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Article 1767 ownership of certain properties[14] (the subject real properties) in the

name of the defendants since the only way the defendants could have
FEDERICO JARANTILLA, JR.,Petitioner,- versus - purchased these properties were through the partnership as they had
no other source of income.
The respondents, including petitioner herein, in their Answer,[15] denied
Respondents. having formed a partnership with Antonieta in 1946. They claimed that
she was in no position to do so as she was still in school at that time. In
DECISION fact, the proceeds of the lands they partitioned were devoted to her
studies. They also averred that while she may have helped in the
LEONARDO-DE CASTRO, J.: businesses that her older sister Conchita had formed with Buenaventura
Remotigue, she was paid her due salary. They did not deny the
This petition for review on certiorari[1] seeks to modify the Decision[2]
existence and validity of the Acknowledgement of Participating Capital
of the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887,
and in fact used this as evidence to support their claim that Antonietas
which set aside the Decision[3] dated December 18, 1992 of the
8% share was limited to the businesses enumerated therein. With regard
Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No.
to Antonietas claim in their other corporations and businesses, the
respondents said these should also be limited to the number of her
shares as specified in the respective articles of incorporation. The
respondents denied using the partnerships income to purchase the
The pertinent facts are as follows: subject real properties and said that the certificates of title should be
binding on her.[16]

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight
children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael During the course of the trial at the RTC, petitioner Federico Jarantilla,
and Antonieta.[4] Petitioner Federico Jarantilla, Jr. is the grandchild of Jr., who was one of the original defendants, entered into a compromise
the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his agreement[17] with Antonieta Jarantilla wherein he supported
wife Leda Jamili.[5] Petitioner also has two other brothers: Doroteo and Antonietas claims and asserted that he too was entitled to six percent
Tomas Jarantilla. (6%) of the supposed partnership in the same manner as Antonieta was.
He prayed for a favorable judgment in this wise:

Petitioner was one of the defendants in the complaint before the RTC
while Antonieta Jarantilla, his aunt, was the plaintiff therein. His co- Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an
respondents before he joined his aunt Antonieta in her complaint, were accounting from the other defendants, and the partition of the properties
his late aunt Conchita Jarantillas husband Buenaventura Remotigue, of the co-ownership and the delivery to the plaintiff and to defendant
who died during the pendency of the case, his cousin Cynthia Federico Jarantilla, Jr. of their rightful share of the assets and properties
Remotigue, the adopted daughter of Conchita Jarantilla and in the co-ownership.[18]
Buenaventura Remotigue, and his brothers Doroteo and Tomas
Jarantilla.[6] The RTC, in an Order[19] dated March 25, 1992, approved the Joint
Motion to Approve Compromise Agreement[20] and on December 18,
1992, decided in favor of Antonieta, to wit:

In 1948, the Jarantilla heirs extrajudicially partitioned amongst

themselves the real properties of their deceased parents.[7] With the
exception of the real property adjudicated to Pacita Jarantilla, the heirs WHEREFORE, premises above-considered, the Court renders
also agreed to allot the produce of the said real properties for the years judgment in favor of the plaintiff Antonieta Jarantilla and against
1947-1949 for the studies of Rafael and Antonieta Jarantilla.[8] defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla
ordering the latter:

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo
entered into an agreement with the spouses Buenaventura Remotigue 1. to deliver to the plaintiff her 8% share or its equivalent amount on
and Conchita Jarantilla to provide mutual assistance to each other by the real properties covered by TCT Nos. 35655, 338398, 338399 &
way of financial support to any commercial and agricultural activity on a 335395, all of the Registry of Deeds of Quezon City; TCT Nos.
joint business arrangement. This business relationship proved to be (18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of
successful as they were able to establish a manufacturing and trading Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based
business, acquire real properties, and construct buildings, among other on their present market value;
things.[9] This partnership ended in 1973 when the parties, in an
Agreement,[10] voluntarily agreed to completely dissolve their joint
business relationship/arrangement.[11] 2. to deliver to the plaintiff her 8% share or its equivalent amount on
the Remotigue Agro-Industrial Corporation, Manila Athletic Supply, Inc.,
MAS Rubber Products, Inc. and Buendia Recapping Corporation based
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue on the shares of stocks present book value;
executed a document wherein they acknowledged that while registered
only in Buenaventura Remotigues name, they were not the only owners
of the capital of the businesses Manila Athletic Supply (712 Raon Street, 3. to account for the assets and income of the co-ownership and
Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue deliver to plaintiff her rightful share thereof equivalent to 8%;
Trading (Cotabato City). In this same Acknowledgement of Participating
Capital, they stated the participating capital of their co-owners as of the
year 1952, with Antonieta Jarantillas stated as eight thousand pesos
(P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos 4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as
(P5,000.00).[12] moral damages;

