G.R. No. L-4811 July 31, 1953 been increased to P50,000.
been increased to P50,000. As nothing definite was forthcoming, after this condition
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with
the defendant, the most important provisions of which are (1) that they shall
organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff
to act as industrial partner or manager, and the defendant as a capitalist, furnishing
the capital necessary therefor; (2) that the defendant was to decide matters of
general policy regarding the business, while the plaintiff was to attend to the
operation and development of the bottling plant; (3) that the plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and
(4) that the plaintiff was to receive 30 per cent of the net profits of the business. The
above agreement was arrived at after various conferences and consultations by and
between them, with the assistance of their respective attorneys. Prior to entering
into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, U.S.A., manufacturers of the bases and ingridients of the
beverages bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in
the bottling and distribution of the said beverages, and requested, in order that he
may close the deal with him, that the right to bottle and distribute be granted him
for a limited time under the condition that it will finally be transferred to the
corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days"
option on exclusive bottling and distribution rights for the Philippines" (Exhibit J).
Formal negotiations between plaintiff and defendant began at a meeting on
November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or OO,
but this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH.
This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like
to go to the United States without the agreement being not first signed. On that day
plaintiff and defendant went to the United States, and on December 10, 1947, a
franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive
right, license, and authority to produce, bottle, distribute, and sell Mision beverages
in the Philippines. The plaintiff and the defendant thereafter returned to the
Philippines. Plaintiff reported for duty in January, 1948, but operations were not
begun until the first week of February, 1948. In January plaintiff was given as
advance, on account of profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from
plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant
that the partnership papers be executed. At first defendant executed himself, saying
there was no hurry. Then he promised to do so after the sales of the product had
was attained, and as defendant refused to give further allowances to plaintiff, the
latter caused his attorneys to take up the matter with the defendant with a view to a
possible settlement. as none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an
accounting of the profits, and a share thereof of 30 per cent, as well as damages in
the amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the representation
of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and plaintiff did not secure the
franchise, but was given to defendant himself; (2) that defendant did not fail to carry
out his undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to
contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He
also presented a counter-claim for P200,000 as damages. On these issues the
parties went to trial, and thereafter the Court of First Instance rendered judgment
ordering defendant to render an accounting of the profits of the bottling and
distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it
held that the execution of the contract of partnership could not be enforced upon
the parties, but it also held that the defense of fraud was not proved. Against this
judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had
falsely represented that he had an exclusive franchise to bottle Mission beverages,
and whether this false representation or fraud, if it existed, annuls the agreement to
form the partnership. The trial court found that it is improbable that defendant was
never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the
contract prior to the final one can not be considered for the purpose of determining
the issue, as they are presumed to have been already integrated into the final
agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the
bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that he
had an exclusive franchise, when as a matter of fact, at the time of its execution, he
no longer had it as the same had expired, and that, therefore, the consent of the
defendant to the contract was vitiated by fraud and it is, consequently, null and
void.
Our study of the record and a consideration of all the surrounding circumstances
lead us to believe that defendant's contention is not without merit. Plaintiff's
attorney, Mr. Laurea, testified that Woodhouse presented himself as being the
exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the
file of the office with regards to this matter. I notice from the first draft of
the document which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr. Woodhouse, is represented as
being the exclusive grantee of a franchise from the Mission Dry
Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before
the Manila Hotel conference on November 27th, expressly states that plaintiff had
the exclusive franchise. Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the
Mission Dry Corporation San Francisco, California, for the bottling of Mission
products and their sale to the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle
Mission products and to sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts.
We find that the principle invoked is inapplicable, since the purpose of considering
the prior draft is not to vary, alter, or modify the agreement, but to discover the
intent of the parties thereto and the circumstances surrounding the execution of the
contract. The issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are
essential and relevant to the determination of said issue. The act or statement of the
plaintiff was not sought to be introduced to change or alter the terms of the
agreement, but to prove how he induced the defendant to enter into it to prove
the representations or inducements, or fraud, with which or by which he secured the
other party's consent thereto. These are expressly excluded from the parol evidence
rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga
Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev.
ed.) Fraud and false representation are an incident to the creation of a jural act, not
to its integration, and are not governed by the rules on integration. Were parties
prohibited from proving said representations or inducements, on the ground that the
agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows
the evidence to be introduced when the validity of an instrument is put in issue by
the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own
letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he
said:.
. . . He told me to come back to him when I was able to speak with
authority so that we could come to terms as far as he and I were
concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing
rights for a limited period of time, during which I may consummate my
plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on
October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to bargain with defendant and
close the deal with him, he must have used his said option for the above-indicated
purpose, especially as it appears that he was able to secure, through its use, what
he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to
the effect that when plaintiff called on the latter, the latter answered, "Well, come
back to me when you have the authority to operate. I am definitely interested in the
bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff
went to see the defendant (and at that time he had already the option), he must
have exultantly told defendant that he had the authority already. It is improbable
and incredible for him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still more improbable for
him to have disclosed that, at the time of the signing of the formal agreement, his
option had already expired. Had he done so, he would have destroyed all his
bargaining power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement "to secure the Mission Dry franchise for and in behalf of
the proposed partnership." The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the representation.
How could plaintiff assure defendant that he would get the franchise for the latter if
he had not actually obtained it for himself? Defendant would not have gone into the
business unless the franchise was raised in his name, or at least in the name of the
partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft
prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with
the difference that instead of securing the franchise for the defendant, plaintiff was
to secure it for the partnership. To show that the insertion of the above provision
does not eliminate the probability of plaintiff representing himself as the exclusive
grantee of the franchise, the final agreement contains in its third paragraph the
following:
. . . and the manager is ready and willing to allow the capitalists to use the
exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the
franchise from Mission Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiff's participation in the net profits to one half of that agreed upon. He could
not have had such a feeling had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the
making of the contract made fraud improbable. Not necessarily, because the alleged
representation took place before the conferences were had, in other words, plaintiff
had already represented to defendant, and the latter had already believed in, the
existence of plaintiff's exclusive franchise before the formal negotiations, and they
were assisted by their lawyers only when said formal negotiations actually took
place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had
the exclusive franchise; and defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left the papers evidencing it.
(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant
that he was the holder of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the exclusive franchise.
Defendant would not perhaps have gone to California and incurred expenses for the
trip, unless he believed that plaintiff did have that exclusive privilege, and that the
latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff
knew what defendant believed about his (plaintiff's) exclusive franchise, as he
induced him to that belief, and he may not be allowed to deny that defendant was
induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a
fraud that would vitiate the contract? It must be noted that fraud is manifested in
illimitable number of degrees or gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud,
which may be a ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This Court had held
that in order that fraud may vitiate consent, it must be the causal (dolo causante),
not merely the incidental (dolo causante), inducement to the making of the contract.
(Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds
with circumstances indicative that the fact that the principal consideration, the main
cause that induced defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to bottle and distribute for
the defendant or for the partnership. The original draft prepared by defendant's
counsel was to the effect that plaintiff obligated himself to secure a franchise for the
defendant. Correction appears in this same original draft, but the change is made
not as to the said obligation but as to the grantee. In the corrected draft the word
"capitalist"(grantee) is changed to "partnership." The contract in its final form
retains the substituted term "partnership." The defendant was, therefore, led to the
belief that plaintiff had the exclusive franchise, but that the same was to be secured
for or transferred to the partnership. The plaintiff no longer had the exclusive
franchise, or the option thereto, at the time the contract was perfected. But while he
had already lost his option thereto (when the contract was entered into), the
principal obligation that he assumed or undertook was to secure said franchise for
the partnership, as the bottler and distributor for the Mission Dry Corporation. We
declare, therefore, that if he was guilty of a false representation, this was not the
causal consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his
exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle
Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the
Manager fully paid non assessable shares of the said corporation . . .
twenty-five per centum of the capital stock of the said corporation. (Par. 3,
Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling plant
being built, all that he suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used
by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to transfer it
to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice
in the net profits. This is the dolo incidentedefined in article 1270 of the Spanish Civil
Code, because it was used to get the other party's consent to a big share in the
profits, an incidental matter in the agreement.
El dolo incidental no es el que puede producirse en el cumplimiento del
contrato sino que significa aqui, el que concurriendoen el consentimiento, o
precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la
totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando
lugar tan solo a una accion para reclamar indemnizacion de perjuicios. (8
Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and
void, the question that next comes before us is, May the agreement be carried out
or executed? We find no merit in the claim of plaintiff that the partnership was
already a fait accompli from the time of the operation of the plant, as it is evident
from the very language of the agreement that the parties intended that the
execution of the agreement to form a partnership was to be carried out at a later
date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit
A.) As a matter of fact, from the time that the franchise from the Mission Dry
Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the
enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with
their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against
his will to carry out the agreement nor execute the partnership papers. Under the
Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or
not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it
is considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.
Tratamos de la ejecucion de las obligaciones de hacer en el solocaso de su
incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya
se hallen en la facultad de un tercero; porque el complimiento espontaneo
de las mismas esta regido por los preceptos relativos al pago, y en nada les
afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el
deudor puede ser precisado a realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin
observacion el principio romanonemo potest precise cogi ad factum. Nadie
puede ser obligado violentamente a haceruna cosa. Los que perciben la
posibilidad de la destruccion deeste principio, aaden que, aun cuando se
pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una
violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot,
Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia
que obligar por la violencia seria infrigir la libertad eimponer una especie
de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el
empleo de la fuerza fisica, no ya precisamente porque seconstituya de este
modo una especie de esclavitud, segun el dichode Antonio Gomez, sino
porque se supone que el acreedor tuvo encuenta el caracter personalisimo
del hecho ofrecido, y calculo sobre laposibilidad de que por alguna razon no
se realizase. Repugna,ademas, a la conciencia social el empleo de la fuerza
publica, mediante coaccion sobre las personas, en las relaciones
puramente particulares; porque la evolucion de las ideas ha ido poniendo
masde relieve cada dia el respeto a la personalidad humana, y nose admite
bien la violencia sobre el individuo la cual tiene caracter visiblemente
penal, sino por motivos que interesen a la colectividad de ciudadanos. Es,
pues, posible y licita esta violencia cuando setrata de las obligaciones que
hemos llamado ex lege, que afectanal orden social y a la entidad de
Estado, y aparecen impuestas sinconsideracion a las conveniencias
particulares, y sin que por estemotivo puedan tampoco ser modificadas;
pero no debe serlo cuandola obligacion reviste un interes puramente
particular, como sucedeen las contractuales, y cuando, por consecuencia,
paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo
dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is
entitled to receive because of defendant's refusal to form the partnership, and
damages that defendant is also entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish
Civil Code the measure of damages is the actual loss suffered and the profits
reasonably expected to be received, embraced in the terms dao
emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement
to 30 per cent of the net profits of the business. Against this amount of damages, we
must set off the damage defendant suffered by plaintiff's misrepresentation that he
had obtained a very high percentage of share in the profits. We can do no better
than follow the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive
franchise which he pretended he had and which he had agreed to transfer to the
partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per
cent to 15 per cent only, to which reduction defendant appears to have readily given
his assent. It was under this understanding, which amounts to a virtual modification
of the contract, that the bottling plant was established and plaintiff worked as
Manager for the first three months. If the contract may not be considered modified
as to plaintiff's share in the profits, by the decision of defendant to reduce the same
to one-half and the assent thereto of plaintiff, then we may consider the said
amount as a fair estimate of the damages plaintiff is entitled to under the principle
enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176.
Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto
amount to an admission on the part of each of the reasonableness of this amount as
plaintiff's share. This same amount was fixed by the trial court. The agreement
contains the stipulation that upon the termination of the partnership, defendant was
to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial
court does not fix the period within which these damages shall be paid to plaintiff. In
view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of
the net profits shall continue to be paid while defendant uses the franchise from the
Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby
affirmed. Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo,
JJ., concur.
G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.

NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

On October 9, 1954 a co-partnership was formed under the name of "Evangelista &
Co." On June 7, 1955 the Articles of Co-partnership was amended as to include
herein respondent, Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita
P. Navarro, the original capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry being an industrial
partner", and that the profits and losses "shall be divided and distributed among the
partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided
among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners
in the Court of First Instance of Manila, alleging that the partnership, which was also
made a party-defendant, had been paying dividends to the partners except to her;
and that notwithstanding her demands the defendants had refused and continued to
refuse and let her examine the partnership books or to give her information
regarding the partnership affairs to pay her any share in the dividends declared by
the partnership. She therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding share in
the partnership profits after such accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or

distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and byway of
affirmative defense alleged that the amended Articles of Co-partnership did not
express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership; and
that her share of 30% was to be based on the profits which might be realized by the
partnership only until full payment of the loan which it had obtained in December,
1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which
the plaintiff had signed a promisory note as co-maker and mortgaged her property
as security.
The parties are in agreement that the main issue in this case is "whether the
plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First Instance found for the plaintiff and
rendered judgement "declaring her an industrial partner of Evangelista & Co.;
ordering the defendants to render an accounting of the business operations of the
(said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be
due as her share in the partnership profits and/or dividends after such an accounting
has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and
the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed
judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is
an industrial partner of Evangelista & Co., notwithstanding the
admitted fact that since 1954 and until after promulgation of the
decision of the appellate court the said respondent was one of the
judges of the City Court of Manila, and despite its findings that
respondent had been paid for services allegedly contributed by
her to the partnership. In this connection the Court of Appeals
erred:
(A) In finding that the "amended Articles of Co-
partnership," Exhibit "A" is conclusive evidence
that respondent was in fact made an industrial
partner of Evangelista & Co.
(B) In not finding that a portion of respondent's
testimony quoted in the decision proves that
said respondent did not bind herself to
contribute her industry, and she could not, and
in fact did not, because she was one of the
judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact
contribute her industry, despite the appellate
court's own finding that she has been paid for
the services allegedly rendered by her, as well
as for the loans of money made by her to the
partnership.
II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of, her
alleged share, interests and participation, as an alleged industrial
partner, in the partnership Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in toto the decision of
the trial court whereby respondent was declared an industrial
partner of the petitioner, and petitioners were ordered to render
an accounting of the business operation of the partnership from
June 7, 1955, and to pay the respondent her alleged share in the
net profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of dismissing
respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the
facts as found by the Court of Appeals. The evidence presented by the parties as the
trial in support of their respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly analyzed by the Court of
Appeals on its decision, to the extent of reproducing verbatim therein the lengthy
testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been commited by the lower court. It should be observed, in this regard, that the
Court of Appeals did not hold that the Articles of Co-partnership, identified in the
record as Exhibit "A", was conclusive evidence that the respondent was an industrial
partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual
conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that the same
were made after a through analysis of then evidence, and hence are beyond this
Court's power of review.
The aforequoted findings of the lower Court are assailed under
Appellants' first assigned error, wherein it is pointed out that
"Appellee's documentary evidence does not conclusively prove
that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co." and that "The grounds relied upon by
the lower Court are untenable" (Pages 21 and 26, Appellant's
Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S,
appellants' complaint being that "In finding that the appellee is an
industrial partner of appellant Evangelista & Co., herein referred to
as the partnership the lower court relied mainly on the
appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which
contradict the said finding' (Page 21, Appellants' Brief). The lower
court could not have done otherwise but rely on the exhibits just
mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted
without objection by the lower court when appellee rested her
case and, secondly the said exhibits indubitably show the appellee
is an industrial partner of appellant company. Appellants are
virtually estopped from attempting to detract from the probative
force of the said exhibits because they all bear the imprint of their
knowledge and consent, and there is no credible showing that they
ever protested against or opposed their contents prior of the filing
of their answer to appellee's complaint. As a matter of fact, all the
appellant Evangelista, Jr., would have us believe as against the
cumulative force of appellee's aforesaid documentary evidence
is the appellee's Exhibit "A", as confirmed and corroborated by the
other exhibits already mentioned, does not express the true intent
and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer
entitled to 30% of the net profits that may be realized between the
partners from June 7, 1955, until the mortgage loan of P30,000.00
to be obtained from the RFC shall have been fully paid. This
version, however, is discredited not only by the aforesaid
documentary evidence brought forward by the appellee, but also
by the fact that from June 7, 1955 up to the filing of their answer
to the complaint on February 8, 1964 or a period of over eight
(8) years appellants did nothing to correct the alleged false
agreement of the parties contained in Exhibit "A". It is thus
reasonable to suppose that, had appellee not filed the present
action, appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true intent and
agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the
argument that 'there is an overriding fact which proves that the
parties to the Amended Articles of Partnership, Exhibit "A", did not
contemplate to make the appellee Estrella Abad Santos, an
industrial partner of Evangelista & Co. It is an admitted fact that
since before the execution of the amended articles of partnership,
Exhibit "A", the appellee Estrella Abad Santos has been, and up to
the present time still is, one of the judges of the City Court of
Manila, devoting all her time to the performance of the duties of
her public office. This fact proves beyond peradventure that it was
never contemplated between the parties, for she could not lawfully
contribute her full time and industry which is the obligation of an
industrial partner pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point,
quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining
the very definite impression that, even as she was and still is a
Judge of the City Court of Manila, she has rendered services for
appellants without which they would not have had the wherewithal
to operate the business for which appellant company was
organized. Article 1767 of the New Civil Code which provides that
"By 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, 'does not
specify the kind of industry that a partner may thus contribute,
hence the said services may legitimately be considered as
appellee's contribution to the common fund. Another article of the
same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage
in business for himself, unless the partnership
expressly permits him to do so; and if he should
do so, the capitalist partners may either exclude
him from the firm or avail themselves of the
benefits which he may have obtained in violation
of this provision, with a right to damages in
either case.'
It is not disputed that the provision against the industrial partner
engaging in business for himself seeks to prevent any conflict of
interest between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation.
There is no pretense, however, even on the part of the appellee is
engaged in any business antagonistic to that of appellant
company, since being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a business. That
appellee has faithfully complied with her prestation with respect to
appellants is clearly shown by the fact that it was only after filing
of the complaint in this case and the answer thereto appellants
exercised their right of exclusion under the codal art just
mentioned by alleging in their Supplemental Answer dated June
29, 1964 or after around nine (9) years from June 7, 1955
subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff
been excluded from, and deprived of, her alleged share, interests
 or participation, as an alleged industrial partner, in the defendant Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ.,
partnership and/or in its net profits or income, on the ground concur.
plaintiff has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege
and emoluments appertaining to the said office, aside from
teaching in law school in Manila, without the express consent of
the herein defendants' (Record On Appeal, pp. 24-25). Having
always knows as a appellee as a City judge even before she joined
appellant company on June 7, 1955 as an industrial partner, why
did it take appellants many yearn before excluding her from said
company as aforequoted allegations? And how can they reconcile
such exclusive with their main theory that appellee has never
been such a partner because "The real agreement evidenced by
Exhibit "A" was to grant the appellee a share of 30% of the net
profits which the appellant partnership may realize from June 7,
1955, until the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully paid."
(Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court
that appellee is an industrial partner of appellant company, with
the right to demand for a formal accounting and to receive her
share in the net profit that may result from such an accounting,
which right appellants take exception under their second assigned
error. Our said holding is based on the following article of the New
Civil Code:

'ART. 1899. Any partner shall have the right to a

formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or

possession of its property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's
appellate jurisdiction to reviewing only errors of law, accepting as conclusive the
factual findings of the lower court upon its own assessment of the evidence.

The judgment appealed from is affirmed, with costs.

 On May 7 the defendant wrote another letter to the plaintiff which is in part as
follows:

CEBU, May 7, 1902.

Seor Don Escolastico Duterte.

