

INCORPORATED, respondents.
AMERICAN AIRLINES, INCORPORATED,
petitioner, vs. COURT OF APPEALS and ORIENT AIR
SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
MAY 29, 1991
PADILLA
FACTS:
On 15 January 1977, American Airlines, Inc. (hereinafter
referred to as American Air), an air carrier offering passenger
and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as
Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former
authorized the latter to act as its exclusive general sales agent
within the Philippines for the sale of air passenger
transportation. Pertinent provisions of the agreement are
reproduced:
Orient Air Services will act on American's behalf
as its exclusive General Sales Agent within the
Philippines, including any United States military
installation therein which are not serviced by an
Air Carrier Representation Office (ACRO), for the
sale of air passenger transportation.
The services to be performed by Orient Air
Services shall include:
(a) soliciting and promoting passenger traffic for the
services of American and, if necessary, employing
staff competent and sufficient to do so;;
(b) providing and maintaining a suitable area in its
place of business to be used exclusively for the
transaction of the business of American;
(c) arranging for distribution of American's
timetables, tariffs and promotional material to
sales agents and the general public in the assigned
territory;;
(d) servicing and supervising of sales agents
(including such sub-agents as may be appointed by
Orient Air Services with the prior written consent
of American) in the assigned territory including if
required by American the control of remittances
and commissions retained; and
(e) holding out a passenger reservation facility to sales
agents and the general public in the assigned
territory.
In connection with scheduled or non-scheduled air
passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will
perform services for any other air carrier similar to
those to be performed hereunder for American
without the prior written consent of American.
26

Subject to periodic instructions and continued

consent from American, Orient Air Services may
sell air passenger transportation to be performed
within the United States by other scheduled air
carriers provided American does not provide
substantially equivalent schedules between the
points involved.

Default
If Orient Air Services shall at any time default in
observing or performing any of the provisions of
this Agreement or shall become bankrupt or make
any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into
liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this
Agreement may, at the option of American, be
terminated forthwith and American may, without
prejudice to any of its rights under this Agreement,
take possession of any ticket forms, exchange
orders, traffic material or other property or funds
take possession of any ticket forms, exchange
orders, traffic material or other property or funds
belonging to American.

Remittances
Orient Air Services shall remit in United States
dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently
than semi-monthly, on the 15th and last days of
each month for sales made during the preceding
half month.

IATA and ATC Rules

All monies collected by Orient Air Services for

transportation sold hereunder on American's ticket
stock or on exchange orders, less applicable
commissions to which Orient Air Services is
entitled hereunder, are the property of American
and shall be held in trust by Orient Air Services
until satisfactorily accounted for to American.

The provisions of this Agreement are subject to

any applicable rules or resolutions of the
International Air Transport Association and the Air
Traffic Conference of America, and such rules or
resolutions shall control in the event of any
conflict with the provisions hereof.

Commissions
Termination
American will pay Orient Air Services
commission on transportation sold hereunder by
Orient Air Services or its sub-agents as follows:

American may terminate the Agreement on two

days' notice in the event Orient Air Services is
unable to transfer to the United States the funds
payable by Orient Air Services to American under
this Agreement. Either party may terminate the
Agreement without cause by giving the other 30
days' notice by letter, telegram or cable.

(a) Sales agency commission

American will pay Orient Air Services a sales
agency commission for all sales of transportation
by Orient Air Services or its sub-agents over
American's services and any connecting through
air transportation, when made on American's ticket
stock, equal to the following percentages of the
tariff fares and charges:
1.

2.

For transportation solely between points within the

United States and between such points and
Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of
America.
For transportation included in a through ticket
covering transportation between points other than
those described above: 8% or such other rate(s) as
may be prescribed by the International Air
Transport Association.