The present case stems from the amended complaint[13] dated April 22, 5. to pay, jointly and severally, the sum of P50,000.00 as attorneys
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue, fees; and
Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-
ownership, for its partition and the delivery of her share corresponding
to eight percent (8%), and for damages. Antonieta claimed that in 1946, 6. to pay, jointly and severally, the costs of the suit.[21]
she had entered into an agreement with Conchita and Buenaventura
Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to Both the petitioner and the respondents appealed this decision to the
engage in business. Antonieta alleged that the initial contribution of Court of Appeals. The petitioner claimed that the RTC erred in not
property and money came from the heirs inheritance, and her rendering a complete judgment and ordering the partition of the co-
subsequent annual investment of seven thousand five hundred pesos ownership and giving to [him] six per centum (6%) of the properties.[22]
(P7,500.00) as additional capital came from the proceeds of her farm.
Antonieta also alleged that from 1946-1969, she had helped in the
management of the business they co-owned without receiving any
While the Court of Appeals agreed to some of the RTCs factual findings,
salary. Her salary was supposedly rolled back into the business as
it also established that Antonieta Jarantilla was not part of the
additional investments in her behalf. Antonieta further claimed co-
partnership formed in 1946, and that her 8% share was limited to the
businesses enumerated in the Acknowledgement of Participating A question of law arises when there is doubt as to what the law is on a
Capital. On July 30, 2002, the Court of Appeals rendered the herein certain state of facts, while there is a question of fact when the doubt
challenged decision setting aside the RTCs decision, as follows: arises as to the truth or falsity of the alleged facts. For a question to be
one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the
WHEREFORE, the decision of the trial court, dated 18 December 1992 given set of circumstances. Once it is clear that the issue invites a review
is SET ASIDE and a new one is hereby entered ordering that: of the evidence presented, the question posed is one of fact. Thus, the
test of whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is whether
the appellate court can determine the issue raised without reviewing or
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of
evaluating the evidence, in which case, it is a question of law; otherwise
8% in the assets and profits of Manila Athletic Supply, Remotigue
it is a question of fact.[30]
Trading in Iloilo City and Remotigue Trading in Cotabato City;

Since the Court of Appeals did not fully adopt the factual findings of the
(2) after accounting, defendant Federico Jarantilla, Jr. be given his
RTC, this Court, in resolving the questions of law that are now in issue,
share of 6% of the assets and profits of the above-mentioned
shall look into the facts only in so far as the two courts a quo differed in
enterprises; and, holding that
their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946

(3) plaintiff Antonieta Jarantilla is a stockholder in the following which was affirmed in the 1957 document, the Acknowledgement of
corporations to the extent stated in their Articles of Incorporation: Participating Capital. The RTC used this as its basis for giving Antonieta
Jarantilla an 8% share in the three businesses listed therein and in the
other businesses and real properties of the respondents as they had
supposedly acquired these through funds from the partnership.[31]
(a) Rural Bank of Barotac Nuevo, Inc.;
The Court of Appeals, on the other hand, agreed with the RTC as to
Antonietas 8% share in the business enumerated in the
Acknowledgement of Participating Capital, but not as to her share in the
(b) MAS Rubber Products, Inc.; other corporations and real properties. The Court of Appeals ruled that
Antonietas claim of 8% is based on the Acknowledgement of
Participating Capital, a duly notarized document which was specific as
to the subject of its coverage. Hence, there was no reason to pattern her
(c) Manila Athletic Supply, Inc.; and share in the other corporations from her share in the partnerships
businesses. The Court of Appeals also said that her claim in the
respondents real properties was more precarious as these were all
covered by certificates of title which served as the best evidence as to
(d) B. Remotigue Agro-Industrial Development Corp.
all the matters contained therein.[32] Since petitioners claim was
essentially the same as Antonietas, the Court of Appeals also ruled that
petitioner be given his 6% share in the same businesses listed in the
(4) No costs.[23] Acknowledgement of Participating Capital.