DEAR BOY: In your letter which I received this afternoon, you designate me
as a little less than embezzler. I have in my possession the money of no one
but myself. If I have not called you an embezzler or something worse on
account of all that you have done and are doing with me, reflect whether
you have reason to write me in the manner you do. I have done you a favor
in admitting you into the cockpit partnership, as the only manner in which I
might collect what you owe me. I think you have made a mistake, and I will
frankly refresh your memory. You are indebted to me clearly one thousand
pesos, advanced for your former market contract.

In the preceding year, the defendant sent to the plaintiff statements of the business
G.R. No. L-1147 September 24, 1903 for the months of June, July, and August. They are in legal effect the same. The one
for July is as follows:

ESCOLASTICO DUTERTE Y ROSALES, plaintiff-appellant,

vs.
FLORENTINO RALLOS, defendant-appellee.
Receipts of the cockpit of this city during the entire month of July $520.62

Walton J. Wood and Segundo Singson, for appellant.

Early and White, for appellee.

WILLARD, J.: Expenses

The plaintiff-appellant claimed that he, the defendant, and one Castro were partners
in the management of a cockpit. The defendant denied this. The court found that no
such partnership existed and ordered judgment for the defendant. The plaintiff Cuotas $300.00
moved for a new trial, which was denied. To this order and the judgment he
excepted and has brought here the evidence on which the court below based its
finding. We have examined the evidence and are of the opinion that said finding, so
far as the existence of the copartnership to September 1, 1901, is concerned, is
plainly and manifestly against the evidence.
Rent, 6 days 60.00

We reach this conclusion chiefly from the documents written by the defendant and
sent to the plaintiff. It is not contradicted that the plaintiff demanded by letter of the
defendant a settlement of their accounts. These demands the defendant answered
with the following letter: Present to Biloy 20.00

MY DEAR BOY: I am working at these accounts. Perhaps I will have them

ready tomorrow morning. But I have no money, unless Mr. Spitz comes on
one of these boats, when we will have funds.
380.00

Yours, FLORENTINO RALLOS.

April 13, 1902.


140.622
======
One-third
Ticoy owes for seats
Ticoy's net share
Ticoy stands for the plaintiff.
That the plaintiff rendered services in the management of the cockpit, and that the
defendant paid him money on account of the cockpit, is undisputed.
The defendant, after denying that the plaintiff was his partner, testified, among
other things, as follows:
The profits were divided. A portion was given to two friends, Seores
Duterte and Castro, but not as partners. A portion was given to Seor
Duterte solely because he was a friend who aided and encouraged the
cockpit. I did not have an agreement with them. As a private individual, he
had no duty to perform, except when he had to preside at the cockpit. I am
not aware that they, or either of them, rendered other services. I did not tell
them the reason why I gave them a share. I paid them for my pleasure, as
friends, Duterte had no legal interest.
Seor Duterte had not authority to employ any person in the cockpit; this
function was exercised solely by Seor Isabelo Alburo, since I gave Seor
Duterte a portion only as a friend.
Castro, the other supposed partner, and a witness for the defendant, denied that he
was such a partner, but his testimony is in part as follows:
I do not remember what the profit was, but, as I have said, Seor Rallos
sent me $20 or $30. I did not keep any account. I did not receive money
monthly, but on Mondays Seor Rallos would send me some money. Seor
Rallos began to send me money from 20 to 30 pesos, and this money was
what obtained on the preceding Sunday in the cockpit. I think Seor Rallos
sent it to me as a present for the reason that he could not be present at the
46.873 cockpit. I am not a servant or employee of the cockpit. I have not any
conversation with Seor Rallos with reference to I am not a servant or
employee of the cockpit. I have not the business. When Seor Rallos sent
me that money he sent me no letter. He sent it to me by a messenger. I
think that Seor Rallos sent me that money because I went to the cockpit
31.200 and helped the president on account of the former. Seor Rallos asked me
to go to the cockpit. Yes, I have had a conversation with Seor Rallos. In
this conversation Seor Rallos said nothing to me about money. Seor
Rallos asked me to go to the cockpit to aid the president. It is not true, as I
went to the cockpit only to do him a favor.
15.673
We have, then, the testimony of the plaintiff that he made a verbal contract of
partnership with the defendant for this business, uncontradicted evidence that he
performed services in connection with it; that the defendant paid him the money on
account thereof and sent him accounts for three months showing his interest to be
30.000
one-third of the profits in addition to the $5 each day, and wrote him a letter in
which he said that he admitted the plaintiff into the partnership in order to collect
what the plaintiff owed him on another transaction.
The reason which the defendant gives for paying the plaintiff money is not credible.
45.673
We see no way of explaining the accounts submitted by the defendant to plaintiff on
any theory other than that there was a partnership between them up to September
1, 1901, at least. The letter of the defendant, in which he says that he admitted the
plaintiff into the partnership, can be explained on no other theory.
That there was an agreement to share the profits is clearly proved by the accounts
submitted. The plaintiff testified that the profits and losses were to be shared
equally. But even omitting this testimony, the case is covered by article 1689 of the
Civil Code, which provides that, in the absence of agreement as to the losses, they
shall be shared as the gains are.
Article 1668 of the Civil Code is not applicable to the case. No real estate was
contributed by any member. The partnership did not become the owner of the
cockpit. It is undisputed that this was owned by the defendant and that the
partnership paid him ten dollars a day for the use of it.
Neither can the judgment be sustained on the ground stated by the court in its
decision and relied upon by counsel for the appellee here, namely, that Castro
should have been joined as a party to the suit. One of the grounds for demurrer
mentioned in section 91 of the Code of Civil Procedure is "that there is a defect or
misjoinder of parties plaintiff or defendants." No demurrer was interposed on this or
in any other ground, and by the terms of section 93 of the same Code, by omitting
to demur on this ground the defendant waived the objection which he now makes.
The finding of fact by the court below, that there was no partnership, at least to
September 1, 1901, was plainly and manifestly against the evidence, and for that
reason a new trial of this case must be had. In this new trial, if the evidence is the
same as upon the first trial, the plaintiff will be entitled to an accounting, at least to
September 1, 1901, and for such further term as the proof upon the new trial shows,
in the opinion of the court below, that the partnership existed; that accounting can
be had in this suit and a final judgment rendered for the plaintiff if any balance
appears in his favor. No second or other suit will be necessary.

The judgment of the court below is reversed and the case remanded for a new trial,
with the costs of this instance against the appellee, and after the expiration of
twenty days, reckoned from the date of this decision, judgment shall be rendered
accordingly, and the case is returned to the court below for compliance therewith.
G.R. No. L-49982 April 27, 1988

Arellano, C.J., Torres, Cooper, Mapa and McDonough, JJ., concur.

ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and
LEOCADIO SANTIAGO,respondents.

By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.

Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then
being leased to the Shell Company of the Philippines Limited (SHELL). They agreed
to open and operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P 15,000.00 to be taken from the advance
rentals due to them from SHELL for the occupancy of the said lots owned in common
by them. A joint affidavit was executed by them on April 11, 1966 which was
prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner
herein, by allowing him to operate and manage the gasoline service station of the
family. They negotiated with SHELL. For practical purposes and in order not to run
counter to the company's policy of appointing only one dealer, it was agreed that
petitioner would apply for the dealership. Respondent Remedios helped in managing
the bussiness with petitioner from May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental
shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with
a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11
April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation
of the business to private respondents, but therafter petitioner failed to render
subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to
make a profit of P 87,293.79 and that by the year ending 1969, a profit of P
150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of
the partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation
covering the period from May 6, 1966 up to December 21, 1968
and from January 1, 1969 up to the time the order is issued and
that the same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the
net profits of the business in an amount of no less than P
l50,000.00 with interest at the rate of 1% per month from date of
demand until full payment thereof for the entire duration of the
business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's
fees and costs of the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to pay
petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid
derision and rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is
hereby reconsidered and a new judgment is hereby rendered in
favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument
embodying all the provisions of the partnership agreement
entered into between plaintiffs and defendant as provided for in
Article 1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the
business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the
plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P
5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as
the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)
errors allegedly committed by the trial court. In due course, a decision was rendered
by the Court of Appeals on November 28,1978 affirming in toto the decision of the
lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by
way of this petition for certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A')
vis-a-vis the Additional Cash Pledge Agreement (Exhs. "B-2","6",
and "L"); and
2. In declaring that a partnership was established by and among
the petitioner and the private respondents as regards the
ownership and or operation of the gasoline service station
business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in
Transfer Certificates of Title Nos. 45071 and 71244 of the Register
of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED a corporation duly licensed to do
business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE
PHILIPPINE LIMITED advanced rentals in the total amount of
FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so
that we can use the said amount to augment our capital
investment in the operation of that gasoline station constructed
 ,by the said company on our two lots aforesaid by virtue of an
outstanding Lease Agreement we have entered into with the said
company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out
of its benevolence and desire to help us in aumenting our capital
investment in the operation of the said gasoline station, has
agreed to give us the said amount of P 15,000.00, which amount
will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of
the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00) from
he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as
ADVANCED RENTALS to us be applied as monthly rentals for the
sai two lots under our Lease Agreement starting on the 25th of
May, 1966 until such time that the said of P 15,000.00 be
applicable, which time to our estimate and one-half months from
May 25, 1966 or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL
COMPANY OF THE PHILIPPINES LIMITED execute an instrument for
us to sign embodying our conformity that the said amount that it
will generously grant us as requested be applied as ADVANCED
RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November,
1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book
Nos. V & III, Series of 1963 in the Notarial Registers of Notaries
Public Rosauro Marquez, and R.D. Liwanag, respectively) executed
in favour of SHELL by the herein CO-OWNERS and another Lease
Agreement dated 19th March 1964 . . . also executed in favour of
SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the
lease of adjoining portions of two parcels of land at Aurora Blvd./
Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly
rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO
AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the
Shell Station constructed on the leased land, and as Dealer under
the Cash Pledge Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN THOUSAND (P 10,000),
Philippine Currency, to secure his purchase on credit of Shell
petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased
the limit up to P 25,000, has secured the conformity of his CO-
OWNERS to waive and assign to SHELL the total monthly rentals
due to all of them to accumulate the equivalent amount of P
15,000, commencing 24th May 1966, this P 15,000 shall be
treated as additional cash deposit to SHELL under the same terms
and conditions of the aforementioned Cash Pledge Agreement
dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing
premises,and the mutual covenants among the CO-OWNERS
herein and SHELL, said parties have agreed and hereby agree as
follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the
monthly rentals due to all CO-OWNERS, collectively, under the
above describe two Lease Agreements, one dated 13th November
1963 and the other dated 19th March 1964 to enable DEALER to
increase his existing cash deposit to SHELL, from P 10,000 to P
25,000, for such purpose, the SHELL CO-OWNERS and DEALER
hereby irrevocably assign to SHELL the monthly rental of P
3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly
rentals accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated
as additional cash deposit by DEALER to SHELL, thereby in
increasing his credit limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and supersedes the Joint affidavit
dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to
allow DEALER to purchase from SHELL petroleum products, on
credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same
terms and conditions of the above-mentioned Cash Pledge
Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6";
emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P 15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and one-
half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time
that the monthly rentals accumulated equal P 15,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit
as dealer. As above-stated it provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-
OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this argument.
Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00
advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is, therefore, a
duplication of reference to the P 15,000.00 hence the need to provide in the
subsequent document that it "cancels and supersedes" the previous one. True it is
that in the latter document, it is silent as to the statement in the Joint Affidavit that
the P 15,000.00 represents the "capital investment" of the parties in the gasoline
station business and it speaks of petitioner as the sole dealer, but this is as it should
be for in the latter document SHELL was a signatory and it would be against its
policy if in the agreement it should be stated that the business is a partnership with
private respondents and not a sole proprietorship of petitioner.

Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private
respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written
authority to private respondent Remedies Estanislao, his sister, to examine and
audit the books of their "common business' aming negosyo). 5 Respondent Remedios
assisted in the running of the business. There is no doubt that the parties hereto
formed a partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among themselves. 6 The sole
dealership by the petitioner and the issuance of all government permits and licenses
in the name of petitioner was in compliance with the afore-stated policy of SHELL
and the understanding of the parties of having only one dealer of the SHELL
products.

Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordancewith the
applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against
petitioner. This decision is immediately executory and no motion for extension of
time to file a motion for reconsideration shag beentertained.

SO ORDERED.
 That the State, through Congress, and in the manner provided by law, had the right
to enact Republic Act No. 1180 and to provide therein that only Filipinos and
G.R. No. L-17295 July 30, 1962 concerns wholly owned by Filipinos may engage in the retail business can not be
seriously disputed. That this provision was clearly intended to apply to partnership
already existing at the time of the enactment of the law is clearly showing by its
ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
provision giving them the right to continue engaging in their retail business until the
vs.
expiration of their term or life.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

To argue that because the original articles of partnership provided that the partners
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
could extend the term of the partnership, the provisions of Republic Act 1180 cannot
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry
be adversely affect appellants herein, is to erroneously assume that the aforesaid
to secure judgment "declaring that plaintiffs could extend for five years the term of
provision constitute a property right of which the partners can not be deprived
the partnership pursuant to the provisions of plaintiffs' Amendment to the Article of
without due process or without their consent. The agreement contain therein must
Co-partnership."
be deemed subject to the law existing at the time when the partners came to agree
regarding the extension. In the present case, as already stated, when the partners
The answer filed by the defendant alleged, in substance, that the extension for amended the articles of partnership, the provisions of Republic Act 1180 were
another five years of the term of the plaintiffs' partnership would be in violation of already in force, and there can be not the slightest doubt that the right claimed by
the provisions of Republic Act No. 1180. appellants to extend the original term of their partnership to another five years
would be in violation of the clear intent and purpose of the law aforesaid.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May 1, WHEREFORE, the judgment appealed from is affirmed, with costs.
1953, extendible by their mutual consent. The purpose of the partnership was "to
maintain the business of general merchandising, buying and selling at wholesale
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala and
and retail, particularly of lumber, hardware and other construction materials for
Makalintal, JJ., concur.
commerce, either native or foreign." The corresponding articles of partnership
Bautista Angelo and Reyes, J.B.L., JJ., took no part.
(Exhibit B) were registered in the Office of the Securities & Exchange Commission on
June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business.
It provided, among other things, that, after its enactment, a partnership not wholly
formed by Filipinos could continue to engage in the retail business until the
expiration of its term.

On April 15, 1958 prior to the expiration of the five-year term of the partnership
Ang Pue & Company, but after the enactment of the Republic Act 1180, the partners
already mentioned amended the original articles of part ownership (Exhibit B) so as
to extend the term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the Securities &
Exchange Commission on April 16, 1958, registration was refused upon the ground
that the extension was in violation of the aforesaid Act.

From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.

The question before us is too clear to require an extended discussion. To organize a

corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which
may be enjoyed only under such terms as the State may deem necessary to impose.
 Credits paid................................ 6,1

Interest received........................... 4,5

Miscellaneous............................... 1,8

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
Expenses:
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as president-treasurer, directors
and secretary of said association.

It is well to remember that this case is now brought before the consideration of this Premiums to members....................... 68,1
court for the second time. The first one was when the same plaintiffs appeared from
the order of the court below sustaining the defendant's demurrer, and requiring the
former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held
then that in an action against the officers of a voluntary association to wind up its Loans on real-estate....................... 9,8
affairs and enforce an accounting for money and property in their possessions, it is
not necessary that all members of the association be made parties to the action.
(Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of
origin, both parties amend, respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Loans on promissory notes.............. 4,2
Auditor's Office, commissioner to examine all the books, documents, and accounts
of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might
desire to present.

The commissioner rendered his report, which is attached to the record, with the Salaries.................................... 1,0
following resume:

Income: Miscellaneous............................... 1,6

Member's shares............................

Cash on hand........................................
The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and
to the rest of the members of the said association represented by said plaintiffs, with
costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe
they can all be reduced to two points, to wit: (1) That not all persons having an
interest in this association are included as plaintiffs or defendants; (2) that the
objection to the commissioner's report should have been admitted by the court
below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be
followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of
the defendants, we are of opinion that, the trial court having examined all the
evidence touching the grounds for the objection and having found that they had
been explained away in the commissioner's report, the conclusion reached by the
court below, accepting and adopting the findings of fact contained in said report,
and especially those referring to the disposition of the association's money, should
not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed under the provisions of section 135 of
the Code of Civil Procedure stand upon the same basis, when approved by the Court,
as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37
Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is
made the duty of the court to render judgment in accordance with the report of the
referee unless the court shall unless for cause shown set aside the report or
recommit it to the referee. This provision places upon the litigant parties of the duty
of discovering and exhibiting to the court any error that may be contained therein."
The appellants stated the grounds for their objection. The trial examined the
evidence and the commissioner's report, and accepted the findings of fact made in
the report. We find no convincing arguments on the appellant's brief to justify a
reversal of the trial court's conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S.
vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may be ordered to be turned
over, should be included, as a party defendant. The appellants refer to article 1666
of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the
common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall
be given to charitable institutions of the domicile of the partnership, or, in
default of such, to those of the province.
Appellant's contention on this point is untenable. According to said article, no
charitable institution is a necessary party in the present case of determination of the
rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member
from those in charge of the administration of said partnership, and it is not
necessary for the said parties to base their action to the existence of the
partnership, but on the fact that of having contributed some money to the
partnership capital. And hence, the charitable institution of the domicile of the
partnership, and in the default thereof, those of the province are not necessary
parties in this case. The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership, during its existence as
result of the business in which it was engaged, because for the purpose, as Manresa
remarks, the partner will have to base his action upon the partnership contract,
which is to annul and without legal existence by reason of its unlawful object; and it
is self evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of the unlawful
partnership is decreed, the profits cannot inure to the benefit of the partners, but
must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as
a clear explanation of the scope and spirit of the provision of the Civil Code which
we are concerned. Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in transactions
consistent with the purposes of the partnership may the former demand
the return of the reimbursement thereof from the manager or administrator
withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it
is considered juridically non-existent, the contract entered into can have no
legal effect; and in that case, how can it give rise to an action in favor of
the partners to judicially demand from the manager or the administrator of
the partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter
quite clearly, dispelling all doubts thereon. He holds that the partner who
limits himself to demanding only the amount contributed by him need not
resort to the partnership contract on which to base his action. And he adds
in explanation that the partner makes his contribution, which passes to the
managing partner for the purpose of carrying on the business or industry
which is the object of the partnership; or in other words, to breathe the
breath of life into a partnership contract with an objection forbidden by law.
And as said contrast does not exist in the eyes of the law, the purpose from
which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to recover it.
 But this is not the case with regard to profits earned in the course of the
partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the
proportional part of the said profits, the partner would have to base his
action on the contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof. Wherefore
considering this contract asnon-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the law
to permit a profit from an industry prohibited by it.