On 11 May 1981, alleging that Orient Air had reneged on its

obligations under the Agreement by failing to promptly remit
the net proceeds of sales for the months of January to March
1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold
originally by Orient Air and terminated forthwith the
Agreement in accordance with Paragraph 13 thereof
(Termination).
Four (4) days later, or on 15 May 1981, American Air
instituted suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory
Injunction
Answer: defendant Orient Air denied the material allegations

(b) Overriding commission

In addition to the above commission American
will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges
for all sales of transportation over American's
service by Orient Air Service or its sub-agents.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Contending that after application thereof to the

commissions due it under the Agreement, plaintiff in
fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant
contended that the actions taken by American Air in
the course of terminating the Agreement as well as
27

the termination itself were untenable, Orient Air

claiming that American Air's precipitous conduct had
occasioned prejudice to its business interests.
RTC: Ruled in favor of ORIENT
CA affirmed court a quo
Reconsideration: The decision was modified.
-

The decision of January 27, 1986 is modified in

paragraphs (1) and (2) of the dispositive part so that
the payment of the sums mentioned therein shall be
at their Philippine peso equivalent in accordance
with the official rate of exchange legally prevailing
on the date of actual payment.

BOTH PARTIES APPEALED.

CONTENTION OF AMERICAN AIR:
-

American Air that such commission is based only on

sales of its services actually negotiated or transacted
by Orient Air, otherwise referred to as "ticketed sales.
Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales.
Thus, to be entitled to the 3% overriding commission,
the sale must be made by Orient Air and the sale
must be done with the use of American Air's ticket
stocks.

CONTENTION OF ORIENT AIR:

-

Contractual stipulation of a 3% overriding

commission covers the total revenue of American Air
and not merely that derived from ticketed sales
undertaken by Orient Air.
Invokes its designation as the exclusive General Sales
Agent of American Air, with the corresponding
obligations arising from such agency, such as, the
promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services
are necessarily by Orient Air."

ISSUE: Extent of Orient Air's right to the 3% overriding

commission
HELD:
Interpretation of contract:
-

The entirety thereof must be taken into consideration

to ascertain the meaning of its provisions.
After a careful examination of the records, the Court
finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the
foregoing principles, entitles it to the 3% overriding
commission based on total revenue, or as referred to
by the parties, "total flown revenue."

BUSORG CASE DIGESTS

Atty. Charlie Mendoza

As the designated exclusive General Sales Agent of

American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for
air passenger transportation, and the solicitation of sales
therefor.
In and marketing of American Air's services for air
passenger transportation, and the solicitation of sales
therefor. In return for such efforts and services, Orient Air
was to be paid commissions of two (2) kinds:
1.
2.

first, a sales agency commission, ranging from 7-8%

of tariff fares and charges from sales by Orient Air
when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger
transportation over American Air services.

It is immediately observed that the precondition attached

to the first type of commission does not obtain for the
second type of commissions. The latter type of
commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket
stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock
would erase any distinction between the two (2) types of
commissions and would lead to the absurd conclusion that
the parties had entered into a contract with meaningless
provisions. Such an interpretation must at all times be
avoided with every effort exerted to harmonize the entire
Agreement.
CONTRACT OF ADHESION:
It is clear from the records that American Air was the party
responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is
to be taken "contra proferentem", i.e., construed against the
party who caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377 of the
Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who
caused the obscurity.
Propriety of
Agreement:

American

Air's

termination

of

the

CAs decision: It is not denied that Orient withheld

remittances but such action finds justification from paragraph
4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and
from paragraph 5(d) which specifically allows Orient to retain
the full amount of its commissions. Since, as stated ante,
Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist
SC: We agree with CA.
28

Orient Air was entitled to an overriding commission

based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of
its obligations under the Agreement was, in fact, a
situation where the latter acted in accordance with the
Agreementthat of retaining from the sales proceeds
its accrued commissions before remitting the balance
to American Air.
Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums
claimed by American Air.
The latter's termination of the Agreement was,
therefore, without cause and basis, for which it
should be held liable to Orient Air.