Factual findings of the trial court, when confirmed by the Court of

Appeals, are final and conclusive except in the following cases: (1) when
the inference made is manifestly mistaken, absurd or impossible; (2)
when there is a grave abuse of discretion; (3) when the finding is
The respondents, on August 20, 2002, filed a Motion for Partial grounded entirely on speculations, surmises or conjectures; (4) when
Reconsideration but the Court of Appeals denied this in a Resolution[24] the judgment of the Court of Appeals is based on misapprehension of
dated March 21, 2003. 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 of the Court of Appeals are contrary to those of the
Antonieta Jarantilla filed before this Court her own petition for review on trial court; (8) when the findings of fact are conclusions without citation
certiorari[25] dated September 16, 2002, assailing the Court of Appeals of specific evidence on which they are based; (9) when the Court of
decision on similar grounds and similar assignments of errors as this Appeals manifestly overlooked certain relevant facts not disputed by the
present case[26] but it was dismissed on November 20, 2002 for failure parties and which, if properly considered, would justify a different
to file the appeal within the reglementary period of fifteen (15) days in conclusion; and (10) when the findings of fact of the Court of Appeals
accordance with Section 2, Rule 45 of the Rules of Court.[27] are premised on the absence of evidence and are contradicted by the
evidence on record.[33]

In this case, we find no error in the ruling of the Court of Appeals.

Petitioner filed before us this petition for review on the sole ground that:
Both the petitioner and Antonieta Jarantilla characterize their
relationship with the respondents as a co-ownership, but in the same
breath, assert that a verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating Capital.
OTHER DEFENDANTS USING COMMON FUNDS FROM THE There is a co-ownership when an undivided thing or right belongs to
BUSINESSES WHERE HE HAD OWNED SUCH SHARE.[28] different persons.[34] It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common fund,
Petitioner asserts that he was in a partnership with the Remotigue
with the intention of dividing the profits among themselves.[35] The
spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla,
Court, in Pascual v. The Commissioner of Internal Revenue,[36] quoted
Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v.
Acknowledgement of Participating Capital the Remotigue spouses
The Collector of Internal Revenue[37] to further elucidate on the
executed in 1957. He contends that from this partnership, several other
distinctions between a co-ownership and a partnership, to wit:
corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his I wish however to make the following observation: Article 1769 of the
6% share in the subject real properties. He is relying on the new Civil Code lays down the rule for determining when a transaction
Acknowledgement of Participating Capital, on his own testimony, and should be deemed a partnership or a co-ownership. Said article
Antonieta Jarantillas testimony to support this contention. paragraphs 2 and 3, provides;
The core issue is whether or not the partnership subject of the (2) Co-ownership or co-possession does not itself establish a
Acknowledgement of Participating Capital funded the subject real partnership, whether such co-owners or co-possessors do or do not
properties. In other words, what is the petitioners right over these real share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
It is a settled rule that in a petition for review on certiorari under Rule 45 partnership, whether or not the persons sharing them have a joint or
of the Rules of Civil Procedure, only questions of law may be raised by common right or interest in any property from which the returns are
the parties and passed upon by this Court.[29] derived;
From the above it appears that the fact that those who agree to form a That they are not the only owners of the capital of the three
co- ownership share or do not share any profits made by the use of the establishments and their participation in the capital of the three
property held in common does not convert their venture into a establishments together with the other co-owners as of the year 1952
partnership. Or the sharing of the gross returns does not of itself are stated as follows:
establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a 1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00
partnership, the existence of a juridical personality different from that of
the individual partners, and the freedom to transfer or assign any interest THOUSAND)
in the property by one with the consent of the others.
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE
It is evident that an isolated transaction whereby two or more persons
THOUSAND) 25,000.00
contribute funds to buy certain real estate for profit in the absence of
other circumstances showing a contrary intention cannot be considered 3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
a partnership.
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
Persons who contribute property or funds for a common enterprise and
agree to share the gross returns of that enterprise in proportion to their 5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common 6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
stock or capital, and no community of interest as principal proprietors in
the business itself which the proceeds derived. 7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00