Hence the distinction made in the second paragraph of this article of this
Code, providing that the profits obtained by unlawful means shall not enrich
the partners, but shall upon the dissolution of the partnership, be given to
G.R. No. L-21906 December 24, 1968
the charitable institutions of the domicile of the partnership, or, in default
of such, to those of the province.
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees, vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
This is a new rule, unprecedented by our law, introduced to supply an
NICANOR CASTEEL, defendant-appellant.
obvious deficiency of the former law, which did not describe the purpose to
which those profits denied the partners were to be applied, nor state what
to be done with them. This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the
order of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629.
The basic action is for specific performance, and damages resulting from an alleged
The profits are so applied, and not the contributions, because this would be
breach of contract.
an excessive and unjust sanction for, as we have seen, there is no reason,
in such a case, for depriving the partner of the portion of the capital that he
contributed, the circumstances of the two cases being entirely different. In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in
the then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada,
Davao. No action was taken thereon by the authorities concerned. During the
Our Code does not state whether, upon the dissolution of the unlawful
Japanese occupation, he filed another fishpond application for the same area, but
partnership, the amounts contributed are to be returned by the partners,
because of the conditions then prevailing, it was not acted upon either. On
because it only deals with the disposition of the profits; but the fact that
December 12, 1945 he filed a third fishpond application for the same area, which,
said contributions are not included in the disposal prescribed profits, shows
after a survey, was found to contain 178.76 hectares. Upon investigation conducted
that in consequences of said exclusion, the general law must be followed,
by a representative of the Bureau of Forestry, it was discovered that the area
and hence the partners should reimburse the amount of their respective
applied for was still needed for firewood production. Hence on May 13, 1946 this
contributions. Any other solution is immoral, and the law will not consent to
third application was disapproved.
the latter remaining in the possession of the manager or administrator who
has refused to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, Despite the said rejection, Casteel did not lose interest. He filed a motion for
pp. 262-264) reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion,
unless he filed a new application for the area concerned. So he filed on May 27,
The judgment appealed from, being in accordance with law, should be, as it is
1947 his fishpond application 1717.
hereby, affirmed with costs against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of P24,607.80 from the date of
the decision of the court, and provided, further, that the defendants shall deposit Meanwhile, several applications were submitted by other persons for portions of the
this sum of money and other documents evidencing uncollected credits in the office area covered by Casteel's application.
of the clerk of the trial court, in order that said court may distribute them among the
members of said association, upon being duly identified in the manner that it may
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10
deem proper. So ordered.
hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur. purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion
of the land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed
on December 26, 1946, was given due course on December 9, 1947 with the
issuance to him of fishpond permit F-539-C to develop 30 hectares of land
comprising a portion of the area applied for by Casteel, upon certification of the
Bureau of Forestry that the area was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond application for the area
covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered
upon and spread themselves within the area, Casteel realized the urgent necessity
of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the land.
But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to
finance the needed improvements on the fishpond. Hence, a wide productive
fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to
wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-
appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos,
Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative
cases that Casteel had already introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director
of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. Failing to secure a
favorable resolution of his motion for reconsideration of the Director's order, Casteel
appealed to the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be
taken up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first
part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into
a contract of service, whereby the Party of the First Part hires and employs
the Party of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the
sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine
Currency, to the Party of the Second Part who renders only his services for
the construction and improvements of a fishpond at Barrio Malalag,
Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all
the produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she
having financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with all the
above-mentioned conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed a
special power of attorney in favor of Jesus Donesa, extending to the latter the
authority "To represent me in the administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao, Philippines, which has been applied for
fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated
his claim over the same area in the two administrative cases (DANR Cases 353 and
353-B) and asked for reinvestigation of the application of Nicanor Casteel over the
subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary of
Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and
Natural Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
decision in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No.
1717) of Nicanor Casteel should be, as hereby it is, reinstated and given
due course for the area indicated in the sketch drawn at the back of the last
page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond
Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby
cancelled and revoked; Nicanor Casteel is required to pay the
improvements introduced thereon by said permittees in accordance with
the terms and dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado),
Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April
3, 1951 filed an action in the Court of First Instance of Davao for specific
performance and damages against Nicanor Casteel and Juan Depra (who, they
alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel
be ordered to respect and abide by the terms and conditions of said contract and
that Inocencia Deluao be allowed to continue administering the said fishpond and
collecting the proceeds from the sale of the fishes caught from time to time; and (b)
that the defendants be ordered to pay jointly and severally to plaintiffs the sum of
P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency of the
case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts complained
of, and that after trial the said injunction be made permanent. The lower court on
April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive portion of which reads as
follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes, mandatarios y demas
personas que obren en su ayuda, desista de impedir a la demandante
Inocencia R. Deluao que continue administrando personalmente la
pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y
que, asimismo, se prohibe a dicho demandado Nicanor Casteel a
desahuciar mediante fuerza al encargado de los demandantes llamado
Jesus Donesa de la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among
others, that he was the owner, lawful applicant and occupant of the fishpond in
question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the
lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply
to the defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to
him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that
the plaintiffs' complaint failed to state a claim upon which relief may be granted. The
motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit
by the lower court in its order of October 22, 1951. The defendants' motion for
reconsideration filed on October 31, 1951 suffered the same fate when it was
likewise denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez)
finally issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants,
the hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30
o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this Court
will not entertain any other transfer of hearing of this case and if the
parties will not be ready on that day set for hearing, the court will take the
necessary steps for the final determination of this case. (emphasis
supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April
21, 1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of
Court) of the Court of First Instance of Davao, setting the hearing of the case for May
2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru
counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion,
the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27,
1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2
and 3, 1956. The motion is filed by the counsel for the defendants and has
the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was
initiated as early as April 1951 and that the same has been under
advisement of the Honorable Enrique A. Fernandez, Presiding Judge of
Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various
occasions. The last order issued by Judge Fernandez on this case was
issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case should
be referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I,
with Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order
handed down in open court on March 21, 1956 and directing the plaintiffs to
introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y
en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad () del "fishpond" en cuestion con todas las
mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion
 de los 30 dias de la promulgacion de esta decision hasta que entregue la
posesion y administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00
valor de los pescado beneficiados, mas los intereses legales de la fecha de
la incoacion de la demanda de autos hasta el completo pago de la
obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00,
por gastos incurridos por aquella durante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de
honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de
pruebas, en tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por
falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the case
for trial. The petition, however, was denied by the lower court in its order of May 21,
1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether
the trial of this case has been transferred or not, but to inquire from the
presiding Judge, particularly because his motion asking the transfer of this
case was not set for hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956,
which reads as follows:
Upon petition of the plaintiff without any objection on the part of
the defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance
this Court will not entertain any other transfer of the hearing of
this case, and if the parties will not be ready on the day set for
hearing, the Court will take necessary steps for the final
disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer
of this case and the duty of Atty. Ruiz is no other than to be present in the
Sala of this Court and to call the attention of the same to the existence of
his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the
defendant, not well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it
ordered reception of the appellees' evidence in the absence of the
appellant at the trial on May 2, 1956, thus depriving the appellant of his
day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it
denied the verified petition for relief from judgment filed by the appellant
on May 11, 1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ
of preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21,
1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock
in the morning and empathically stated that, since the case had been pending since
April 3, 1951, it would not entertain any further motion for transfer of the scheduled
hearing.
An order given in open court is presumed received by the parties on the very date
and time of promulgation,1 and amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open court, was a valid notice to
the parties, and the notice of hearing dated April 21, 1956 or one month thereafter,
was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing
signed by a "special deputy clerk of court" setting the hearing in another branch of
the same court, the former's order was the one legally binding. This is because the
incidents of postponements and adjournments are controlled by the court and not by
the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of
Court.
Much less had the clerk of court the authority to interfere with the order of the court
or to transfer the cage from one sala to another without authority or order from the
court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court.
His duty as such clerk of court, in so far as the incident in question was concerned,
was simply to prepare the trial calendar. And this duty devolved upon the clerk of
court and not upon the "special deputy clerk of court" who purportedly signed the
notice of hearing.
It is of no moment that the motion for postponement had the conformity of the defendant (appellant) and the subject matter of the action; the defendant
appellees' counsel. The postponement of hearings does not depend upon agreement (appellant) was given an opportunity to be heard; and judgment was rendered upon
of the parties, but upon the court's discretion.3 lawful hearing.8

The record further discloses that Casteel was represented by a total of 12 lawyers, 2. Finally, the appellant contends that the lower court incurred an error in ordering
none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated the issuance ex parte of a writ of preliminary injunction against him, and in not
March 21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, dismissing the appellee's complaint. We find this contention meritorious.
was sufficient notice to all the appellant's eleven other counsel of record. This is a
well-settled rule in our jurisdiction.4
Apparently, the court a quo relied on exhibit A the so-called "contract of service"
and the appellees' contention that it created a contract of co-ownership and
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the partnership between Inocencia Deluao and the appellant over the fishpond in
appellant himself, to appear before Judge Fernandez on the scheduled dates of question.
hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot
Too well-settled to require any citation of authority is the rule that everyone is
pretend ignorance of the recorded fact that since September 24, 1953 until the trial
conclusively presumed to know the law. It must be assumed, conformably to such
held on May 2, 1956, the case was under the advisement of Judge Fernandez who
rule, that the parties entered into the so-called "contract of service" cognizant of the
presided over Branch I. There was, therefore, no necessity to "re-assign" the same to
mandatory and prohibitory laws governing the filing of applications for fishpond
Branch II because Judge Fernandez had exclusive control of said case, unless he was
permits. And since they were aware of the said laws, it must likewise be assumed
legally inhibited to try the case and he was not.
in fairness to the parties that they did not intend to violate them. This view must
perforce negate the appellees' allegation that exhibit A created a contract of co-
There is truth in the appellant's contention that it is the duty of the clerk of court ownership between the parties over the disputed fishpond. Were we to admit the
not of the Court to prepare the trial calendar. But the assignment or establishment of a co-ownership violative of the prohibitory laws which will hereafter
reassignment of cases already pending in one sala to another sala, and the setting be discussed, we shall be compelled to declare altogether the nullity of the contract.
of the date of trial after the trial calendar has been prepared, fall within the This would certainly not serve the cause of equity and justice, considering that rights
exclusive control of the presiding judge. and obligations have already arisen between the parties. We shall therefore construe
the contract as one of partnership, divided into two parts namely, a contract of
partnership to exploit the fishpond pending its award to either Felipe Deluao or
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the
Nicanor Casteel, and a contract of partnership to divide the fishpond between them
office of the clerk of court of the Court of First Instance of Davao was located directly
after such award. The first is valid, the second illegal.
below Branch I. If the appellant and his counsel had exercised due diligence, there
was no impediment to their going upstairs to the second storey of the Court of First
Instance building in Davao on May 2, 1956 and checking if the case was scheduled It is well to note that when the appellee Inocencia Deluao and the appellant entered
for hearing in the said sala. The appellant after all admits that on May 2, 1956 his into the so-called "contract of service" on November 25, 1949, there were two
counsel went to the office of the clerk of court. pending applications over the fishpond. One was Casteel's which was appealed by
him to the Secretary of Agriculture and Natural Resources after it was disallowed by
the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's
The appellant's statement that parties as a matter of right are entitled to notice of
application over the same area which was likewise rejected by the Director of
trial, is correct. But he was properly accorded this right. He was notified in open
Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by
court on March 21, 1956 that the case was definitely and intransferably set for
letter dated March 15, 1950 to the Secretary of Agriculture and Natural Resources.
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the
Clearly, although the fishpond was then in the possession of Casteel, neither he nor,
doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial
Felipe Deluao was the holder of a fishpond permit over the area. But be that as it
of his motion for postponement. In the cited case the motion for postponement was
may, they were not however precluded from exploiting the fishpond pending
the first one filed by the defendant; in the case at bar, there had already been a
resolution of Casteel's appeal or the approval of Deluao's application over the same
series of postponements. Unlike the case at bar, the Siochi case was not
area whichever event happened first. No law, rule or regulation prohibited them
intransferably set for hearing. Finally, whereas the cited case did not spend for a
from doing so. Thus, rather than let the fishpond remain idle they cultivated it.
long time, the case at bar was only finally and intransferably set for hearing on
March 21, 1956 after almost five years had elapsed from the filing of the
complaint on April 3, 1951. The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership Inocencia
Deluao as capitalist partner and Casteel as industrial partner the ultimate
The pretension of the appellant and his 12 counsel of record that they lacked ample
undertaking of which was to divide into two equal parts such portion of the fishpond
time to prepare for trial is unacceptable because between March 21, 1956 and May
as might have been developed by the amount extended by the plaintiffs-appellees,
2, 1956, they had one month and ten days to do so. In effect, the appellant had
with the further provision that Casteel should reimburse the expenses incurred by
waived his right to appear at the trial and therefore he cannot be heard to complain
the appellees over one-half of the fishpond that would pertain to him. This can be
that he has been deprived of his property without due process of law. 7 Verily, the
gleaned, among others, from the letter of Casteel to Felipe Deluao on November 15,
constitutional requirements of due process have been fulfilled in this case: the lower
1949, which states, inter alia:
court is a competent court; it lawfully acquired jurisdiction over the person of the
 ... [W]ith respect to your allowing me to use your money, same will redound
to your benefit because you are the ones interested in half of the work we
have done so far, besides I did not insist on our being partners in my
fishpond permit, but it was you "Tatay" Eping the one who wanted that we
be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to
you. Therefore so that each of us may be secured, let us have a document
prepared to the effect that we are partners in the fishpond that we caused
to be made here in Balasinon, but it does not mean that you will treat me
as one of your "Bantay" (caretaker) on wage basis but not earning wages
at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker)
instead, do not blame me if I withdraw all my cases and be left without
even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a "contract of service," was
actually the memorandum of their partnership agreement. That it was not a contract
of the services of the appellant, was admitted by the appellees themselves in their
letter10 to Casteel dated December 19, 1949 wherein they stated that they did not
employ him in his (Casteel's) claim but because he used their money in developing
and improving the fishpond, his right must be divided between them. Of course,
although exhibit A did not specify any wage or share appertaining to the appellant
as industrial partner, he was so entitled this being one of the conditions he
specified for the execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to
divide the fishpond. In a letter,12dated March 24, 1950, the appellant suggested that
they divide the fishpond and the remaining capital, and offered to pay the Deluaos a
yearly installment of P3,000 presumably as reimbursement for the expenses of
the appellees for the development and improvement of the one-half that would
pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the
latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no
further need to maintain his petition for the reinvestigation of Casteel's application.
Thus by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and
Natural Resources, he withdrew his petition on the alleged ground that he was no
longer interested in the area, but stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development,
by itself, brought about the dissolution of the partnership. Moreover, subsequent
events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of
a partnership, "... any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership." The
approval of the appellant's fishpond application by the decisions in DANR Cases 353
and 353-B brought to the fore several provisions of law which made the continuation
of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which
states that "The permittee shall not transfer or sublet all or any area herein granted
or any rights acquired therein without the previous consent and approval of this
Office." Parenthetically, we must observe that in DANR Case 353-B, the permit
granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for
the reason that his permit covered a portion of the area included in the appellant's
prior fishpond application, but also because, upon investigation, it was ascertained
thru the admission of Aradillos himself that due to lack of capital, he allowed one
Lino Estepa to develop with the latter's capital the area covered by his fishpond
permit F-289-C with the understanding that he (Aradillos) would be given a share in
the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the violation of
this condition shall avoid the contract; Provided, That assignment,
encumbrance, or subletting for purposes of speculation shall not be
permitted in any case:Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment,
encumbrance, or subletting of lands leased under this Act, or under any
previous Act, to persons, corporations, or associations which under this Act,
are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and
Natural Resources issued in August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed.
If the permittee or lessee had, unless otherwise specifically provided, held
the permit or lease and actually operated and made improvements on the
area for at least one year, he/she may request permission to sub-lease or
transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be
valid when first approved by the Director under such terms and conditions
as may be prescribed, otherwise it shall be null and void. A transfer not
previously approved or reported shall be considered sufficient cause for the
cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in
subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been awarded
to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof
to parties other than the applicant Casteel, it was dissolved by the approval of his
application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed
their property right to one-half of the fishpond by virtue of the contract of service,
exhibit A. But the untenability of this argument would readily surface if one were to
consider that the Secretary of Agriculture and Natural Resources did not do so for
the simple reason that he does not possess the authority to violate the
aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding events reveal the intent of
both parties to terminate the partnership by refusing to share the fishpond with the
other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing
his desire to divide the fishpond so that he could administer his own share, such
division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950, 18 the appellee Felipe Deluao
demurred to Casteel's proposition because there were allegedly no appropriate
grounds to support the same and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself
because the decision of the Government was in his favor and the only reason why
administration had been granted to the Deluaos was because he was indebted to
them. In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that
only the competent agencies of the government are in a better position to render
any equitable arrangement relative to the present case; hence, any action we may
privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other in direct violation
of the undertaking for which they have established their partnership each must
be deemed to have expressly withdrawn from the partnership, thereby causing its
dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that
dissolution is caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification, lease,
sale or any other form of concession or disposition and management of the lands of
the public domain, and, more specifically, with regard to the grant or withholding of
licenses, permits, leases and contracts over portions of the public domain to be
utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30,
1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural
Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce
(Natural Resources) by law regarding the disposition of public lands such as
granting of licenses, permits, leases, and contracts, or approving, rejecting,
reinstating, or cancelling applications, or deciding conflicting applications,
are all executive and administrative in nature. It is a well-recognized
principle that purely administrative and discretionary functions may not be
interfered with by the courts (Coloso v. Board of Accountancy, G.R. No. L-
5750, April 20, 1953). In general, courts have no supervising power over
the proceedings and action of the administrative departments of the
government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-
559) Findings of fact by an administrative board or official, following a
hearing, are binding upon the courts and will not be disturbed except where
the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to
his duty or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's decision
in DANR Cases 353 and 353-B, and considering the absence of any proof that the
said official exceeded his statutory authority, exercised unconstitutional powers, or
acted with arbitrariness and in disregard of his duty, or with grave abuse of
discretion, we can do no less than respect and maintain unfettered his official acts in
the premises. It is a salutary rule that the judicial department should not dictate to
the executive department what to do with regard to the administration and
disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the
land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for its
issuance, its continuation, and, worse, its declaration as permanent, was improper in
the face of the knowledge later acquired by the lower court that it was the
appellant's application over the fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources approved the appellant's application,
he became to all intents and purposes the legal permittee of the area with the
corresponding right to possess, occupy and enjoy the same. Consequently, the lower
court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the
possession and control of one party and place it in the hands of another whose title
has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties
for the exploitation of the fishpond before it was awarded to Casteel, this case
should be remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the court
to determine (a) the profits realized by the partnership, (b) the share (in the profits)
of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist
partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao
to Casteel for the development and improvement of the fishpond have already been
liquidated. Besides, since the appellee Inocencia Deluao continued in possession and
enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer
in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the proceeds
of the sales of all the fishes harvested from the fishpond from September 16, 1950
until Casteel shall have been finally given the possession and enjoyment of the
same. In the event that the appellee Deluao has received more than her lawful
credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6%
interest thereon per annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in litigation, and (3) remanding
this case to the court of origin for the reception of evidence relative to the
accounting that the parties must perforce render in the premises, at the termination
of which the court shall render judgment accordingly. The appellant's counterclaim is
dismissed. No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and
Capistrano, JJ., concur.