DAMAGES:
-

No error: appellate court modified by reduction the

trial court's award of exemplary damages and
attorney's fees.

REINSTATEMENT OF ORIENT AS GSA:

-

Appellate court erred in affirming the rest of the

decision of the trial court. We refer particularly to the
lower court's decision ordering American Air to
"reinstate defendant as its general sales agent for
passenger transportation in the Philippines in
accordance with said GSA Agreement."
In effect, compels American Air to extend its
personality to Orient Air. Such would be violative of
the principles and essence of agency, defined by law
as a contract whereby "a person binds himself to
render some service or to do something in
representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER
In an agent- principal relationship, the personality of
the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts
which the latter would have him do. Such a
relationship can only be effected with the consent of
the principal, which must not, in any way, be
compelled by law or by any court.
The Agreement itself between the parties states that
"either party may terminate the Agreement without
cause by giving the other 30 days' notice by letter,
telegram or cable."
We, therefore, set aside the portion of the ruling of
the respondent appellate court reinstating Orient Air
as general sales agent of American Air.

SC AFFIRMS CA

G.R. No. L-32320 July 16, 1979

NATIONAL RICE & CORN CORPORATION (NOW
RICE & CORN ADMINISTRATION), petitioner,
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

vs.
THE HONORABLE COURT OF APPEALS, DAVAO
MERCHANDISING CORPORATION, FIELDMEN'S
INSURANCE COMPANY INC., CESAR B. CEBALLOS,
JESUS C. MARQUEZ and BARTOLOME
CABANGBANG,respondents.
FACTS: The National Rice and Corn Corporation (Naric)
had on stock 8000 metric tons of corn which it could not
dispose of due to its poor quality. Naric called for bids for the
purchase of the corn and rice. But precisely because of the
poor quality of the corn, a direct purchase of said corn even
with the privilege of importing commodities did not attract
good offers. Davao Merchandising Corporation (Damerco)
came in with its offer to act as agent in the exportation of the
corn, with the agent answering for the price thereof and
shouldering all expenses incidental thereto, provided it can
import commodities, paying the NARIC therefor from the
price it offered for the corn. Damerco was to open a domestic
letter of credit, which shall be available to the NARIC drawing
therefrom through sight draft without recourse. The
availability of said letter or letters of credit to the NARIC was
dependent upon the issuance of the export permit. The
payment therefor depended on the importation of the collateral
goods, which is after its arrival.
The first half of the collateral goods was successfully
imported. Due to the inferior quality of the corn, it had to be
replaced with more acceptable stock. This caused such delay
that the letters of credit expired without the NARIC being able
to draw the full amount therefrom. Checks and PN were issued
by DAMERCO for the purpose of securing the unpaid part of
the price of the corn and as guaranty that DAMERCO will
purchase the corresponding collateral goods.
But because of the change of administration in the
government, barter transactions were suspended. Hence,
DAMERCO was not able to import the remaining collateral
goods.
NARIC instituted in the CFI of Manila against
DAMERCO and Fieldmens Insurance Co. Inc. an action for
recovery of a sum of money representing the balance of the
value of corn and rice exported by DAMERCO.
DAMERCO alleged that its juridical relationship
with the NARIC is governed by a contract, wherein it was
agreed that DAMERCO would "act as agent" of NARIC "in
exporting the quantity and kind of corn and rice", "as well as
in importing the collateral goods that will be imported thru
barter on a back to back letter of credit or no-dollar remittance
basis"; that DAMERCO had agreed "to buy the
aforementioned collateral goods", not the corn grains that
were exported; that, therefore, it had no obligation to NARIC
until after such collateral goods had been imported. It also
alleged that it should not be made to pay NARIC, since the
collateral goods worth more than US$480,000.00 had not been
imported as a consequence of the suspension of barter
transactions and non-renewal of barter permits by the new
29