G.R. No. L-2484 April 11, 1906
JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
Hartigan, Rohde and Gutierrez, for appellants.
W. A. Kincaid, for appellee.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought
this action to recover a balance due him as salary for the year 1902. He alleged that
he was entitled, as salary, to 5 per cent of the net profits of the business of the
defendants for said year. The complaint also contained a cause of action for the sum
of 600 pesos, money expended by plaintiff for the defendants during the year 1903.
The court below, in its judgment, found that the contract had been made as claimed
by the plaintiff; that 5 per cent of the net profits of the business for the year 1902
amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on
account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment
against the defendants for the sum 13,566.93 pesos, Mexican currency, with interest
thereon from December 31, 1904. The court also ordered judgment against the
defendants for the 600 pesos mentioned in the complaint, and intereat thereon. The
total judgment rendered against the defendants in favor of the plaintiff, reduced to
Philippine currency, amounted to P13,025.40. The defendants moved for a new trial,
which was denied, and they have brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect
that the plaintiff worked for the defendants during the year 1902 under a contract
by which he was to receive as compensation 5 per cent of the net profits of the
business. The contract was made on the part of the defendants by Miguel Alonzo
Gutierrez. By the provisions of the articles of partnership he was made one of the
managers of the company, with full power to transact all of the business thereof. As
such manager he had authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion that the
complaint be made more definite and certain. This motion was denied. To the order
denying it the defendants excepted, and they have assigned as error such ruling of
the court below. There is nothing in the record to show that the defendants were in
any way prejudiced by this ruling of the court below. If it were error it was error
without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint made
the plaintiff a copartner of the defendants in the business which they were carrying
on. This contention can not bo sustained. It was a mere contract of employnent. The
plaintiff had no voice nor vote in the management of the affairs of the company. The
fact that the compensation received by him was to be determined with reference to
the profits made by the defendants in their business did not in any sense make by a
partner therein. The articles of partnership between the defendants provided that
the profits should be divided among the partners named in a certain proportion. The
contract made between the plaintiff and the then manager of the defendant
partnership did not in any way vary or modify this provision of the articles of
partnership. The profits of the business could not be determined until all of the
expenses had been paid. A part of the expenses to be paid for the year 1902 was
the salary of the plaintiff. That salary had to be deducted before the net profits of
the business, which were to be divided among the partners, could be ascertained. It
was undoubtedly necessary in order to determine what the salary of the plaintiff
was, to determine what the profits of the business were, after paying all of the
expenses except his, but that determination was not the final determination of the
net profits of the business. It was made for the purpose of fixing the basis upon
which his compensation should be determined.
(4) It was no necessary that the contract between the plaintiff and the defendants
should be made in writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October
8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the
contract, had died prior to the trial of the action, and the defendants claim that by
reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure,
plaintiff could not be a witness at the trial. That paragraph provides that parties to
an action against an executor or aministrator upon a claim or demand against the
estate of a deceased person can not testify as to any matter of fact occurring before
the death of such deceased person. This action was not brought against the
administrator of Miguel Alonzo, nor was it brought upon a claim against his estate. It
was brought against a partnership which was in existence at the time of the trial of
the action, and which was juridical person. The fact that Miguel Alonzo had been a
partner in this company, and that his interest therein might be affected by the result
of this suit, is not sufficient to bring the case within the provisions of the section
above cited.
(6) The plaintiff was allowed to testify against the objection and exception of the
defendants, that he had been paid as salary for the year 1900 a part of the profits of
the business. This evidence was competent for the purpose of corroborating the
testimony of the plaintiff as to the existence of the contract set out in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter written by
Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo
Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is
not necessary to inquire whether the court committed an error in admitting this
evidence. The case already made by the plaintiff was in itself sufficient to prove the
contract without reference to this letter. The error, if any there were, was not
prejudicial, and is not ground for revesal. (Sec. 503, Code of Civil Procedure.)

(8) For the purpose of proving what the profits of the defendants were for the year
1902, the plaintiff presented in evidence the ledger of defendants, which contained
an entry made on the 31st of December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66

Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la
proporcion que hemos establecido segun el convenio de sociedad.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez,
one of the defendants, who testiffied, among other things, that there were no profits
during the year 1902, but, on the contrary, that the company suffered considerable
loss during that year. We do not think the evidence of this witnees sufficiently
definite and certain to overcome the positive evidence furnished by the books of the
defendants themselves.

(9) In reference to the cause of action relating to the 600 pesos, it appears that the
plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their
request he went to Hongkong, and was there for about two months looking after the
business of the defendants in the matter of the repair of a certain steamship. The
appellants in their brief say that the plaintiff is entitled to no compensation for his
services thus rendered, because by the provisions of article 1711 of the Civil Code,
in the absence of an agreement to the contrary, the contract of agency is supposed
to be gratuitous. That article i not applicable to this case, because the amount of
600 pesos not claimed as compensation for services but as a reimbursment for
money expended by the plaintiff in the business of the defendants. The article of the
code that is applicable is article 1728.

The judgment of the court below is affirmed, with the costs, of this instance against
the appellants. After the expiration of twenty days from the date of this decision let
final judgment be entered herein, and ten days thereafter let the case be remanded
to the lower court for execution. So ordered.

Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.


G.R. No. L-1256 October 23, 1903
VICENTE W. PASTOR, plaintiff-appellant,
vs.
MANUEL GASPAR, ET AL., defendants-appellees.
There was no motion for a new trial in this case.
From the facts admitted by the pleadings and those found by the court, it appears
that in November, 1900, there existed in Manila a partnership composed of Macario
Nicasio and the defendant Gaspar under the name "Nicasio and Gaspar." It owned
the steam launch Luisa, and its only business was the relating to this launch.
Desiring to increase this business, on the 24th day of November, 1900, a contract
was made between the firm of Nicasio and Gaspar on the one side, and on the other
side the plaintiff, the defendants Eguia, Iboleon, and Monserrat, and one Hermoso.
This contract recites that Nicasio and Gaspar, by writing of the same date, have
enlarged the business of their partnership; have bought six lorchas, which are
named, and that, needing money with which to pay for the lorchas and the
necessary repairs thereon, the parties of the second part have furnished them
28,000 pesos as loan, the amount furnished by each being named. The firm of
Nicasio and Gaspar then acknowledges the receipt of these amounts. The fifth
clause of the contract is as follows:
Fifth. The partnership of Nicasio and Gaspar undertakes to return to the
said Eguia, Monserrat, Iboleon, Pastor, and Hermoso the said total sum of
28,000 pesos within the period of ten years from the date of the
instrument, and to guarantee the fulfillment of said payment they pledge to
said parties the said lorchasPepay, Lola, Consuelo, India, Niceta,
and Castellana, in the sums respectively which said parties have furnished
for the purchase and repair of said vessels, as before stated, ceding and
assigning to said parties, in like proportions the profits and gains which may
be realized from the exploitation of said vessels; the said vessels to be the
property of said Eguia, Monserrat, Iboleon, Pastor, and Hermoso, and of the
parties of the first part, proportionate with the sums which the said parties
have invested in said vessels; the management of said vessels during the
time in which said debt remains unpaid to remain with the partnership of
Nicasio and Gaspar, with the understanding that whatever may be the
result of the business of said vessels, neither the said partnership nor the
parties of the first part shall become responsible for the payment of said
debt, except in so far as the said vessels shall respond therefor, and in no
event shall they respond therefor with any other property; injuries to and all
losses of said lorchas to be shared by all the parties hereto, as well as
crews' expenses and other outlays necessary for the preservation of said
vessels, in the proportion which corresponds to each party hereto according
to his investment; the parties of the first part binding themselves not to
encumber or pledge said vessels while said debt remains unsatisfied to the
parties of the second part.
It was provided in the seventh clause that the launch Luisa was not included in this
contract.
It is alleged in the complaint, and not denied by the answer, that the contract thus
entered into on November 24, 1900, was in July, 1901, dissolved and terminated,
and the lorchas sold by mutual consent.
The cause of action set forth in the complaint is that there was actually a
partnership between the parties to the contract of November 24, and that the
consent of the agent of the plaintiff to its dissolution and the sale of the lorchas was
obtained by fraud of the defendants. The prayer of the complaint is that the
dissolution of the partnership and the sale of the lorchas be declared null, and that
the plaintiff be restored to his rights therein, and if this can not be done that he
recover of the defendants damages in the sum of 42,500 pesos.
1. The plaintiff, who was defeated in the court below and who has appealed, claims
that the contract of November 24, 1900, created a partnership between the parties
to it.
While all the court are of the opinion that the judgment should be affirmed, we are
not agreed as to the proper construction to be put upon this document. The opinion
of the writer is that held by the court below, viz, that upon the face of the contract
the plaintiff was a creditor and not a partner. The contract is not clearly drawn, but
the following seem to indicate that the transaction was rather a loan than a contract
of partnership: (1) In the beginning it is twice stated positively that Nicasio and
Gaspar are the only partners and the only persons interested in the partnership of
Nicasio and Gaspar. These statements the plaintiff assented to when he signed the
document. (2) In the second paragraph, and again in the fourth, it is stated, also,
distinctly and positively, that the money has been furnished as a loan. (3) In the fifth
paragraph, hereinbefore quoted, Nicasio and Gaspar bind themselves to repay the
amount, something that they would not be bound to do were the contract one of
partnership. (4) In the same paragraph Nicasio and Gaspar create in favor of the
plaintiff and his associates a right of pledge over the lorchas, a thing inconsistent
with the idea of partnership. this paragraph should not be construed as transferring
the ownership of the lorchas themselves to the second parties. Although the words
"las cuales" would grammatically refer to the preceding word "embarcaciones," yet
such a construction would be inconsistent with what has been before stated in the
same paragraph as to the pledge. (5) By the same paragraph Nicasio and Gaspar
are to be considered consignees only as long as they do not pay the debt. This
indicates that they had a right to pay it. (6) By the last clause of this paragraph they
bind themselves not to alienate the lorchas until they had paid the debt, indicating
clearly that by paying the debt they could do so, a thing consistent with the idea of a
partnership. (7) By the seventh paragraph of this contract it is stated that the
launch Luisa is not included in the contract.
The claim of the plaintiff that by this document he became a partner in the firm of
Nicasio and Gaspar can not in any event be sustained. That firm was engaged in
business with the launch Luisa. With this the plaintiff and his associates had nothing
to do.
It appears, also, from this contract that when Nicasio and Gaspar enlarged their
business they could devote themselves not only to the launch Luisa and the six
lorchas in question but also to other craft. With such other business the plaintiff
would have nothing to do. The most that he can claim is not that he was a partner in
the firm of Nicasio and Gaspar, but that he and his associates, in connection with
that firm, had formed another partnership to manage these lorchas. The fact that
the plaintiff was to share in the profits and losses of the business and that Nicasio
and Gaspar should answer for the payment of the debt only with the lorchas, and
not with their own property, indicates that the plaintiff was a partner. But these
provisions are not conclusive. This is a suit between the parties to the contract. The
rights of third persons are not concerned. Whether the plaintiff would be a partner
as to such third persons is not to be determined. As between themselves the parties
could make any contract that pleased them, provided that it was not illegal (art.
1255, Civil Code). They could, in making this contract, if they chose, take some
provision from the law of partnership and others from the law of loans. Loans with a
right to receive a part of the profits in lieu of interest are not uncommon. As
between the parties, such contract is not one of partnership.
The question on this branch of the case is whether the contract on its face creates a
partnership or not. The court finds that the plaintiff believed that he could not be a
partner because he was a Spanish subject. There can therefore be no doubt as to his
intention in signing this contract. He did not believe that on its face it made him a
partner. If he had so believed, he would not have signed it. If he was willing to sign a
contract which on its face made him a partner, he and his associates would have
joined with Nicasio and Gaspar in the amended articles of partnership which they
signed on this very day, and this second document would have been entirely
unnecessary. The inference from these facts is so strong that it can not be overcome
by the fact that in subsequent dealings the parties called themselves partners. The
plaintiff undoubtedly wished to secure, as far as he could, the rights of a partner
without making himself one.
The contract, in the opinion of the writer, was that Nicasio and Gaspar should take
the money of the other parties to the contract, manage the business as they saw fit,
pay the investors their share of the profits as long as the business continued, and
not to sell the lorchas until they had been so repaid. Anything more than this would
have made the investors partners according to the instrument itself, the one thing
which they were seeking to avoid. It may be added that, in a similar contract which
the plaintiff made with Nicasio in April, 1900, he in 1902 considered himself a
creditor and made a demand on Nicasio for the payment of the debt.
It is claimed by the plaintiff that even if the transaction was a loan, it could not be
terminated without his consent until the expiration of the period of ten years. Article
1127 of the Civil Code does not say that the period allowed for the performance of
an obligation is for the benefit of the creditor as well as the debtor. It says that it
shall be so presumed unless the contrary appears. In this case the contrary does
appear in two clauses hereinbefore cited under (5) and (6). Upon paying the loan at
the end of ten years, they would have had the undoubted right to mortgage or sell
the lorchas, and then by the mere act of payment would have ceased to be
consignees thereof. No declaration of that kind in the contract was at all necessary.
These rights would result as a matter of law. The insertion of these clauses can only
be explained on the theory that the period was for the benefit of the debtors alone,
and that they would be at liberty at any time, even before the expiration of ten
years, to sell the property, provided they repaid the loan.
2. It is further claimed by the plaintiff that, even if the contract itself did not make
them partners, there was a verbal agreement that they should be partners. The
court refused to allow him to answer certain questions relating to this matter. His
exception is stated as follows in the bill of exceptions: "The plaintiff in his first
testimony attempted to set forth the verbal agreements by virtue of which he was in
reality a partner in the firm of Nicasio and Gaspar. The court ruled this evidence out
for the reason that the name of the plaintiff does not appear in the articles of
partnership of Nicasio and Gaspar. The plaintiff excepted to the ruling."
There are several reasons why the court was correct in its ruling.
(1) Although the offer was to show that he was a partner in the firm of Nicasio and
Gaspar something not claimed in the complaint it is probable that the purpose
was to show a contract of partnership between Nicasio and Gaspar on the one hand
and the plaintiff and his associates on the other. The statements at the trial indicates
this. The bill of exceptions does not show what verbal agreements the plaintiff,
would have testified to if he had been allowed to do so. But in his brief in this court
he says:
(b) That the firm was organized verbally on said date for a period of ten
years; (c) that the rights and obligations of the partners were set forth in
document No. 945 of the said date, although it may be stated in said
document that the contract in reference was a contract of pledge.
If, as thus appears, all the rights and obligations which were verbally agreed to were
afterwards embodied in a written instrument which was offered in evidence, the
plaintiff has not been prejudiced by not being allowed to testify that these
agreements were first made verbally. All of them having been included in the written
document, he could testify to nothing more. If all the agreements as to the rights
and obligations of the parties were embodied in the written contract, the additional
verbal agreement that they should be partners would be but their opinion as to the
nature of the said written contract and would add nothing to it.
(2) The parties made a verbal agreement which they afterwards reduced to writing.
Section 285 of the Code of Civil Procedure prohibits any parol evidence as to other
terms not contained in the writing. Under this section, even if there had been
agreements other than those contained in the instrument and inconsistent
therewith, the plaintiff could not testify to them. The plaintiff claims that this section
does not prohibit evidence as to the surrounding circumstances. This is true, and the
plaintiff was the trial allowed to testify that he brought the lorchas himself in Iloilo;
that he was paid $500 for so doing; that $20,000 was borrowed from the Banco
Espaol -- Filipino for the purpose of paying for them; and as to other details. There
was no intrinsic ambiguity in the contract which required explanation. When a
written contract is vague and indefinite, it can be explained by showing what the
surrounding circumstances were (sec. 289), but not by showing by parol what the
prior agreement in fact was.
3. The court refused to receive in evidence a letter written by Hermoso to the
plaintiff, and the latter excepted. there was no error in this ruling. The plaintiff could
not prove the facts stated in this letter in this way. He should have called Hermoso
or other persons as witnesses to do so, and given the defendants the right to cross-
examine them. (Sec. 381, Code of Civil Procedure.)
4. The following exception appears in the record:
During the examination of Lino Eguia, he was asked by the plaintiff to state,
either by means of the document or the answer to the complaint, who was
intrusted with the purchase of the lorchas. The court ruled out the question
and the plaintiff excepted.
This ruling was correct for two reasons: (1) The documents themselves showed the
facts. (2) The plaintiff had already testified without objection that he brought the
lorchas in Iloilo by direction of Nicasio and Gaspar. The refusal to allow this witness
to testify, on a matter as to which there was no dispute, could not have prejudiced
the plaintiff.
5. Nicasio was asked if the capital in Nicasio and Gaspar which stood in his name
was all his own. This question was ruled out and the plaintiff excepted. If the
question referred to the original contract of partnership, and the plaintiff desired to
show that he had contributed money thereto, he could not have been prejudiced by
the ruling because the witness had already testified that it was contributed in fact by
the plaintiff. This fact also appeared during the trial from the document No. 325 of
April 26, 1900, between the witness and the plaintiff. If he wished to show that a
part of the capital standing in the name of Nicasio, in the amended articles of
partnership, was furnished by the plaintiff and others, he was not prejudiced by the
ruling, for this all appeared from the contract of November 24, 1900, so many times
referred to. If he desired to show that Nicasio had borrowed a part of his capital from
some person not connected with this suit, the question was immaterial and was
properly excluded. In such a case it would be no concern of the plaintiff whose
money this was.
6. The following exception appears in the record:
During the examination of the witness Joaquin Salvador, he was asked on
cross-examination by plaintiff to state if he, as attorney in fact of the
partner Hermoso in the meetings of the partners preliminary to the sale of
the lorchas, would have consented to the dissolution of the partnership had
he known that the partnership would be immediately reorganized with the
same lorchas and the same partners with the exception of Nicasio,
Hermoso, and Pastor. The court ruled the question out and the plaintiff
excepted.
This ruling was correct. What Salvador would have done was of no importance. The
plaintiff's agent was allowed to testify that he would not have given the plaintiff's
consent if he had known that the defendants intended to continue the business.
7. The assignment of error as to the bills of Warner, Barnes and Co. is not sustained
by the bill of exceptions. It is stated therein (fol. 25) that these documents were
admitted.
8. The question as to whether the power of attorney given by the plaintiff to Nicasio
was sufficient to authorize the latter to consent for the plaintiff to the cancellation of
the contract was not raised by any exception at the trial and is not the subject of
any assignment of error in this court.
9. The claim of the plaintiff, as has been said before, was (1) that he was a partner,
and (2) that the cancellation of the agreement of partnership had been procured by
fraud. The judge made a finding upon the first claim, but not upon the second;
although the finding that he made was sufficient to determine the case before him,
yet he should have found upon all the issues presented by the pleadings. But this
omission does not require a reversal of the judgment. If the court below was right in
the construction of the document, it of course does not, for the decision would then
contain facts sufficient to justify the judgment. But even if it were not, the same
thing would result. It is a fact clearly admitted by the pleadings, and therefore not
required to be stated in the decision, that this contract of November 24, 1900, was
canceled and the arrangement, whatever it was, dissolved. To this dissolution the
plaintiff through his agent consented. This is alleged in the complaint, although it is
there stated that such consent was obtained by fraud. The facts admitted in the
pleadings and stated in the decision showing, therefore, that the plaintiff had
surrendered his rights, and there being no finding that such surrender was obtained
by fraud, the defendants are, on such admissions and findings, entitled to judgment.
We reach this conclusion the more willingly because a majority of the court is of the
opinion that the evidence in the case was not sufficient to show any fraud on the
part of the defendants.lawphil.net

The judgment is affirmed, with the costs of this instance against the appellant.
Judgment will be entered accordingly twenty days after the filing of this decision.

Arellano, C.J., Torres, Mapa, and McDonough, JJ., concur.

ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS

and FELICIDAD S. VDA. DE ABROGAR, respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision[1] of the Court of

Appeals, dated November 29, 1990, which reversed the decision of the Regional Trial
Court, Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court
dismissed the petition for declaration of nullity of a deed of sale filed by private
respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.

The facts are as follows:

 Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by the FIRST PARTY conveying
the property to the SECOND PARTY for and in consideration of the sum of Two
Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase
the said property within a period of ninety (90) days from the execution of this
memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the
said property within a period of ninety (90) days, the FIRST PARTY is obliged to
deliver peacefully the possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor shall be cause the annotation of say
claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against
any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the
account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the
principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of
delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property
within ninety (90) days period above-mentioned, this memorandum of agreement
shall be deemed cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties and the
SECOND PARTY shall proceed to transfer ownership of the property above described
to its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of
absolute sale,[3] dated June 11, 1991, wherein private respondent, with the consent
of her late husband, sold the subject property to A.C. Aguila & Sons, Co.,
represented by petitioner, for P200,000.00. In a special power of attorney dated the
same day, April 18, 1991, private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new certificate of title in the
name of A.C. Aguila and Sons, Co., in the event she failed to redeem the subject
property as provided in the Memorandum of Agreement.[4]
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101
and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co.
[5]
Private respondent then received a letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate
the premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co.Otherwise, the latter would bring the
appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C.
Aguila & Sons, Co. filed an ejectment case against her in the Metropolitan Trial
Court, Branch 76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the
Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that
private respondent did not redeem the subject property before the expiration of the
90-day period provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to
the Court of Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of
sale with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December
4, 1993. She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been
executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City which
was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they
could not personally appear before Notary Public Lamberto C. Nanquil on June 11,
1991 because her husband, Ruben Abrogar, died on May 8, 1991 or one month and
2 days before the execution of the Deed of Absolute Sale, while the plaintiff was still
in the Quezon City Medical Center recuperating from wounds which she suffered at
the same vehicular accident on May 8, 1991, cannot be sustained. The Court is
convinced that the three required documents, to wit: the Memorandum of
Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were all
signed by the parties on the same date on April 18, 1991. It is a common and
accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff
never questioned receiving the sum of P200,000.00 representing her loan from the
defendant. Common sense dictates that an established lending and realty firm like
the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the simultaneous accomplishment and signing of
all the required documents, more particularly the Deed of Absolute Sale, to protect
its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is hereby
ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New
Civil Code finds strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina which is already part of
Metro Manila. The alleged sale took place in 1991 when the value of the land had
considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33
per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-
appellant is obliged to deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration of the said ninety (90)
day grace period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if they were
still the absolute owners. There was no provision for maintenance or expenses,
much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property sold. It is well-known that payment of taxes accompanied by actual
possession of the land covered by the tax declaration, constitute evidence of great
weight that a person under whose name the real taxes were declared has a claim of
right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602
of the New Civil Code is sufficient to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued
paying the realty taxes over the subject property, (circumstances mentioned in par.
(1) (2) and (5) of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase. The factors cited are in support to the
finding that the Deed of Sale/Memorandum of Agreement with right to repurchase is
in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was
executed by reason of the loan extended by defendant-appellee to plaintiff-
appellant. The amount of loan being the same with the amount of the purchase
price.
....
Since the real intention of the party is to secure the payment of debt, now deemed
to be repurchase price: the transaction shall then be considered to be an equitable
mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a
pactum commissorium which is clearly prohibited by Article 2088 of the New Civil
Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to
exist: (1) that there should be a pledge or mortgage wherein a property is pledged
or mortgaged by way of security for the payment of principal obligation; and (2) that
there should be a stipulation for an automatic appropriation by the creditor of the
thing pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000,00 within the ninety (90) days period, the
property shall automatically belong to defendant-appellee by virtue of the deed of
sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so
declare to be invalid, for being violative of law.
....
represented by petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. [11] We
cannot understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom
this action should be prosecuted makes it unnecessary to discuss the other issues
raised by him in this appeal.

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101 the complaint against petitioner is DISMISSED.
issued in favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in
favor of defendant-appellee pursuant to the questioned Deed of Sale is hereby SO ORDERED.
declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101 of
the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this decision. In
case of failure to pay the amount of P230,000.00 from the period therein stated, the
property shall be sold at public auction to satisfy the mortgage debt and costs and if
there is an excess, the same is to be given to the owner.

Petitioner now contends that: (1) he is not the real party in interest but A.C.
Aguila & Co., against which this case should have been brought; (2)the judgment in
the ejectment case is a bar to the filing of the complaint for declaration of nullity of
a deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held
by the appellate court.

The petition is meritorious.

Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case
was filed, provided that every action must be prosecuted and defended in the name
of the real party in interest. A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. [7] This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision
rendered against a person who is not a real party in interest in the case cannot be
executed.[8] Hence, a complaint filed against such a person should be dismissed for
failure to state a cause of action.[9]

Under Art. 1768 of the Civil Code, a partnership has a juridical personality
separate and distinct from that of each of the partners. The partners cannot be held
liable for the obligations of the partnership unless it is shown that the legal fiction of
a different juridical personality is being used for fraudulent, unfair, or illegal
purposes.[10] In this case, private respondent has not shown that A.C. Aguila & Sons,
Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co.,

G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in
toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. The SEC
records show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH,
SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December
1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees
a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa
and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make
the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another
letter stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved
soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
"The partnership has ceased to be mutually satisfactory
because of the working conditions of our employees
including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of
our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the
Commission:
"1. Decree the formal dissolution and order the
immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for
petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his right
in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito,
Misa & Lozada in any of their correspondence, checks and
pleadings and to pay petitioners damages for the use
thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in such
amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral
damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and equitable
under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa
& Lozada has not been dissolved. The case is hereby REMANDED to the
Hearing Officer for determination of the respective rights and obligations of
the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting
the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was
not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed
or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
 1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can
get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of
any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and
to appear for and represent their principals and client in
all courts of justice and government departments and
offices in the Philippines, and elsewhere when legally
authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to
in the law. Otherwise, all partnerships, which necessarily must have a
purpose, would all be considered as partnerships for a definite undertaking.
There would therefore be no need to provide for articles on partnership at
will as none would so exist. Apparently what the law contemplates, is a
specific undertaking or "project" which has a definite or definable period of
completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with
each partner's capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the
partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished
from the winding up of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed
by various provisions of the Civil Code; 10 however, an agreement of the partners,
like any other contract, is binding among them and normally takes precedence to
the extent applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior
Partners for allocation as the Senior Partners may determine; provided,
however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th
floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or retirement shall
be determined by two (2) independent appraisers, one to be appointed (by
the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring or deceased partner
in the aforementioned two (2) floor office condominium shall be determined
upon the basis of the valuation above mentioned which shall be paid
 monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two
(2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a
generic sense to mean the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did
not act in bad faith. Public respondents viewed his withdrawal to have been spurred
by "interpersonal conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will. 12Indeed, for as long as the reason for
withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for
the purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS
and NENITA A. ANAY,respondents. 2000
This is a petition for review of the Decision of the Court of Appeals in CA-G.R.
CV No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch
140, in Civil Case No. 88-509. [2] Fresh from her stint as marketing adviser of
Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner
William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares. Belo volunteered to finance
the joint venture and assigned to Anay the job of marketing the product considering
her experience and established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo
acted as capitalist, Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belos name should not appear in any
documents relating to their transactions with West Bend Company. Instead, they
agreed to use Anays name in securing distributorship of cookware from that
company. The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales
she would make; and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belos assurances that he
was sincere, dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West
Bend Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with
office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend
Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in
Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation
with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner
of our company, will attend in response to the invitation. (Italics supplied.)[3]
 Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook
the task of saving the business on account of the unsatisfactory sales record in the
Makati and Cubao offices. On August 31, 1987, she received a plaque of
appreciation from the administrative and sales people through Marjorie Tocao [4] for
her excellent job performance. On October 7, 1987, in the presence of Anay, Belo
signed a memo[5] entitling her to a thirty-seven percent (37%) commission for her
personal sales "up Dec 31/87. Belo explained to her that said commission was apart
from her ten percent (10%) share in the profits. On October 9, 1987, Anay learned
that Marjorie Tocao had signed a letter [6] addressed to the Cubao sales office to the
effect that she was no longer the vice-president of Geminesse Enterprise. The
following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.[7] Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission for the period of January
8, 1988 to February 5, 1988 and the audit of the company to determine her share in
the net profits. When her letters were not answered, Anay consulted her lawyer,
who, in turn, wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same commission
although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for
sum of money with damages[8] against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly
and severally, the following: (1) P32,00.00 as unpaid overriding commission from
January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation until
she was illegally dismissed to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) overriding
commission on the remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement
with Anay that was neither reduced in writing, nor ratified, was either unenforceable
or void or inexistent. As far as Belo was concerned, his only role was to introduce
Anay to Marjorie Tocao. There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie
Tocao. Because Anay merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint referred to either her
compensation or dismissal, such complaint should have been lodged with the
Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint
on account of ill-will and resentment because Marjorie Tocao did not allow her to lord
it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise
because of her experience and expertise. Hence, petitioners were the ones who
suffered actual damages including unreturned and unaccounted stocks of
Geminesse Enterprise, and serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00. They also alleged that, to
vindicate their names, they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or
not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the
profit of the business. He, however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or receiving a share in its
profits as he merely served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the venture in his
capacity as a guarantor but he never participated in decision-making. He claimed
that he wrote the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at the request of Tocao,
because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two
percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business out of the
sale of the sewing machines used in her garments business and from Peter Lo, a
Singaporean friend-financier who loaned her the funds with interest. Because she
treated Anay as her co-equal, Marjorie received the same amounts of commissions
as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of
which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809
of the Civil Code in order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission
for the one hundred and fifty (150) cookware sets available for
disposition when plaintiff was wrongfully excluded from the
partnership by defendants;
 3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February
5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and
P20,000.00 as costs of suit. SO ORDERED.
The trial court held that there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the following: (a) there was an
intention to create a partnership; (b) a common fund was established through
contributions consisting of money and industry, and (c) there was a joint interest in
the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative
officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the
parties. The letter of Roger Muencheberg of West Bend Company stating that he
awarded the distributorship to Anay and Marjorie Tocao because he was convinced
that with Marjories financial contribution and Anays experience, the combination of
the two would be invaluable to the partnership, also supported that conclusion.
Belos claim that he was merely a guarantor has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance
of a memo giving Anay 37% commission on personal sales belied this. On the
contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude
the existence of the partnership inasmuch as such practice is often resorted to in
business circles as an impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the Civil Code provides that a
partnership may be constituted in any form. The fact that Geminesse Enterprise was
registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was
registered with the Bureau of Domestic Trade was merely the business name or style
of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as damages or share in the profits
realized from the appropriation of the partnership business and goodwill. An
innocent partner thus possesses pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time
he was wrongfully expelled.
Petitioners appeal to the Court of Appeals [11] was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral damages
and P50,000.00 as exemplary damages. Their Motion for Reconsideration was
denied by the Court of Appeals for lack of merit. [12] Petitioners Belo and Marjorie
Tocao are now before this Court on a petition for review on certiorari, asserting that
there was no business partnership between them and herein private respondent
Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the
Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held
that a partnership existed between them and private respondent Anay because
Geminesse Enterprise came into being exactly a year before the alleged partnership
was formed, and that it was very unlikely that petitioner Belo would invest the sum
of P2,500,000.00 with petitioner Tocao contributing nothing, without any
memorandum whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are
within the exclusive domain of both the trial and appellate courts. This Court cannot
set aside factual findings of such courts absent any showing that there is no
evidence to support the conclusion drawn by the court a quo.[14] In this case, both
the trial court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule
otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money, property
or industry to a common fund; and (2) intention on the part of the partners to divide
the profits among themselves.[15] It may be constituted in any form; a public
instrument is necessary only where immovable property or real rights are
contributed thereto.[16] This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as a written one. Where no
immovable property or real rights are involved, what matters is that the parties have
complied with the requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public instrument embodying
the partnership agreement pursuant to Article 1772 of the Civil Code [17] did not
cause the nullification of the partnership. The pertinent provision of the Civil Code
on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that
of each of the partners, even in case of failure to comply with the requirements of
article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial or
managing partner. It was through her reputation with the West Bend Company that
the partnership was able to open the business of distributorship of that companys
cookware products; it was through the same efforts that the business was propelled
to financial success. Petitioner Tocao herself admitted private respondents
indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for sales,
she testified thus:
A: No, sir at the start she was the marketing manager because there were
no one to sell yet, its only me there then her and then two (2) people,
so about four (4). Now, after that when she recruited already Oscar
Abella and Lina Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita as
superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership
had indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance
and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership
rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his having
authorized in writing on October 7, 1987, on a stationery of his own business firm,
Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of
the proceeds of her personal sales, could not be interpreted otherwise than that he
had a proprietary interest in the business. His claim that he was merely a guarantor
is belied by that personal act of proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil
Code,[20] he should have presented documentary evidence therefor. While Article
2055 of the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt, default
or miscarriage of another be in writing.[21]
[22]
Petitioner Tocao, a former ramp model, was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and petitioner
Belos roles as both capitalists to the partnership with private respondent are
buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend
and that the partnership was not their only business venture together. They also
established a firm that they called Wiji, the combination of petitioner Belos first
name, William, and her nickname, Jiji. [23] The special relationship between them
dovetails with petitioner Belos claim that he was acting in behalf of petitioner Tocao.
Significantly, in the early stage of the business operation, petitioners requested
West Bend Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware products.
[24]
The inevitable conclusion, therefore, was that petitioners merged their respective
capital and infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While
it is true that the receipt of a percentage of net profits constitutes only prima
facie evidencethat the recipient is a partner in the business, [25] the evidence in the
case at bar controverts an employer-employee relationship between the parties. In
the first place, private respondent had a voice in the management of the affairs of
the cookware distributorship,[26] including selection of people who would constitute
the administrative staff and the sales force. Secondly, petitioner Tocaos admissions
militate against an employer-employee relationship. She admitted that, like her who
owned Geminesse Enterprise,[27]private respondent received only commissions and
transportation and representation allowances [28] and not a fixed salary. [29] Petitioner
Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as
Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao overrides
8-21-87 with ending August 21, 1987, will you please go over this and tell
the Honorable Court whether you ever came across this document and
know of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you
earlier a certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and
words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means
that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay
P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court
that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at
her kasi, you know in a sense because of her expertise in the business she
 is vital to my business. So, as part of the incentive I offer her the same
thing.
Q: So, in short you are saying that this you have shared together, I mean having
gotten from the company P21,140.50 is your way of indicating thatyou
were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao
P15,314.25 the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2)
are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to
believe that they shall receive the same income in the business. In a partnership,
each partner must share in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses. [31] As an industrial partner, private
respondent had the right to demand for a formal accounting of the business and to
receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered
with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that
enterprise.[33] While it is true that in her undated application for renewal of
registration of that firm name, petitioner Tocao indicated that it would be engaged in
retail of kitchenwares, cookwares, utensils, skillet, [34] she also admitted that the
enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its
business activity was devoted to the sale of water sterilizer or purifier. [35] Indubitably
then, the business name Geminesse Enterprise was used only for practical reasons -
it was utilized as the common name for petitioner Tocaos various business activities,
which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00.[36] Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not
been terminated, the petitioner and private complainant remained as co-partners. x
x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still received
her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from
the partnership to reap for herself and/or for petitioner Belo financial gains resulting
from private respondents efforts to make the business venture a success. Thus, as
petitioner Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent in front of
other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow
private respondent to hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent was no longer necessary
in the business operation,[39] and resulted in a falling out between the two. However,
a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization.[40] The partnership exists until dissolved under
the law. Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire
and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partners
capability to give it, and the absence of cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can
result in a liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine of delectus
personae allows the partners to have the power, although not necessarily
the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from
the partnership is shown by her memo to the Cubao office plainly stating that
private respondent was, as of October 9, 1987, no longer the vice-president for sales
of Geminesse Enterprise.[43] By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the
business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted
to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual
findings upon which it is based is primarily the task of the trial court. [45] The Court of
Appeals may modify that amount only when its factual findings are diametrically
opposed to that of the lower court,[46] or the award is palpably or scandalously and
unreasonably excessive.[47] However, exemplary damages that are awarded by way
of example or correction for the public good, [48] should be reduced to P50,000.00,
the amount correctly awarded by the Court of Appeals. Concomitantly, the award of
moral damages of P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the
award of exemplary damages and petitioners evident bad faith in refusing to satisfy
private respondents plainly valid, just and demandable claims, [49] appear to have
been excessively granted by the trial court and should therefore be reduced to
P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The
partnership among petitioners and private respondent is ordered dissolved, and the
parties are ordered to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. This case is remanded to the
Regional Trial Court for proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of
the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the
Civil Code, in order to determine private respondents ten percent (10%) share in the
net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner, vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC
FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January
30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the
ruling3 of the National Labor Relations Commission (NLRC), which in turn set aside
the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal the
dismissal of petitioner from employment and awarded separation pay, moral and
exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of
Cellulose Marketing International, a corporation duly organized under the laws of
Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola
(ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the
Securities and Exchange Commission [SEC] on the said date." 6 The Side Agreement
outlines the business relationship of the parties with regard to the Philippine
operations of Pacfor. Private respondent will establish a Pacfor representative office
in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its
President. Petitioner's base salary and the overhead expenditures of the company
shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor
Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a
license to transact business in the Philippines under the name of Pacfor or Pacfor
Phils.7 In its application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as
its resident agent in the Philippines, authorized to accept summons and processes in
all legal proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and
Profit Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines),"9 where the salary of petitioner was increased to $78,000
per annum. Both agreements show that the operational expenses will be borne by
the representative office and funded by all parties "as equal partners," while the
profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through
William Gleason, its President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative office and not an
entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company'
with the purpose of dividing the income 50-50."11 Petitioner presumably knew of this
arrangement from the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint
venture with them. He alleged he would have been better off remaining as an
independent agent or representative of Pacfor-USA as ATM Marketing Corp. 13 Had he
known that no joint venture existed, he would not have allowed Pacfor to take the
profitable business of his own company, ATM Marketing Corp.14 Petitioner raised
other issues, such as the rentals of office furniture, salary of the employees,
company car, as well as commissions allegedly due him. The issues were not
resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment
of unpaid commissions and office furniture and equipment rentals, amounting to
more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other materials
in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor
Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to
remit more than three hundred thousand-peso Christmas giveaway fund for clients
of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it possession of
the service car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for
Pacific Forest Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or
to the offices of ATM Marketing Corporation at Room 504, Concorde
Building, Legaspi Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated
December 2000, private respondent directed said client "to please communicate
directly with us on any further questions associated with these payments or any
future business. Do not communicate with [Pacfor] and/or [ATM]." 20
Petitioner construed these directives as a severance of the "unregistered
partnership" between him and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils.21 In a memorandum to the employees of Pacfor
Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the
turnover of all records to them effective December 19, 2000. The company
records were turned over only on January 26, 2001. This means our jobs
with Pacific Forest were terminated effective December 19, 2000. I am
concerned about your welfare. I would like to help you by offering you to
work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' office furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset these with the
remaining Christmas giveaway fund in his possession. 23 Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises
of Pacfor Phils., wherein he was the signatory to the lease agreement. 24
On February 2, 2001, private respondent Pacfor placed petitioner on preventive
suspension and ordered him to show cause why no disciplinary action should be
taken against him. Private respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to turn over the service car and
the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's
relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a competitor of private
respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
President William Gleason's letters as a "cessation of his position and of the
existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM
Marketing Corp. now occupies Pacfor Phils.' office premises,26 and demanded
payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint
for illegal dismissal, recovery of separation pay, and payment of attorney's fees with
the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner.
In a memorandum dated March 5, 2001, private respondent directed petitioner to
explain why he should not be disciplined for serious misconduct and conflict of
interest. Private respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty and representation
of conflicting interests for having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a
competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent Pacfor
virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager whose duty, among
others, was to maintain the security of its business transactions and
communications was rendered meaningless. The dispositive portion of the decision
of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
herein respondents Cellmark AB and Pacific Forest Resources, Inc., jointly
and severally to compensate complainant Arsenio T. Mendiola separation
pay equivalent to at least one month for every year of service, whichever is
higher (sic), as reinstatement is no longer feasible by reason of the strained
relations of the parties equivalent to five (5) months in the amount of
$32,000.00 plus the sum of P250,000.00; pay complainant the sum
ofP500,000.00 as moral and exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor
arbiter, for lack of jurisdiction and lack of merit.31 It held there was no employer-
employee relationship between the parties. Based on the two agreements between
the parties, it concluded that petitioner is not an employee of private respondent
Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate
court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration 33 of the decision of the Court of Appeals was
denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and abused
its discretion in rendering judgment against petitioner since jurisdiction has
been acquired over the subject matter of the case as there exists employer-
employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused
its discretion in ruling that jurisdiction over the subject matter cannot be
waived and may be alleged even for the first time on appeal or considered
by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship exists between
petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner
insists that an industrial partner may at the same time be an employee of the
partnership, provided there is such an agreement, which, in this case, is the "Side
Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of
Appeals denied the appeal of petitioner, holding that "the legal basis of the
complaint is not employment but perhaps partnership, co-ownership, or
independent contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no
partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of
the members.36 The property or stock of the partnership forms a community of
goods, a common fund, in which each party has a proprietary interest. 37 In fact, the
New Civil Code regards a partner as a co-owner of specific partnership
property.38 Each partner possesses a joint interest in the whole of partnership
property. If the relation does not have this feature, it is not one of partnership. 39 This
essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private
respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason,
private respondent Pacfor's President established this fact when he said that Pacfor
Phils. is simply a "theoretical company" for the purpose of dividing the income 50-
50. He stressed that petitioner knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines to save on taxes.
Thus, the parties in this case, merely shared profits. This alone does not make a
partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter.41 This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2)
that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested
in the corporation.42 No such authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements to determine the existence of
an employment relationship are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee's conduct. The most important element is the employer's
control of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent Pacfor holds
the power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him
with various offenses, including willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no disciplinary action should
be taken against him.
Lastly and most important, private respondent Pacfor has the power of control over
the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the
actual exercise thereof. The principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not the actual exercise of the
right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship.44 In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner,
as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only
an agent of the corporation, a representative of Pacfor, who transacts business, and
accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of
November to December 2000, when it directed petitioner to turn over to it all
records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway
fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it the possession
of the service car. It was also during this period when private respondent Pacfor sent
letters to its clients in the Philippines, particularly Intercontinental Paper Industries,
Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its
letter to DAVCOR, private respondent Pacfor replied to the client's request for an
invoice payment extension, and formulated a revised payment program for DAVCOR.
This is one unmistakable proof that private respondent Pacfor exercises control over
the petitioner.
Next, we shall determine if petitioner was constructively dismissed from
employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils.,
and would not quit however, private respondent Pacfor began to systematically
deprive petitioner of his duties and benefits to make him feel that his presence in
the company was no longer wanted. First, private respondent Pacfor directed
petitioner to turn over to it all records of Pacfor Phils. This would certainly make the
work of petitioner very difficult, if not impossible. Second, private respondent Pacfor
ordered petitioner to remit the Christmas giveaway fund intended for clients of
Pacfor Phils. Then it ordered petitioner to transfer title and turn over to it the
possession of the service car. It also advised its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner
and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident agent
for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive dismissal is
still present because continued employment of petitioner is rendered, at the very
least, unreasonable.46 There is an act of clear discrimination, insensibility or disdain
by the employer that continued employment may become so unbearable on the part
of the employee so as to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They were undertaken
when petitioner sought clarification from the private respondent about his supposed
50% equity on Pacfor Phils. Private respondent Pacfor invokes its rights as an owner.
Allegedly, its issuance of the foregoing directives against petitioner was a valid
exercise of management prerogative. We remind private respondent Pacfor that the
exercise of management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be exercised in good
faith and with due regard to the rights of labor verily, with the principles of fair
play at heart and justice in mind." The exercise of management prerogative cannot
be utilized as an implement to circumvent our laws and oppress employees. 48
As resident agent of private respondent corporation, petitioner occupied a position
involving trust and confidence. In the light of the strained relations between the
parties, the full restoration of an employment relationship based on trust and
confidence is no longer possible. He should be awarded separation pay, in lieu of
reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30,
2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the
December 20, 2001 Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter
isREINSTATED with the MODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioner's salary shall be deducted from the
grant of separation pay for lack of evidence. SO ORDERED.
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,
INC., respondent.
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not contributed any capital of their own
to a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a contract entered into on behalf
of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November
26, 1998 Decision of the Court of Appeals in CA-GR CV 41477, [1] which disposed as
follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on
their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the
nets counted from September 20, 1990 (date of attachment) to September 12, 1991
(date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 andP68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public auction for
not less than P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect,
the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff until full payment [was] made as stipulated
in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for
this reason also that this Court earlier ordered the attachment bond filed by plaintiff
to guaranty damages to defendants to be cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are hereby relieved
from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.
[3]
SO ORDERED.
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The
total price of the nets amounted to P532,045.Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong
Lim with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that Ocean Quest
Fishing Corporation was a nonexistent corporation as shown by a Certification from
the Securities and Exchange Commission.[5] On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his
liability and requesting a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.
[6]
The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds
of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. [8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three [9] in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages. [10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold
in the amount of P5,750,000.00 including the fishing net. ThisP5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed
the RTC.
 Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua
and Yao in a fishing business and may thus be held liable as a such for the fishing
nets and floats purchased by and for the use of the partnership. The appellate court
ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing
x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code). [13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and
floats purchased from respondent, the Court must resolve this key issue: whether by
their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed between
him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any direct participation in
the purchase of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and
Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady
Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch
72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity
of commercial documents; (b) reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners
brother. In their Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss.These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of
the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua
and Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and the
CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. [16]In assailing the factual findings of
the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. His arguments are baseless. The
Agreement was but an embodiment of the relationship extant among the parties
prior to its execution.
A proper adjudication of claimants rights mandates that courts must review
and thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone, petitioner
fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law, logic
and fairness. Verily, the two lower courts factual findings mentioned above nullified
petitioners argument that the existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B Lourdes where the nets were
found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order to finance
the acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in
the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his
property to pay a debt he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability
can be imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate existence. The
reason behind this doctrine is obvious - an unincorporated association has no
personality and would be incompetent to act and appropriate for itself the power
and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation
and to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits from
it, may be barred from denying its corporate existence in a suit brought against the
alleged corporation. In such case, all those who benefited from the transaction made
by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is
entitled to be paid for the nets it sold. The only question here is whether petitioner
should be held jointly[18] liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should
be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the
partnership. He in fact questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on
behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
part of said association and is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position , entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot and
academic. As previously discussed, F/B Lourdes was an asset of the partnership and
that it was placed in the name of petitioner, only to assure payment of the debt he
and his partners owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used in the fishing
venture they agreed upon. Hence, the issuance of the Writ to assure the payment of
the price stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
[G.R. No. 127405. September 20, 2001]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS
and NENITA A. ANAY,respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and control its processes and orders
so as to make them conformable to law and justice includes the right to reverse
itself, especially when in its honest opinion it has committed an error or mistake in
judgment, and that to adhere to its decision will cause injustice to a party litigant. [1]
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a
Motion for Reconsideration of our Decision dated October 4, 2000. They maintain
that there was no partnership bettween petitioner Belo, on the one hand, and
respondent Nenita A. Anay, on the other hand; and that the latter being merely an
employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that,
indeed, petitioner Belo acted merely as guarantor of Geminesse Enterprise. This was
categorically affirmed by respondents own witness, Elizabeth Bantilan, during her
cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the
companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is the role of
William Belo with Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the
company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts
as guarantor for us. We can borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse Enterprise?
A He is the one fixing our orders that open the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the guarantor of Geminesse
Enterprise, am I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by respondents evidence. It
should be recalled that the business relationship created between petitioner Tocao
and respondent Anay was an informal partnership, which was not even recorded
with the Securities and Exchange Commission. As such, it was understandable that
Belo, who was after all petitioner Tocaos good friend and confidante, would
occasionally participate in the affairs of the business, although never in a formal or
official capacity.[3] Again, respondents witness, Elizabeth Bantilan, confirmed that
petitioner Belos presence in Geminesse Enterprises meetings was merely as
guarantor of the company and to help petitioner Tocao.[4]
Furthermore, no evidence was presented to show that petitioner Belo
participated in the profits of the business enterprise. Respondent herself professed
lack of knowledge that petitioner Belo received any share in the net income of the
partnership.[5] On the other hand, petitioner Tocao declared that petitioner Belo was
not entitled to any share in the profits of Geminesse Enterprise. [6] With no
participation in the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and losses. [7]
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse
Enterprise, respondent had no cause of action against him and her complaint
against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be
deemed in bad faith for failing to account for stocks of Geminesse Enterprise
amounting to P208,250.00 and that, accordingly, her claim for damages should be
barred to that extent. We do not agree. Given the circumstances surrounding private
respondents sudden ouster from the partnership by petitioner Tocao, her act of
withholding whatever stocks were in her possession and control was justified, if only
to serve as security for her claims against the partnership. However, while we do not
agree that the same renders private respondent in bad faith and should bar her
claim for damages, we find that the said sum of P208,250.00 should be deducted
from whatever amount is finally adjudged in her favor on the basis of the formal
account of the partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of
petitioners is PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby
ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against
petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from
whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent
after the formal accounting of the partnership affairs.
 SO ORDERED. On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache Inc. in the amount of P100,000.00. To secure the
payment of the loan, a mortgage was executed over the land and
the building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-
A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong
Chuache & Co. insured the latter's interest with Travellers Multi-
Indemnity Corporation for P100,000.00 (P70,000.00 for the
building and P30,000.00 for the contents thereof) (Exhibit "A-a,"
contents thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy

No. F- 02500 (Exhibit "A"), covering the building for P50,000.00
with respondent Zenith Insurance Corporation. On July 16, 1975,
another Fire Insurance Policy No. 8459 (Exhibit "B") was procured
from respondent Philippine British Assurance Company, covering
the same building for P50,000.00 and the contents thereof for
P70,000.00.

On July 31, 1975, the building and the contents were totally razed
by fire.

Adjustment Standard Corporation submitted a report as follow

xxx xxx xxx

... Thus the apportioned share of each company is as follows:

G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner, Poli C R I

vs. cy o i n
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY No. m s s
CORPORATION, respondents. . p k u
a r
n e
y s

GANCAYCO, J.:

This petition for review on certiorari seeks the reversal of the decision of the
MI Z B P
Insurance Commission in IC Case #367 1dismissing the complaint 2 for recovery of
RO e u 5
the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by
n i 0
herein respondent insurance company in favor of petitioner-intervenor.
i l ,
t d 0
The facts of the case as found by respondent Insurance Commission are as follows: h i 0
n 0
g
Complainants acquired from a certain Rolando Gonzales a parcel
of land and a building located at San Rafael Village, Davao City.
Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S.
Accredited Group of Insurers for P25,000.00.
F- I .
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Based on the computation of the loss, including the Travellers
Multi- Indemnity, respondents, Zenith Insurance, Phil. British
Assurance and S.S.S. Accredited Group of Insurers, paid their
corresponding shares of the loss. Complainants were paid the
following: P41,546.79 by Philippine British Assurance Co.,
P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by
S.S.S. Group of Accredited Insurers (Par. 6. Amended Complaint).
Demand was made from respondent Travellers Multi-Indemnity for
its share in the loss but the same was refused. Hence,
complainants demanded from the other three (3) respondents the
balance of each share in the loss based on the computation of the
Adjustment Standards Report excluding Travellers Multi-Indemnity
in the amount of P30,894.31 (P5,732.79-Zenith Insurance:
P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the
same was refused, hence, this action.
As adverted to above respondent Insurance Commission dismissed spouses
Palomos' complaint on the ground that the insurance policy subject of the complaint
was taken out by Tai Tong Chuache & Company, petitioner herein, for its own interest
only as mortgagee of the insured property and thus complainant as mortgagors of
the insured property have no right of action against herein respondent. It likewise
dismissed petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent Travellers Multi-
Indemnity to the Intervenor-mortgagee. The complainant testified
that she was still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however, been sufficiently
proven by documentary evidence. The certification (Exhibit 'E-e')
issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong
Chuache & Company. 4

In their answers, Philippine British Assurance and Zenith Insurance

From the above decision, only intervenor Tai Tong Chuache filed a motion for
Corporation admitted the material allegations in the complaint,
reconsideration but it was likewise denied hence, the present petition.
but denied liability on the ground that the claim of the
complainants had already been waived, extinguished or paid. Both
companies set up counterclaim in the total amount of P 91,546.79. It is the contention of the petitioner that respondent Insurance Commission decided
an issue not raised in the pleadings of the parties in that it ruled that a certain
Arsenio Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong
Instead of filing an answer, SSS Accredited Group of Insurers
Chuache & Company.
informed the Commission in its letter of July 22, 1977 that the
herein claim of complainants for the balance had been paid in the
amount of P 5,938.57 in full, based on the Adjustment Standards This Court cannot fault petitioner for the above erroneous interpretation of the
Corporation Report of September 22, 1975. decision appealed from considering the manner it was written. 5 As correctly pointed
out by respondent insurance commission in their comment, the decision did not
pronounce that it was Arsenio Lopez Chua who has insurable interest over the
Travellers Insurance, on its part, admitted the issuance of the
insured property. Perusal of the decision reveals however that it readily absolved
Policy No. 599 DV and alleged as its special and affirmative
respondent insurance company from liability on the basis of the commissioner's
defenses the following, to wit: that Fire Policy No. 599 DV, covering
conclusion that at the time of the occurrence of the peril insured against petitioner
the furniture and building of complainants was secured by a
as mortgagee had no more insurable interest over the insured property. It was based
certain Arsenio Chua, mortgage creditor, for the purpose of
on the inference that the credit secured by the mortgaged property was already paid
protecting his mortgage credit against the complainants; that the
by the Palomos before the said property was gutted down by fire. The foregoing
said policy was issued in the name of Azucena Palomo, only to
conclusion was arrived at on the basis of the certification issued by the then Court of
indicate that she owns the insured premises; that the policy
First Instance of Davao, Branch II that in a certain civil action against the Palomos,
contains an endorsement in favor of Arsenio Chua as his mortgage
Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong Chuache
interest may appear to indicate that insured was Arsenio Chua and
& Company.
the complainants; that the premium due on said fire policy was
paid by Arsenio Chua; that respondent Travellers is not liable to
pay complainants. We find the petition to be impressed with merit. It is a well known postulate that the
case of a party is constituted by his own affirmative allegations. Under Section 1,
Rule 131 6 each party must prove his own affirmative allegations by the amount of
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
evidence required by law which in civil cases as in the present case is
intervention claiming the proceeds of the fire Insurance Policy No.
preponderance of evidence. The party, whether plaintiff or defendant, who asserts
F-559 DV, issued by respondent Travellers Multi-Indemnity.
the affirmative of the issue has the burden of presenting at the trial such amount of
evidence as required by law to obtain favorable judgment. 7 Thus, petitioner who is
Travellers Insurance, in answer to the complaint in intervention, claiming a right over the insurance must prove its case. Likewise, respondent
alleged that the Intervenor is not entitled to indemnity under its insurance company to avoid liability under the policy by setting up an affirmative
Fire Insurance Policy for lack of insurable interest before the loss of defense of lack of insurable interest on the part of the petitioner must prove its own
the insured premises and that the complainants, spouses Pedro affirmative allegations.
and Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3
It will be recalled that respondent insurance company did not assail the validity of
the insurance policy taken out by petitioner over the mortgaged property. Neither
did it deny that the said property was totally razed by fire within the period covered
by the insurance. Respondent, as mentioned earlier advanced an affirmative IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
defense of lack of insurable interest on the part of the petitioner that before the ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity
occurrence of the peril insured against the Palomos had already paid their credit due Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the
the petitioner. Respondent having admitted the material allegations in the amount of P100,000.00. Costs against said private respondent.
complaint, has the burden of proof to show that petitioner has no insurable interest
over the insured property at the time the contingency took place. Upon that point,
SO ORDERED.
there is a failure of proof. Respondent, it will be noted, exerted no effort to present
any evidence to substantiate its claim, while petitioner did. For said respondent's
failure, the decision must be adverse to it.

However, as adverted to earlier, respondent Insurance Commission absolved

respondent insurance company from liability on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II, that in a certain civil action
against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the insured property must
have been paid. Such is a glaring error which this Court cannot sanction. Respondent
Commission's findings are based upon a mere inference.

The record of the case shows that the petitioner to support its claim for the
insurance proceeds offered as evidence the contract of mortgage (Exh. 1) which has
not been cancelled nor released. It has been held in a long line of cases that when
the creditor is in possession of the document of credit, he need not prove non-
payment for it is presumed. 8 The validity of the insurance policy taken b petitioner
was not assailed by private respondent. Moreover, petitioner's claim that the loan
extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner. 9

Public respondent argues however, that if the civil case really stemmed from the
loan granted to Azucena Palomo by petitioner the same should have been brought
by Tai Tong Chuache or by its representative in its own behalf. From the above
premise respondent concluded that the obligation secured by the insured property
must have been paid.

The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
2 10 respondent pointed out that the action must be brought in the name of the real
party in interest. We agree. However, it should be borne in mind that petitioner
being a partnership may sue and be sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the representative of petitioner
is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the
managing partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may execute all
acts of administration 12 including the right to sue debtors of the partnership in case
of their failure to pay their obligations when it became due and demandable. Or at
the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an
agent of the partnership. Being an agent, it is understood that he acted for and in
behalf of the firm. 13 Public respondent's allegation that the civil case flied by Arsenio G.R. No. 126881 October 3, 2000
Chua was in his capacity as personal creditor of spouses Palomo has no basis.

HEIRS OF TAN ENG KEE, petitioners, vs.