administration; and that the promissory notes sued upon by

NARIC do not reflect the true intent and relationship of the
parties and is wanting of consideration.
The trial court rendered in favor of NARIC ordering
DAMERCO and Fieldmens Insurance Co. Inc., to pay, jointly
and severally. CA reversed the trial courts decision and
rendered a new judgement dismissing the complaint as
premature and for lack of cause of action. Hence this petition
for certiorari.
ISSUE: Whether or not DAMERCO acted as agent of
NARIC?
HELD: YES. Clearly from the contract between NARIC and
DAMERCO: bids were previously called for by the NARIC
for the purchase of corn and rice to be exported as well as of
the imported commodities that will be brought in, but said
biddings did not succeed in attracting good offers.
Subsequently, Damerco made an offer. Now, to be sure, the
contract designates the Naric as the seller and the Damerco as
the buyer. These designations, however, are merely nominal,
since the contract thereafter sets forth the role of the buyer
(Damerco) as agent of the seller in exporting the quantity
and kind of corn and rice as well as in importing the collateral
goods thru barter and to pay the aforementioned collateral
goods.
The contract between NARIC and DAMERCO is
bilateral and gives rise to a reciprocal obligation. The said
contract consists of two parts: (1) the exportation by the
DAMERCO as agent for the NARIC of the rice and corn; and
(2) the importation of collateral goods by barter on a back to
back letter of credit or no-dollar remittance basis. It is evident
that the DAMERCO would not have entered into the
agreement were it not for the stipulation as to the importation
of the collateral goods which it could purchase.
It appears that we were also misled to believe that the
Damerco was buying the corn. A closer look at the pertinent
provisions of the contract, however, reveals that the price as
stated in the contract was given tentatively for the purpose of
fixing the price in barter. It should likewise be stressed that the
aforesaid exportation and importation was on a no-dollar
remittance basis. In other words, the agent, Damerco, was not
to be paid by its foreign buyer in dollars but in commodities.
Damerco could not get paid unless the commodities were
imported, and Damerco was not exporting and importing on
its own but as agent of the plaintiff, because it is the latter
alone which could export and import on barter basis according
to its charter. Thus, unless Damerco was made an agent of the
plaintiff, the former could not export the corn and rice nor
import at the same time the collateral goods. This was
precisely the intention of the parties.
He is not to be considered a buyer, who should be
liable for the sum sought by NARIC because the contract itself
clearly provides the Damerco was to export the rice and corn,
AND TO BUY THE collateral goods. There is nothing in the
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

contract providing unconditionally that Damerco was buying

the rice and corn. To be more specific, if the agreement was
just a sale of corn to Damerco, the contract need not specify
that Damerco was to buy the collateral goods.

BIENVENIDO R. MEDRANO and IBAAN RURAL

BANK, petitioners, vs. COURT OF APPEALS, PACITA G.
BORBON, JOSEFINA E. ANTONIO and ESTELA A.
FLOR, respondents
FACTS:
- Bienvenido Medrano was the Vice-Chairman of
Ibaan Rural Bank owned by Medrano family
- 1986, Medrana asked his cousin-in law, Estela Flor,
to look for a buyer of a foreclosed asset of the bank
- Property was a 17 hectare mango plantation priced at
2,200,000.00
- Pacita Borbon was a licensed real estate broker;
Estela Flor and Josefina Antonio are her associates;
- Borbon informed Estela Flor that she has a ready
buyer for a mango orchard
- Borbon told Flor to confer with Medrano and to give
them a written authority to negotiate the sale of the
plantation
- Medrano then issued a letter of authority for Borbon
and Flor
- Borbon and Flor were given a commission of 5% of
the total price to be agreed upon
- Dominador Lee, a businessman from Makati was the
ready buyer of the plantation
- Lee met Borbon when the former responded thru an
ad in a newspaper put up by Borbon for an 8 hectare
property in Batangas, planted with atis trees
- Borbon and Flor arranged for an ocular inspection of
the property together with Lee
- However, the same never materialized; the first was
due to inclement weather; the next time, no car was
available for the tripping to Batangas
- Lee called up Borbon that he would take a look at the
property Borbon was offering since he was on his
way to Batangas
- Since Borbon cannot accompany him, Lee was
instructed to get in touch with Medranos daughter,
Teresa Ganzon
- 2 days after the visit, Lee was asked by respondent
Josefina Antonio about the result of his ocular
inspection
- Lee said that the mango trees looked sick so he
would bring an agriculturist to the property
- 3 weeks after, Antonio called Lee again to make a
follow-up of the latters visit to the mango plantation
- Lee said that he already purchased the property and
made a down payment of 1 million; the balance will
be paid upon the approval of the incorporation papers
of the corporation he was organizing by the SEC
(KGB Farms, Inc.)
- -However, Antonio had not received their
commission yet
30