The respondent insurance company having issued a policy in favor of herein
petitioner which policy was of legal force and effect at the time of the fire, it is COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
bound by its terms and conditions. Upon its failure to prove the allegation of lack of President TAN ENG LAY,respondents.
insurable interest on the part of the petitioner, respondent insurance company is
and must be held liable.
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals
in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside,
and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19,
1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court
of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On
March 18, 1991, the petitioners filed an amended complaint 4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The
amended complaint was admitted by the trial court in its Order dated May 3, 1991. 5
The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the alleged partners. However,
they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company."
The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business. Petitioners prayed for
accounting of the partnership assets, and the dissolution, winding up and liquidation
thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April
12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned
over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in
said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have descended to
the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all
the assets of Benguet Lumber Company, Inc. so the plaintiffs know their
proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the
assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is qualified to act as
such.
g) Denying the award of damages to the plaintiffs for lack of proof except
the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial
proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee
was a mere employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan,
for alleged falsification of commercial documents by a private individual. On March
20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges
were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
 I BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO
FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO
CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO
PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE
DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE
SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET
LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY
AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING
THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS
STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A
PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE
AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE
17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence. 10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel
us to analyze the evidentiary basis on which the lower court rendered judgment.
Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of
fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues
of the case, and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
 (7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of
standing between the parties, equal proprietary interest and the exercise
by the parties equally of the conduct of the business, thus:
xxx xxx xxx
We have the admission that the father of the plaintiffs was not a partner of
the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks
of the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a lumber
and hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber
and hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were partners, is
obvious from the fact that: (1) they conducted the affairs of the business
during Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4)
their families stayed together at the Benguet Lumber compound, and (5) all
their children were employed in the business in different capacities.
xxx xxx xxx
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period after
the war until Kee's death in 1984. It had no business book, no written
account nor any memorandum for that matter and no license mentioning
the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay
as the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet
Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to
1983, Kee was similarly listed only as an employee; precisely, he was on
the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned
also as the proprietor.
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may
be constituted in any form, but when an immovable is constituted, the
execution of a public instrument becomes necessary. This is equally true if
the capitalization exceeds P3,000.00, in which case a public instrument is
also necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees,
prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now
a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.
And then in 1981, the business was incorporated and the incorporators
were only Lay and the members of his family. There is no proof either that
the capital assets of the partnership, assuming them to be in existence,
were maliciously assigned or transferred by Lay, supposedly to the
corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the
complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and
then in a room in the bunk house in Trinidad, but within the compound of
the lumber establishment, as testified to by Tandoc; 2) that both Lay and
Kee were seated on a table and were "commanding people" as testified to
by the son, Elpidio Tan; 3) that both were supervising the laborers, as
testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly
 being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were
added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or
where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3) money
property or industry contribution; 4) community of funds and interest,
mentioning equality of the partners or one having a proportionate share in
the benefits; and 5) intention to divide the profits, being the true test of the
partnership. The intention to join in the business venture for the purpose of
obtaining profits thereafter to be divided, must be established. We cannot
see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a
factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the
evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.14
Thus, in order to constitute a partnership, it must be established that (1)
two or more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the profits among
themselves.15 The agreement need not be formally reduced into writing,
since statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are
contributed,16 and (2) when the partnership has a capital of three thousand
pesos or more.17 In both cases, a public instrument is required.18 An
inventory to be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is
a sort of informal partnership, with no firm name and no legal personality.
In a joint account, the participating merchants can transact business under
their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind. 21
A joint venture "presupposes generally a parity of standing between the joint co-
ventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may
be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is hardly distinguishable from the partnership, since
their elements are similar community of interest in the business, sharing
of profits and losses, and a mutual right of control. (Blackner v. McDermott,
176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]).
The main distinction cited by most opinions in common law jurisdiction is
that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App.
170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code
1981).
Undoubtedly, the best evidence would have been the contract of partnership itself,
or the articles of partnership but there is none. The alleged partnership, though, was
never formally organized. In addition, petitioners point out that the New Civil Code
was not yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect on August
30, 1950. But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the
quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of the business relationship
between them. In the absence of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a common fund for the
purpose of establishing a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not
with the number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde Abubo. 25 He stated that
when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was only later on that his
said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or
co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as long as the partnership
exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in
the profits is perfectly plausible." 31 But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. A person is presumed to
take ordinary care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital.
In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000.00 a month, which
cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had
always acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his
brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee
of Benguet Lumber, as it was then called. The authenticity of these documents was
questioned by petitioners, to the extent that they filed criminal charges against Tan
Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed
for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee
received sums as wages of an employee. In connection therewith, Article 1769 of the
Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
 (b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received amounts of money
allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits
of Benguet Lumber Company for any particular period. Hence, they failed to prove
that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence
of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee
were commanding the employees; that both were supervising the employees; that
both were the ones who determined the price at which the stocks were to be sold;
and that both placed orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at
the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following
reasons:
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's
position is higher in rank, it is not unusual that he orders around those
lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is
reposed by the owner, can order materials from suppliers for and in behalf
of Benguet Lumber. Furthermore, even a partner does not necessarily have
to perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
Naturally, close personal relations existed between them. Whatever
privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay
towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng
Lay in connection with the pricing of stocks, this does not adequately prove
the existence of a partnership relation between them. Even highly
confidential employees and the owners of a company sometimes argue
with respect to certain matters which, in no way indicates that they are
partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such
as to support a finding of the existence of the parties' intent. 36 Yet, in the case at
bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a niche
above the rank-and-file employees. He would have enjoyed liberties otherwise
unavailable were he not kin, such as his residence in the Benguet Lumber Company
compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be
that among his duties is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court
of Appeals is herebyAFFIRMED in toto. No pronouncement as to costs. SO
ORDERED.
HEIRS OF LIM VS LIM
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules
of Civil Procedure, assailing the Court of Appeals (CA) Decision [2] dated June 29,
2005, which reversed and set aside the decision [3] of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia aforementioned properties, which belonged to the estate of Jose, without their

Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all consent and approval. Claiming that they are co-owners of the properties,

surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a petitioners required respondent to submit an accounting of all income, profits and
[4]
Complaint for Partition, Accounting and Damages against respondent Juliet Villa rentals received from the estate of Elfledo, and to surrender the administration

Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of thereof. Respondent refused; thus, the filing of this case.

Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Respondent traversed petitioners' allegations and claimed that Elfledo was himself a

Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu partner of Norberto and Jimmy.Respondent also claimed that per testimony of

(Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the latter's capital in

business. Initially, with a contribution of P50,000.00 each, they purchased a truck to an informal partnership with Jimmy and Norberto. When Elfledo and respondent got

be used in the hauling and transport of lumber of the sawmill. Jose managed the married in 1981, the partnership only had one truck; but through the efforts of

operations of this trucking business until his death on August 15, 1981. Thereafter, Elfledo, the business flourished. Other than this trucking business, Elfledo, together

Jose's heirs, including Elfledo, and partners agreed to continue the business under with respondent, engaged in other business ventures. Thus, they were able to buy

the management of Elfledo. The shares in the partnership profits and income that real properties and to put up their own car assembly and repair business. When

formed part of the estate of Jose were held in trust by Elfledo, with petitioners' Norberto was ambushed and killed on July 16, 1993, the trucking business started to

authority for Elfledo to use, purchase or acquire properties using said funds. falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked

to Jimmy and to the heirs of Norberto, as she could no longer run the business.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate Jimmy suggested that three out of the nine trucks be given to him as his share,

serving as his fathers driver in the trucking business. He was never a partner or an while the other three trucks be given to the heirs of Norberto. However, Norberto's

investor in the business and merely supervised the purchase of additional trucks wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to

using the income from the trucking business of the partners. By the time the respondent, who paid for them in installments.

partnership ceased, it had nine trucks, which were all registered in Elfledo's name. Respondent also alleged that when Jose died in 1981, he left no known assets, and

Petitioners asseverated that it was also through Elfledos management of the the partnership with Jimmy and Norberto ceased upon his demise. Respondent also

partnership that he was able to purchase numerous real properties by using the stressed that Jose left no properties that Elfledo could have held in trust.

profits derived therefrom, all of which were registered in his name and that of Respondent maintained that all the properties involved in this case were purchased

respondent. In addition to the nine trucks, Elfledo also acquired five other motor and acquired through her and her husbands joint efforts and hard work, and without

vehicles. any participation or contribution from petitioners or from Jose. Respondent

submitted that these are conjugal partnership properties; and thus, she had the

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. right to refuse to render an accounting for the income or profits of their own

Petitioners claimed that respondent took over the administration of the business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor
of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all
incomes, profits and rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however, denied in its Resolution [6] dated May 8,
2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE
PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER
PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a partner; and that he and Norberto entered into
a partnership with Jose. Thus, the CA erred in not giving that testimony greater
weight than that of Cresencia, who was merely the spouse of Jose and not a party to
the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in a petition
for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would
entail the review, evaluation, calibration, and re-weighing of the factual findings of
the CA. Moreover, respondent invokes the rationale of the CA decision that, in light
of the admissions of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues an exercise that is not appropriate for a petition for
review on certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally, we
are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below. [10] When supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of
specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted
by the evidence on record.[11]
We note, however, that the findings of fact of the RTC are contrary to those of the
CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses among them. A contract of
partnership is defined by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. [12]
Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine
who between Jose and Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence
presented by petitioners falls short of the quantum of proof required to establish
that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by
Elfledo and respondent form part of the estate of Jose, having been derived from the
alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
evidence against respondent. It must be considered and weighed along with
petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases,
the party having the burden of proof must establish his case by a preponderance of
evidence. "Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered synonymous with the
term "greater weight of the evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis, means probability
of the truth. It is evidence that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto. [13] Rule 133, Section 1 of the Rules
of Court provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil
cases, the party having burden of proof must establish his case by
a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which
they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility
so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals[14] is
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these
rules shall apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business
is a prima facie evidence that he is a partner in the business, but
no such inference shall be drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
 (d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and
Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the initial capital in the
partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;[16] (3) all of the properties, particularly the nine trucks
of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the partnership, indicating that what
he actually received were shares of the profits of the business; [17] and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from
Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a
demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged
partnership with Jimmy and Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses. Edisoneven admitted that
Elfledo also sold Interwood lumber as a sideline. [19] Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the former carries more
weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help
but one of the partners in the trucking business, active and visible
in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control,
administration and management of the partnership and its
business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners,
are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how
the business was ran. Evidently it was through Elfredos efforts and
hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the
affairs of the partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was
barely a year old, and the partnership and its business not only
continued but also flourished. If it were true that it was Jose Lim
and not Elfledo who was the partner, then upon his
death the partnership should have
been dissolved and its assets liquidated. On the contrary, these
were not done but instead its operation continued under the helm
of Elfledo and without any participation from the heirs of Jose
Lim.
Whatever properties appellant and her husband had acquired,
this was through their own concerted efforts and hard
work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as
they are amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals
Decision dated June 29, 2005 is AFFIRMED.Costs against petitioners.
SO ORDERED.

G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court
of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision 2 of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001
Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into
an agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to
manage and operate the latters mining claim, known as the Sto. Nino mine, located
in Atok and Tublay, Benguet Province. The parties agreement was denominated as
"Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold)
shall make available to the MANAGERS (Philex Mining) up to ELEVEN
MILLION PESOS (P11,000,000.00), in such amounts as from time to time
may be required by the MANAGERS within the said 3-year period, for use in
the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the
owners account in the Sto. Nino PROJECT. Any part of any income of the
PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino
PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may
transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash,
shall be carried by the Sto. Nino PROJECT as a special fund to be
known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino
PROJECT, the amount not so paid in cash shall be added to the
MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is
the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS
account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be
valueless, or of slight value, to the MANAGERS. The MANAGERS
can, on the other hand, require at their option that property
originally transferred by them to the Sto. Nino PROJECT be re-
transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the
net profit of the Sto. Nino PROJECT before income tax. It is understood that
 the MANAGERS shall pay income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been executed as security for the
payment and satisfaction of all such obligations of the PRINCIPAL in favor of
the MANAGERS and as a means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid and
satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-
month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The
MANAGERS shall not in any manner be held liable to the PRINCIPAL by
reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative
in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances
of cash and property in accordance with paragraph 5 of the agreement. However,
the mine suffered continuing losses over the years which resulted to petitioners
withdrawal as manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with
Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in
the amount of P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Golds tangible assets to petitioner, transferring to the latter
Baguio Golds equitable title in its Philodrill assets and finally settling the remaining
liability through properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with
Dation in Payment"8 where the parties determined that Baguio Golds indebtedness
to petitioner actually amounted to P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had assumed as guarantor. These
liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted
by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time,
Baguio Gold undertook to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold
had a remaining outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the
amount of P112,136,000.00 as "loss on settlement of receivables from Baguio Gold
against reserves and allowances." 9 However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed petitioner a
deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since
all requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid
and existing debt; (b) the debt was ascertained to be worthless; and (c) it was
charged off within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it
entered into with Baguio Gold. The bad debt deduction represented advances made
by petitioner which, pursuant to the management contract, formed part of Baguio
Golds "pecuniary obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became
evident that it would not be able to recover the advances and payments it had made
in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed
that it was neither required to institute a judicial action for collection against the
debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to enforce collection and exhausted
all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual
basis. It held that the alleged debt was not ascertained to be worthless since Baguio
Gold remained existing and had not filed a petition for bankruptcy; and that the
deduction did not consist of a valid and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty percent (50%) of the projects
net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment,
as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-82-
 88-003067 for deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to
PAY respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due computed from
February 10, 1995, which is the date after the 20-day grace period given by
the respondent within which petitioner has to pay the deficiency amount x
x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino
mine were in the nature of a loan. It instead characterized the advances as
petitioners investment in a partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership agreement. Since
the advanced amount partook of the nature of an investment, it could not be
deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan
obligations of Baguio Gold could not be allowed as a bad debt deduction. At the time
the payments were made, Baguio Gold was not in default since its loans were not
yet due and demandable. What petitioner did was to pre-pay the loans as evidenced
by the notice sent by Bank of America showing that it was merely demanding
payment of the installment and interests due. Moreover, Citibank imposed and
collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its
motion for reconsideration,13petitioner took this recourse under Rule 45 of the Rules
of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex
in the management of the Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net
profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold
in the development of the Sto. Nino Mine notwithstanding the clear absence
of any intent on the part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in
completely disregarding the Compromise Agreement and the Amended
Compromise Agreement when it construed the nature of the advances
made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship with
Baguio Gold, we should not only rely on the "Power of Attorney", but also on the
subsequent "Compromise with Dation in Payment" and "Amended Compromise with
Dation in Payment" that the parties executed in 1982. These documents, allegedly
evinced the parties intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is
material in determining the true nature of the business relationship between
petitioner and Baguio Gold. Before resort may be had to the two compromise
agreements, the parties contractual intent must first be discovered from the
expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were
mere collateral documents executed by the parties pursuant to the termination of
their business relationship created under the "Power of Attorney". On the other
hand, it is the latter which established the juridical relation of the parties and
defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a
subsequent or contemporaneous act that is reflective of the parties true intent. The
compromise agreements were executed eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by which petitioner could recover the
advances and payments it made under the "Power of Attorney". The parties entered
into the compromise agreements as a consequence of the dissolution of their
business relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture
was indeed intended by the parties. Under 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. 15 While a
corporation, like petitioner, cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been held that it may enter into a joint
venture which is akin to a particular partnership:
 The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. x x x It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature.
x x x This observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. x x x It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with
others. x x x (Citations omitted) 16
As can be seen, petitioner became bound by its contributions once the transfers
were made. The contributions acquired an obligatory nature as soon as petitioner
had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against
withdrawal of advances should not be taken as an indication that it had entered into
a partnership with Baguio Gold; that the stipulation only showed that what the
parties entered into was actually a contract of agency coupled with an interest which
is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon it,
or the mutual interest of both principal and agent. 19 In this case, the non-revocation
or non-withdrawal under paragraph 5(c) applies to the advances made by
petitioner who is supposedly the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the parties relation under the
agreement is one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the

Perusal of the agreement denominated as the "Power of Attorney" indicates that the
relationship of the parties was one of agency and not a partnership. Although the
parties had intended to create a partnership and establish a common fund for the
said provision states that "this Agency shall be irrevocable while any obligation of
purpose. They also had a joint interest in the profits of the business as shown by a
the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS
50-50 sharing in the income of the mine.
account," it does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio Gold.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute
money, property and industry to the common fund known as the Sto. Nio mine. 17 In
It should be stressed that the main object of the "Power of Attorney" was not to
this regard, we note that there is a substantive equivalence in the respective
confer a power in favor of petitioner to contract with third persons on behalf of
contributions of the parties to the development and operation of the mine. Pursuant
Baguio Gold but to create a business relationship between petitioner and Baguio
to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
Gold, in which the former was to manage and operate the latters mine through the
contribute equally to the joint venture assets under their respective accounts.
parties mutual contribution of material resources and industry. The essence of an
Baguio Gold would contribute P11M under its owners account plus any of its
agency, even one that is coupled with interest, is the agents ability to represent his
income that is left in the project, in addition to its actual mining claim. Meanwhile,
principal and bring about business relations between the latter and third
petitioners contribution would consist of its expertise in the management and
persons.20 Where representation for and in behalf of the principal is merely
operation of mines, as well as the managers account which is comprised of P11M in
incidental or necessary for the proper discharge of ones paramount undertaking
funds and property and petitioners "compensation" as manager that cannot be
under a contract, the latter may not necessarily be a contract of agency, but some
paid in cash.
other agreement depending on the ultimate undertaking of the parties.21

However, petitioner asserts that it could not have entered into a partnership
In this case, the totality of the circumstances and the stipulations in the parties
agreement with Baguio Gold because it did not "bind" itself to contribute money or
agreement indubitably lead to the conclusion that a partnership was formed
property to the project; that under paragraph 5 of the agreement, it was only
between petitioner and Baguio Gold.
optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIO MINE."18 First, it does not appear that Baguio Gold was unconditionally obligated to return the
advances made by petitioner under the agreement. Paragraph 5 (d) thereof provides
that upon termination of the parties business relations, "the ratio which the
The wording of the parties agreement as to petitioners contribution to the common
MANAGERS account has to the owners account will be determined, and the
fund does not detract from the fact that petitioner transferred its funds and property
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the
to the project as specified in paragraph 5, thus rendering effective the other
claims" shall be transferred to petitioner.22As pointed out by the Court of Tax
stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner
Appeals, petitioner was merely entitled to a proportionate return of the mines
from withdrawing the advances until termination of the parties business relations.
assets upon dissolution of the parties business relations. There was nothing in the
agreement that would require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation or "accounts payable" for
Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that is
more consistent with a partnership than a creditor-debtor relationship. It should be
pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal
amount of the same kind and quality.23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner the cash and property that it
had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business relations
over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate share of the mine assets to be
computed at a ratio that the managers account had to the owners account. Except
to provide a basis for claiming the advances as a bad debt deduction, there is no
reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation
to lend hundreds of millions of pesos to another corporation with neither security, or
collateral, nor a specific deed evidencing the terms and conditions of such loans.
The parties also did not provide a specific maturity date for the advances to become
due and demandable, and the manner of payment was unclear. All these point to the
inevitable conclusion that the advances were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact
that it would receive 50% of the net profits as "compensation" under paragraph 12
of the agreement. The entirety of the parties contractual stipulations simply leads
to no other conclusion than that petitioners "compensation" is actually its share in
the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a
share in the profits of a business is prima facie evidence that he is a partner in the
business." Petitioner asserts, however, that no such inference can be drawn against
it since its share in the profits of the Sto Nio project was in the nature of
compensation or "wages of an employee", under the exception provided in Article
1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of
Baguio Gold who will be paid "wages" pursuant to an employer-employee
relationship. To begin with, petitioner was the manager of the project and had put
substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in
case the mine had no income. It is hard to believe that petitioner would take the risk
of not being paid at all for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the
agreement actually constitutes its share in the net profits of the partnership. Indeed,
petitioner would not be entitled to an equal share in the income of the mine if it
were just an employee of Baguio Gold.25 It is not surprising that petitioner was to
receive a 50% share in the net profits, considering that the "Power of Attorney" also
provided for an almost equal contribution of the parties to the St. Nino mine. The
"compensation" agreed upon only serves to reinforce the notion that the parties
relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments
in a partnership known as the Sto. Nino mine. The advances were not "debts" of
Baguio Gold to petitioner inasmuch as the latter was under no unconditional
obligation to return the same to the former under the "Power of Attorney". As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were
not yet due and demandable at the time that petitioner paid the same. Verily,
petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. 26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross
income. Deductions for income tax purposes partake of the nature of tax exemptions
and are strictly construed against the taxpayer, who must prove by convincing
evidence that he is entitled to the deduction claimed. 27 In this case, petitioner failed
to substantiate its assertion that the advances were subsisting debts of Baguio Gold
that could be deducted from its gross income. Consequently, it could not claim the
advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-
G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of the Court of
Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining
Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the
amount of P62,811,161.31, with 20% delinquency interest computed from February
10, 1995, which is the due date given for the payment of the deficiency income tax,
up to the actual date of payment.
SO ORDERED.
PG 62. LIONJUA VS ITONJUA
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA)
dated March 31, 2004[1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R.
SP. No 78774 and its Resolution dated December 07, 2004, [2] denying petitioners
motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on
December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit
against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his complaint, [3] docketed
as Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioners and Eduardos
partner in their Odeon Theater investment. [5] The same complaint also contained the
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into
a joint venture/partnership for the continuation of their family
business and common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in
a memorandum addressed by Eduardo to his siblings, parents and
other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex A and the portion referring to
[Aurelio] submarked as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that
in consideration of [Aurelios] retaining his share in the remaining
family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired
[various other assets], but Eduardo caused to be registered in the
names of other parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants
consist of real properties . A list of some of these real properties is
attached hereto and made an integral part as Annex B.
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and
Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang],
 are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud
of [Aurelio]. In consequence, [Aurelio] is therefore causing at this
time the annotation on the titles of these real properties a notice
of lis pendens . (Emphasis in the original; underscoring and words
in bracket added.)
you is good and saleable. I will also gladly give you the share of
Wack-Wack and Valley Golf because you have been good. The rest
will be in stocks from all the corporations which I repeat, ten
percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as defendants a

For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the

been meant for him by his brother Eduardo, pertinently reads: material allegations of the complaint, more particularly that portion thereof

depicting petitioner and Eduardo as having entered into a contract of partnership. As

affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter,

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
alleged that the complaint states no cause of action, since no cause of action may

be derived from the actionable document, i.e., Annex A-1, being void under the
You have now your own life to live after having been married. .
terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further

alleged that whatever undertaking Eduardo agreed to do, if any, under Annex A-

1, are unenforceable under the provisions of the Statute of Frauds.[7]

I am trying my best to mold you the way I work so you can follow
the pattern . You will be the only one left with the company,
among us brothers and I will ask you to stay as I want you to run
this office every time I am away. I want you to run it the way I am
trying to run it because I will be all alone and I will depend entirely
to you (sic). My sons will not be ready to help me yet until about For his part, Yang - who was served with summons long after the other defendants
maybe 15/20 years from now. Whatever is left in the corporation, I
submitted their answer moved to dismiss on the ground, inter alia, that, as to him,
will make sure that you get ONE MILLION PESOS (P1,000,000.00)
or ten percent (10%) equity, whichever is greater. We two will petitioner has no cause of action and the complaint does not state any. [8] Petitioner
gamble the whole thing of what I have and what you are entitled
to. . It will be you and me alone on this. If ever I pass away, I want opposed this motion to dismiss.
you to take care of all of this. You keep my share for my two sons
are ready take over but give them the chance to run the company
which I have built.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.
[9]
To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the
xxx xxx xxx
Case for Pre-trial.[10]

Because you will need a place to stay, I will arrange to give you
first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or
asset, like Lt. Artiaga so you can live better there. The rest I will
give you in form of stocks which you can keep. This stock I assure
 Acting on the separate motions immediately adverted to above, the trial
court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses
and, except for Yang, set the case for pre-trial on April 10, 2003. [11]
In another Omnibus Order of April 2, 2003, the same court denied the
[12]
motion of Eduardo, et al., for reconsideration and Yangs motion to dismiss. The
following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved
the right to seek reconsideration of the April 2, 2003 Omnibus Order and to
pursue his failed motion to dismiss[13] to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus
Order of April 2, 2003, but his motion was denied in an Order of July 4, 2003. [14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a
petition for certiorari under Rule 65 of the Rules of Court, docketed asCA-G.R.
SP No. 78774,[15] to nullify the separate orders of the trial court, the first
denying his motion to dismiss the basic complaint and, the second, denying his
motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that
grave abuse of discretion and injudicious haste attended the issuance of the trial
courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought
relief from the CA via similar recourse. Their petition for certiorari was docketed
as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered
the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision dated
March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein,
disposing as follows:
WHEREFORE, judgment is hereby rendered granting the
issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the
court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003
and the complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket
added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged
partnership, as evidenced by the actionable documents, Annex A and A-1 attached
to the complaint, and upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is void or legally
inexistent.
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailedResolution of December 7, 2004.[18] .
Hence, petitioners present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument and
immovable properties were contributed to the partnership.
 B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.

The underlying issue that necessarily comes to mind in this proceedings is

C. When it ruled that the complaint stated no cause of action whether or not petitioner and respondent Eduardo are partners in the theatre,
against [respondent] Robert Yang; and
shipping and realty business, as one claims but which the other denies. And the

D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded cause
of action by another legal perspective/argument.
issue bearing on the first assigned error relates to the question of what legal
provision is applicable under the premises, petitioner seeking, as it were, to enforce
the actionable document - Annex A-1 - which he depicts in his complaint to be the

contract of partnership/joint venture between himself and Eduardo. Clearly, then, a

look at the legal provisions determinative of the existence, or defining the formal

requisites, of a partnership is indicated. Foremost of these are the following

The petition lacks merit. provisions of the Civil Code:

Art. 1771. A partnership may be constituted in any form, except

Petitioners demand, as defined in the petitory portion of his complaint in where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary.
the trial court, is for delivery or payment to him, as Eduardos and Yangs partner,

of his partnership/joint venture share, after an accounting has been duly

Art. 1772. Every contract of partnership having a capital of three
conducted of what he deems to be partnership/joint venture property. [19]
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.

A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding
that there shall be a proportionate sharing of the profits and losses between them.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.

[20]
A contract of partnership is defined by the Civil Code as one where two or more

persons bound themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves.
joint venture, on the other hand, is hardly distinguishable from, and may be
Art. 1773. A contract of partnership is void, whenever immovable
[21]
A property is contributed thereto, if an inventory of said property is
not made, signed by the parties, and attached to the public
instrument.

likened to, a partnership since their elements are similar, i.e., community of

interests in the business and sharing of profits and losses. Being a form of

partnership, a joint venture is generally governed by the law on partnership. [22]

 Annex A-1, on its face, contains typewritten entries, personal in tone, [petitioners] industry and his share in the family [theatre and land

but is unsigned and undated. As an unsigned document, there can be no development] business leaves no room for speculation as to what petitioner

quibbling that Annex A-1 does not meet the public instrumentation contributed to the perceived partnership.

requirements exacted under Article 1771 of the Civil Code. Moreover, being

unsigned and doubtless referring to a partnership involving more than

Lest it be overlooked, the contract-validating inventory requirement under
P3,000.00 in money or property, Annex A-1 cannot be presented for
Article 1773 of the Civil Code applies as long real property or real rights are initially
notarization, let alone registered with the Securities and Exchange Commission
brought into the partnership. In short, it is really of no moment which of the
(SEC), as called for under the Article 1772 of the Code. And inasmuch as the
partners, or, in this case, who between petitioner and his brother Eduardo,
inventory requirement under the succeeding Article 1773 goes into the matter
contributed immovables. In context, the more important consideration is that real
of validity when immovable property is contributed to the partnership, the next
property was contributed, in which case an inventory of the contributed property
logical point of inquiry turns on the nature of petitioners contribution, if any, to
duly signed by the parties should be attached to the public instrument, else there is
the supposed partnership.
legally no partnership to speak of.

The CA, addressing the foregoing query, correctly stated that petitioners
Petitioner, in an obvious bid to evade the application of Article 1773,
contribution consisted of immovables and real rights. Wrote that court:
argues that the immovables in question were not contributed, but were

acquired after the formation of the supposed partnership. Needless to stress,

A further examination of the allegations in the complaint
the Court cannot accord cogency to this specious argument. For, as earlier
would show that [petitioners] contribution to the so-called
partnership/joint venture was his supposed share in the family stated, petitioner himself admitted contributing his share in the supposed
business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other shipping, movie theatres and realty development family businesses which
words, his contribution as a partner in the alleged partnership/joint
already owned immovables even before Annex A-1 was allegedly executed.
venture consisted of immovable properties and real rights. .[23]

Considering thus the value and nature of petitioners alleged

Significantly enough, petitioner matter-of-factly concurred with the contribution to the purported partnership, the Court, even if so disposed, cannot

appellate courts observation that, prescinding from what he himself alleged in plausibly extend Annex A-1 the legal effects that petitioner so desires and

his basic complaint, his contribution to the partnership consisted of his share in pleads to be given. Annex A-1, in fine, cannot support the existence of the

the Litonjua family businesses which owned variable immovable properties. partnership sued upon and sought to be enforced. The legal and factual milieu

Petitioners assertion in his motion for reconsideration [24] of the CAs decision, of the case calls for this disposition. A partnership may be constituted in any

that what was to be contributed to the business [of the partnership] was form, save when immovable property or real rights are contributed thereto or
when the partnership has a capital of at least P3,000.00, in which case a public Likewise well-taken are the following complementary excerpts from the CAs
[25]
instrument shall be necessary. And if only to stress what has repeatedly been equally assailed Resolution of December 7, 2004 [27] denying petitioners motion

articulated, an inventory to be signed by the parties and attached to the public for reconsideration:

instrument is alsoindispensable to the validity of the partnership whenever

Further, We conclude that despite glaring defects in the allegations in the
immovable property is contributed to it.
complaint as well as the actionable document attached thereto

(Rollo, p. 191), the [trial] court did not appreciate and apply the
Given the foregoing perspective, what the appellate court wrote in its
legal provisions which were brought to its attention by herein
assailed Decision[26] about the probative value and legal effect of Annex A-
[respondents] in the their pleadings. In our evaluation of
1 commends itself for concurrence:
[petitioners] complaint, the latter alleged inter alia to have

Considering that the allegations in the complaint showed that contributed immovable properties to the alleged partnership but

[petitioner] contributed immovable properties to the alleged partnership, the actionable document is not a public document and there was

the Memorandum (Annex A of the complaint) which purports to establish no inventory of immovable properties signed by the parties. Both

the said partnership/joint venture is NOT a public instrument and there was the allegations in the complaint and the actionable documents

NO inventory of the immovable property duly signed by the parties. As considered, it is crystal clear that [petitioner] has no valid or legal

such, the said Memorandum is null and void for purposes of establishing right which could be violated by [respondents]. (Words in bracket

the existence of a valid contract of partnership. Indeed, because of the added.)

failure to comply with the essential formalities of a valid contract, the

purported partnership/joint venture is legally inexistent and it produces no

effect whatsoever. Necessarily, a void or legally inexistent contract cannot

Under the second assigned error, it is petitioners posture that Annex A-1, assuming
be the source of any contractual or legal right. Accordingly, the allegations
its inefficacy or nullity as a partnership document, nevertheless created
in the complaint, including the actionable document attached thereto,
demandable rights in his favor. As petitioner succinctly puts it in this
clearly demonstrates that [petitioner] has NO valid contractual or legal
petition:
right which could be violated by the [individual respondents] herein. As a

consequence, [petitioners] complaint does NOT state a valid cause of 43. Contrariwise, this actionable document, especially its above-quoted

action because NOT all the essential elements of a cause of action are provisions, established an actionable contract even though it may

present. (Underscoring and words in bracket added.) not be a partnership. This actionable contract is what is known as

an innominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and
which rights and obligations may be enforceable and demandable.
Just because the relationship created by the agreement cannot be
Be that as it may . . We hold that this new theory contravenes [petitioners]
theory of the actionable document being a partnership document.
If anything, it is so obvious we do have to test the sufficiency of
the cause of action on the basis of partnership law xxx.
[29]
(Emphasis in the original; Words in bracket added).

specifically labeled or pigeonholed into a category of nominate

contract does not mean it is void or unenforceable.

But even assuming in gratia argumenti that Annex A-1 partakes of a perfected

innominate contract, petitioners complaint would still be dismissible as against

Petitioner has thus thrusted the notion of an innominate contract on this Court - and
Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner
earlier on the CA after he experienced a reversal of fortune thereat - as an
points to Eduardo as the author of Annex A-1. Withal, even on this consideration
afterthought. The appellate court, however, cannot really be faulted for not yielding
alone, petitioners claim against Yang is doomed from the very start.
to petitioners dubious stratagem of altering his theory of joint venture/partnership to

an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction

was circumscribed by what was alleged to have been the order/s issued by the trial

court in grave abuse of discretion. As respondent Yang pointedly observed, [28] since As it were, the only portion of Annex A-1 which could perhaps be remotely regarded
the parties basic position had been well-defined, that of petitioner being that the as vesting petitioner with a right to demand from respondent Eduardo the
actionable document established a partnership/joint venture, it is on those positions observance of a determinate conduct, reads:
that the appellate court exercised its certiorari jurisdiction. Petitioners act of

changing his original theory is an impermissible practice and constitutes, as the CA

xxx You will be the only one left with the company, among us brothers and I
aptly declared, an admission of the untenability of such theory in the first place.
will ask you to stay as I want you to run this office everytime I am

away. I want you to run it the way I am trying to run it because I

[Petitioner] is now humming a different tune . . . . In a sudden twist of will be alone and I will depend entirely to you, My sons will not be
stance, he has now contended that the actionable instrument may
ready to help me yet until about maybe 15/20 years from
be considered an innominate contract. xxx Verily, this now
changes [petitioners] theory of the case which is not only now. Whatever is left in the corporation, I will make sure that you
prohibited by the Rules but also is an implied admission that the
very theory he himself has adopted, filed and prosecuted before get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
the respondent court is erroneous.
equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under
the above passage, if he indeed wrote Annex A-1, is a promise which is not
to be performed within one year from contract execution on June 22, 1973.
Accordingly, the agreement embodied in Annex A-1 is covered by the
Statute of Frauds and ergounenforceable for non-compliance therewith.
[30]
By force of the statute of frauds, an agreement that by its terms is not to
be performed within a year from the making thereof shall be unenforceable
by action, unless the same, or some note or memorandum thereof, be in
writing and subscribed by the party charged. Corollarily, no action can be
proved unless the requirement exacted by the statute of frauds is complied
with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly promised by Eduardo to give in
the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be
to read something not written in Annex A-1. Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money,
property or industryto a common fund with the intention of dividing the
[32]
profits between or among themselves.
In sum then, the Court rules, as did the CA, that petitioners complaint for
specific performance anchored on an actionable document of partnership which
is legally inexistent or void or, at best, unenforceable does not state a cause of
action as against respondent Eduardo and the corporate defendants. And if no
of action can successfully be maintained against respondent Eduardo because
no valid partnership existed between him and petitioner, the Court cannot see
its way clear on how the same action could plausibly prosper against Yang.
Surely, Yang could not have become a partner in, or could not have had any
form of business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus
that would tie Yang to him as his partner. In fact, attendant circumstances would
indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
[33]
managed by Eduardo. But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.
3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are
business partners in the [respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six]
 corporate respondents This simply means that the Odeon Theatre business upon which to connect [respondent] Yang to the alleged

came before the corporate respondents. Significantly enough, petitioner partnership between [petitioner] and respondent [Eduardo],

refers to the corporate respondents as progeny of the Odeon Theatre including their alleged investment in the Odeon Theater. A

business.[34] statement of facts on those matters is pivotal to the complaint as

they would constitute the ultimate facts necessary to establish the

[35]
elements of a cause of action against Yang.
Needless to stress, petitioner has not sufficiently established in his complaint

the legal vinculum whence he sourced his right to drag Yang into the fray. The

Court of Appeals, in its assailed decision, captured and formulated the legal

situation in the following wise: Pressing its point, the CA later stated in its resolution denying

petitioners motion for reconsideration the following:

[Respondent] Yang, is impleaded because, as alleged in the

complaint, he is a partner of [Eduardo] and the [petitioner] in the xxx Whatever the complaint calls it, it is the actionable

Odeon Theater Investment which expanded through reinvestments document attached to the complaint that is controlling. Suffice it

of profits and direct investments in several corporations, thus: to state, We have not ignored the actionable document As a

matter of fact, We emphasized in our decision that insofar as

xxx xxx xxx [Yang] is concerned, he is not even mentioned in the said

actionable document. We are therefore puzzled how a person not

Clearly, [petitioners] claim against Yang arose from his alleged mentioned in a document purporting to establish a partnership

partnership with petitioner and the respondent. However, there could be considered a partner.[36] (Words in bracket ours).

was NO allegation in the complaint which directly alleged how the

supposed contractual relation was created between [petitioner]

and Yang. More importantly, however, the foregoing ruling of this

The last issue raised by petitioner, referring to whether or not he
Court that the purported partnership between [Eduardo] is void
changed his theory of the case, as peremptorily determined by the CA, has
and legally inexistent directly affects said claim against Yang.
been discussed at length earlier and need not detain us long. Suffice it to say
Since [petitioner] is trying to establish his claim against Yang by
that after the CA has ruled that the alleged partnership is inexistent, petitioner
linking him to the legally inexistent partnership . . . such attempt
took a different tack. Thus, from a joint venture/partnership theory which he
had become futile because there was NOTHING that would
adopted and consistently pursued in his complaint, petitioner embraced the
contractually connect [petitioner] and Yang. To establish a valid
innominate contract theory. Illustrative of this shift is petitioners statement in
cause of action, the complaint should have a statement of fact
par. #8 of his motion for reconsideration of the CAs decision combined with perspective/argument, strikes the Court as a strained attempt to rationalize an

what he said in par. # 43 of this petition, as follows: untenable position. Paragraph 12 of his motion for reconsideration of the CAs

decision virtually relegates partnership as a fall-back theory. Two paragraphs

8. Whether or not the actionable document creates a
later, in the same notion, petitioner faults the appellate court for reading, with
partnership, joint venture, or whatever, is a legal matter. What is
myopic eyes, the actionable document solely as establishing a partnership/joint
determinative for purposes of sufficiency of the complainants
venture. Verily, the cited paragraphs are a study of a party hedging on whether
allegations, is whether the actionable document bears out an
or not to pursue the original cause of action or altogether abandoning the same,
actionable contract be it a partnership, a joint venture or whatever
thus:
or some innominate contract It may be noted that one kind of
12. Incidentally, assuming that the actionable document created a
innominate contract is what is known as du ut facias (I give that
partnership between [respondent] Eduardo, Sr. and [petitioner], no
you may do).[37]
immovables were contributed to this partnership. xxx

43. Contrariwise, this actionable document, especially its

14. All told, the Decision takes off from a false premise that the
above-quoted provisions, established an actionable contract even
actionable document attached to the complaint does not establish
though it may not be a partnership. This actionable contract is
a contractual relationship between [petitioner] and Eduardo, Sr.
what is known as an innominate contract (Civil Code, Article
and Roberto T Yang simply because his document does not create
1307).[38]
a partnership or a joint venture. This is a myopic reading of the

actionable document.

Springing surprises on the opposing party is offensive to the sporting idea of fair
Per the Courts own count, petitioner used in his complaint the mixed words joint
play, justice and due process; hence, the proscription against a party shifting
venture/partnership nineteen (19) times and the term partner four (4) times. He
from one theory at the trial court to a new and different theory in the appellate
made reference to the law of joint venture/partnership [being applicable] to the
court.[39] On the same rationale, an issue which was neither averred in the
business relationship between [him], Eduardo and Bobby [Yang] and to
complaint cannot be raised for the first time on appeal. [40] It is not difficult,
his rights in all specific properties of their joint venture/partnership. Given this
therefore, to agree with the CA when it made short shrift of petitioners
consideration, petitioners right of action against respondents Eduardo and Yang
innominate contract theory on the basis of the foregoing basic reasons.
doubtless pivots on the existence of the partnership between the three of them,
Petitioners protestation that his act of introducing the concept of innominate
as purportedly evidenced by the undated and unsigned Annex A-1. A void
contract was not a case of changing theories but of supporting his pleaded
Annex A-1, as an actionable document of partnership, would strip petitioner of a
cause of action that of the existence of a partnership - by another legal
cause of action under the premises. A complaint for delivery and accounting of

partnership property based on such void or legally non-existent actionable Cost against the petitioner.

document is dismissible for failure to state of action. So, in gist, said the Court

of Appeals. The Court agrees.

SO ORDERED.
WHEREFORE, the instant petition is DENIED and the impugned Decision and

Resolution of the Court of AppealsAFFIRMED.