-When the sale was consummated between the Ibaan

Rural Bank and Lee, Borbon, Antonio and Flor asked
for their 5% commissions
-Medrano refused to pay and offered a measly sum of
5,000 each
-Borbon, Antonio and Flor then filed an action
against Medrano and Ibaan Rural Bank before the
RTC of Makati
-Arguments of Medrano and Ibaan Rural Bank:
1. They refused to give commission since the
respondent did not perform any act to
consummate the sale
2. the letter of authority signed by Medrano
was not binding against the bank because
Medrano had a personality separate from the
bank
Medrano died; no substitution of party was made

RTC : Ordered the petitioners to pay the 5% commission

of respondents
o the letter of authority was valid and binding;
Medrano signed the letter of authority for
and in behalf of the bank, and as owner of
o the property with a promise to pay the
respondents a 5% commission
o the sale of the property could not have been
possible without the intervention of the
respondents
-

Ibaan Rural Bank filed its notice of appeal

The heirs of Medrano also filed their notice of appeal

Under the contract, the role of respondents is

to procure a purchaser
2. A broker will be regarded as the procuring cause of
a sale, so as to be entitled to commission, if his
efforts are the foundation on
which
the
negotiations resulting in a sale are begun
o The record shows that the respondents, as
brokers, were instrumental in the
consummation of the sale
o Evidence:
it was Lee who personally called Borbon and asked
for directions to the property prove that it was only
through the respondents
that Lee learned about the property for sale;
No other persons other than the respondents who
inquired about the sale of the property to Lee; thus it
can be inferred that the respondents were the only
ones who knew that the property was for sale and
were responsible in leading a buyer to it
- The business of a real estate broker or agent is only
to find a purchaser.
- It is not a prerequisite to the right to compensation
that the broker conduct the negotiations between the
parties after they have been brought into
contract with each other through his efforts
o

a.

b.

BICOL SAVINGS AND LOAN ASSOCIATION,

petitioner, vs. HON. COURT OF APPEALS, CORAZON
DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE
DE JESUS, AND PABLO DE JESUS, respondents.
FACTS:

Court of Appeals: affirmed the findings of the RTC

o It applied the principle of agency and ruled
that Medrano constituted the respondents as
his agents in the sale of the plantation
ISSUES:
1. Whether the letter of authority is binding and
enforceable against the Bank;
2. Whether the respondents are entitled to any
commission for the sale of the property.

Juan de Jesus was the owner of a parcel of land, containing an

area of 6,870 sq. ms., more or less, situated in Naga City. On
31 March 1976, he executed a Special Power of Attorney in
favor of his son, Jose de Jesus, "To negotiate, mortgage my
real property in any bank either private or public entity
preferably in the Bicol Savings Bank, Naga City, in any
amount that may be agreed upon between the bank and my
attorney-in-fact."

HELD:
1. The letter of authority is valid and enforceable against
the Bank
2. The respondents are the procuring cause of the sale;
hence they should be rewarded their commission
pursuant to the letter of authority
Procuring cause: a cause originating a series of events
which, without break in their continuity, result in
accomplishment of prime objective of the employment of
the broker- producing a purchaser ready, willing and able
to buy real estate on the owners terms

By virtue thereof, Jose de Jesus obtained a loan of twenty

thousand pesos (P20,000.00) from petitioner bank on 13 April
1976. To secure payment, Jose de Jesus executed a deed of
mortgage on the real property referred to in the Special Power
of Attorney. By reason of his failure to pay the loan obligation
even during his lifetime, petitioner bank caused the mortgage
to be extrajudicially foreclosed on 16 November 1978. In the
subsequent public auction, the mortgaged property was sold to
the bank as the highest bidder to whom a Provisional
Certificate of Sale was issued and a Definite Certificate of
Sale was subsequently issued.

Rationale:
1. The letter of authority serves as a contract
between the parties.
o As such, Medrano cannot renege on the
promise to pay the commission because he
is not the registered owner of the property

Private respondents herein filed a Complaint with the then

Court of First Instance of Naga City for the annulment of the
foreclosure sale or for the repurchase by them of the property.
CFI ruled in favor of petitioner but was reversed by CA upon
appeal. In so ruling, the Appellate Court applied Article 1879
of the Civil Code and stated that since the special power to
mortgage granted to Jose de Jesus did not include the power to

BUSORG CASE DIGESTS

Atty. Charlie Mendoza

31

sell, it was error for the lower Court not to have declared the
foreclosure proceedings and auction sale held in 1978 null and
void because the Special Power of Attorney given by Juan de
Jesus to Jose de Jesus was merely to mortgage his property,
and not to extrajudicially foreclose the mortgage and sell the
mortgaged property in the said extrajudicial foreclosure.
ISSUE: Whether the agent-son exceeded the scope of his
authority in agreeing to a stipulation in the mortgage deed that
petitioner bank could extrajudicially foreclose the mortgaged
property
HELD: No. Art, 1879 is inapplicable. The sale proscribed by
a special power to mortgage under Article 1879 is a voluntary
and independent contract, and not an auction sale resulting
from extrajudicial foreclosure, which is precipitated by the
default of a mortgagor. Absent that default, no foreclosure
results. The stipulation granting an authority to extrajudicially
foreclose a mortgage is an ancillary stipulation supported by
the same cause or consideration for the mortgage and forms an
essential or inseparable part of that bilateral agreement.
The power to foreclose is not an ordinary agency that
contemplates exclusively the representation of the principal by
the agent but is primarily an authority conferred upon the
mortgagee for the latter's own protection. In fact, the right of
the mortgagee bank to extrajudicially foreclose the mortgage
after the death of the mortgagor Juan de Jesus, acting through
his attorney-in-fact, Jose de Jesus, did not depend on the
authorization in the deed of mortgage executed by the latter.
That right existed independently of said stipulation and is
clearly recognized in Section 7, Rule 86 of the Rules of Court,
which grants to a mortgagee three remedies that can be
alternatively pursued in case the mortgagor dies, to wit: (1) to
waive the mortgage and claim the entire debt from the estate
of the mortgagor as an ordinary claim; (2) to foreclose the
mortgage judicially and prove any deficiency as an ordinary
claim; and (3) to rely on the mortgage exclusively, foreclosing
the same at any time before it is barred by prescription,
without right to file a claim for any deficiency.
Petitioner bank, therefore, in effecting the extrajudicial
foreclosure of the mortgaged property, merely availed of a
right conferred by law. The auction sale that followed in the
wake of that foreclosure was but a consequence thereof.

G.R. No. 160346

August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE

CASTILLA (represented by Mother and Attorney-in-Fact
VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI
BELARMINO and LETICIA OCAMPO, EUFEMIA SAN
AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTINMcCRAE, MILAGROS SAN AGUSTIN-FORTMAN,
MINERVA SAN AGUSTIN-ATKINSON, FERDINAND
SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN

AGUSTIN, Respondents.
FACTS: During their lifetime, spouses Pedro San Agustin and
Agatona Genil were able to acquire a 246-square meter parcel
of land situated in Barangay Anos, Los Baos, Laguna. Both
died intestate, survived by their eight (8) children: respondents
Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva,
Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a
Deed of Absolute Sale of Undivided Shares conveying in
favor of petitioners (the Pahuds, for brevity) their respective
shares from the lot they inherited from their deceased parents
for P525,000.00. Eufemia also signed the deed on behalf of
her four (4) other co-heirs, namely: Isabelita on the basis
of a special power of attorney, and also for Milagros,
Minerva, and Zenaida but without their apparent written
authority. The deed of sale was also not notarized.
On July 21, 1992, the Pahuds paid P35,792.31 to the Los
Baos Rural Bank where the subject property was
mortgaged. The bank issued a release of mortgage and turned
over the owners copy of the OCT to the Pahuds. Over the
following months, the Pahuds made more payments to
Eufemia and her siblings totaling toP350,000.00. They agreed
to use the remaining P87,500.00 to defray the payment for
taxes and the expenses in transferring the title of the
property. When Eufemia and her co-heirs drafted an extrajudicial settlement of estate to facilitate the transfer of the
title to the Pahuds, Virgilio refused to sign it.
Virgilios co-heirs filed a complaint for judicial partition of
the subject property before the RTC of Calamba, Laguna. In
the course of the proceedings for judicial partition, a
Compromise Agreement was signed with seven (7) of the coheirs agreeing to sell their undivided shares to Virgilio
forP700,000.00. The compromise agreement was, however,
not approved by the trial court because Atty. Dimetrio
Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused
to sign the agreement because he knew of the previous sale
made to the Pahuds.
Eufemia acknowledged having received P700,000.00 from
Virgilio. Virgilio then sold the entire property to spouses
Isagani Belarmino and Leticia Ocampo (Belarminos)
sometime in 1994. The Belarminos immediately constructed a
building on the subject property.
Alarmed and bewildered by the ongoing construction on the
lot they purchased, the Pahuds immediately confronted
Eufemia who confirmed to them that Virgilio had sold the
property to the Belarminos. Aggrieved, the Pahuds filed a
complaint in intervention in the pending case for judicial
partition.
After trial, the RTC upheld the validity of the sale to
petitioners. Not satisfied, respondents appealed the decision to
the CA arguing, in the main, that the sale made by Eufemia for
32

and on behalf of her other co-heirs to the Pahuds should have

been declared void and inexistent for want of a written
authority from her co-heirs. The CA yielded and set aside the
findings of the trial court.
ISSUE: Whether the sale of the subject property by Eufemia
and her co-heirs to the Pahuds is valid and enforceable
HELD: Yes, with respect to 7/8 portions of the land subject
property. Pertinent provisions: Article 1874, Article 1878, and
Article 1431.
Sale of Eufemia, Ferdinand, Raul, and Isabelitas share to
the Pahuds - VALID
The authority of an agent to execute a contract of sale of real
estate must be conferred in writing and must give him specific
authority, either to conduct the general business of the
principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special
power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration.
The express mandate required by law to enable an appointee
of an agency (couched) in general terms to sell must be one
that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to
confer the right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt
that the language so used conveys such power, no such
construction shall be given the document.
In several cases, we have repeatedly held that the absence of a
written authority to sell a piece of land is, ipso jure,
void, precisely to protect the interest of an unsuspecting owner
from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in
principle, that the sale made by Eufemia, Isabelita and her two
brothers to the Pahuds sometime in 1992 should be valid with
respect to the 4/8 portion of the subject property.
Sale of Milagros, Minerva, and Zenaidas share to the
Pahuds - VALID
While the sale with respect to the 3/8 portion (Milagros,
Minerva, and Zenaida) is void by express provision of law and
not susceptible to ratification, we nevertheless uphold its
validity on the basis of the common law principle of estoppel.
True, at the time of the sale to the Pahuds, Eufemia was not
armed with the requisite special power of attorney to dispose
of the 3/8 portion of the property. Initially, in their answer to
the complaint in intervention, Eufemia and her other co-heirs
denied having sold their shares to the Pahuds. During the pretrial conference, however, they admitted that they had indeed
sold 7/8 of the property to the Pahuds sometime in 1992. Thus,
the previous denial was superseded, if not accordingly
amended, by their subsequent admission. Moreover, in their
Comment, the said co-heirs again admitted the sale made to
petitioners.
BUSORG CASE DIGESTS
Atty. Charlie Mendoza

Interestingly, in no instance did the three (3) heirs concerned

assail the validity of the transaction made by Eufemia to the
Pahuds on the basis of want of written authority to sell. They
could have easily filed a case for annulment of the sale of their
respective shares against Eufemia and the Pahuds. Instead,
they opted to remain silent and left the task of raising the
validity of the sale as an issue to their co-heir, Virgilio, who is
not privy to the said transaction. They cannot be allowed to
rely on Eufemia, their attorney-in-fact, to impugn the validity
of the first transaction because to allow them to do so would
be tantamount to giving premium to their sisters dishonest
and fraudulent deed. Undeniably, therefore, the silence and
passivity of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is subject
to liability for loss caused to another by the latters reliance
upon a deceitful representation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is
within the implied authority of the agent to make for the
principal; or (3) if it is apparently authorized, regardless of
whether the agent was authorized by him or not to make the
representation.
By their continued silence, Zenaida, Milagros and Minerva
have caused the Pahuds to believe that they have indeed
clothed Eufemia with the authority to transact on their behalf.
Clearly, the three co-heirs are now estopped from impugning
the validity of the sale from assailing the authority of Eufemia
to enter into such transaction.
Sale to Virgilio VOID (with respect to the 7/8 portion)
The subsequent sale made by the seven co-heirs to Virgilio
was void because they no longer had any interest over the
subject property which they could alienate at the time of the
second transaction. Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the
Belarminos.
Belarminos IN BAD FAITH
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As a
general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title
indicates on its face. But the rule excludes those who purchase
with knowledge of the defect in the title of the vendor or of
facts sufficient to induce a reasonable and prudent person to
inquire into the status of the property. Such purchaser cannot
close his eyes to facts which should put a reasonable man on
guard, and later claim that he acted in good faith on the belief
that there was no defect in the title of the vendor. His mere
refusal to believe that such defect exists, or his obvious
neglect by closing his eyes to the possibility of the existence
of a defect in the vendors title, will not make him an innocent
purchaser for value, if afterwards it turns out that the title was,
in fact, defective. In such a case, he is deemed to have bought
33

the property at his own risk, and any injury or prejudice

occasioned by such transaction must be borne by him.
In the case at bar, the Belarminos were fully aware that the
property was registered not in the name of the immediate
transferor, Virgilio, but remained in the name of Pedro San
Agustin and Agatona Genil. This fact alone is sufficient
impetus to make further inquiry and, thus, negate their claim
that they are purchasers for value in good faith. They knew
that the property was still subject of partition proceedings
before the trial court, and that the compromise agreement
signed by the heirs was not approved by the RTC following
the opposition of the counsel for Eufemia and her six other coheirs. The Belarminos, being transferees pendente lite, are
deemed buyers in mala fide, and they stand exactly in the
shoes of the transferor and are bound by any judgment or
decree which may be rendered for or against the
transferor. Furthermore, had they verified the status of the
property by asking the neighboring residents, they would have
been able to talk to the Pahuds who occupy an adjoining
business establishment and would have known that a portion
of the property had already been sold. All these existing and
readily verifiable facts are sufficient to suggest that the
Belarminos knew that they were buying the property at their
own risk.

BUSORG CASE DIGESTS

Atty. Charlie Mendoza

34