A joint purchase of land, by two, does not constitute a co-partnership in 8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
respect thereto; nor does an agreement to share the profits and losses
on the sale of land create a partnership; the parties are only tenants in
That aside from the persons mentioned in the next preceding paragraph,
no other person has any interest in the above-mentioned three
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the IN WITNESS WHEREOF, they sign this instrument in the City of Manila,
profits of disposing of it, the brother and the other not being entitled to P.I., this 29th day of April, 1957.
share in plaintiffs commission, no partnership existed as between the
three parties, whatever their relation may have been as to third parties. [Sgd.]


In order to constitute a partnership inter sese there must be: (a) An intent
to form the same; (b) generally participating in both profits and losses;
(c) and such a community of interest, as far as third persons are [Sgd.]
concerned as enables each party to make contract, manage the CONCHITA JARANTILLA DE REMOTIGUE[40]
business, and dispose of the whole property. x x x.
The Acknowledgement of Participating Capital is a duly notarized
The common ownership of property does not itself create a partnership document voluntarily executed by Conchita Jarantilla-Remotigue and
between the owners, though they may use it for the purpose of making
Buenaventura Remotigue in 1957. Petitioner does not dispute its
gains; and they may, without becoming partners, agree among contents and is actually relying on it to prove his participation in the
themselves as to the management, and use of such property and the partnership. Article 1797 of the Civil Code provides:
application of the proceeds therefrom.[38] (Citations omitted.)
Art. 1797. The losses and profits shall be distributed in conformity with
Under Article 1767 of the Civil Code, there are two essential elements the agreement. If only the share of each partner in the profits has been
in a contract of partnership: (a) an agreement to contribute money,
agreed upon, the share of each in the losses shall be in the same
property or industry to a common fund; and (b) intent to divide the profits proportion.
among the contracting parties. The first element is undoubtedly present
in the case at bar, for, admittedly, all the parties in this case have agreed In the absence of stipulation, the share of each partner in the profits and
to, and did, contribute money and property to a common fund. Hence, losses shall be in proportion to what he may have contributed, but the
the issue narrows down to their intent in acting as they did.[39] It is not industrial partner shall not be liable for the losses. As for the profits, the
denied that all the parties in this case have agreed to contribute capital industrial partner shall receive such share as may be just and equitable
to a common fund to be able to later on share its profits. They have under the circumstances. If besides his services he has contributed
admitted this fact, agreed to its veracity, and even submitted one capital, he shall also receive a share in the profits in proportion to his
common documentary evidence to prove such partnership - the capital. (Emphases supplied.)
Acknowledgement of Participating Capital.
It is clear from the foregoing that a partner is entitled only to his share
as agreed upon, or in the absence of any such stipulations, then to his
share in proportion to his contribution to the partnership. The petitioner
As this case revolves around the legal effects of the Acknowledgement himself claims his share to be 6%, as stated in the Acknowledgement of
of Participating Capital, it would be instructive to examine the pertinent
Participating Capital. However, petitioner fails to realize that this
portions of this document: document specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was a clear agreement
ACKNOWLEDGEMENT OF that the capital the partners contributed went to the three businesses,
then there is no reason to deviate from such agreement and go beyond
PARTICIPATING CAPITAL the stipulations in the document. Therefore, the Court of Appeals did not
err in limiting petitioners share to the assets of the businesses
enumerated in the Acknowledgement of Participating Capital.


In Villareal v. Ramirez,[41] the Court held that since a partnership is a

separate juridical entity, the shares to be paid out to the partners is
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla necessarily limited only to its total resources, to wit:
de Remotigue, both of legal age, Filipinos and residents of Loyola
Heights, Quezon City, P.I. hereby state:

Since it is the partnership, as a separate and distinct entity, that must

refund the shares of the partners, the amount to be refunded is
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue necessarily limited to its total resources. In other words, it can only pay
Trading of Calle Real, Iloilo City and the Remotigue Trading, Cotabato out what it has in its coffers, which consists of all its assets. However,
Branch, Cotabato, P.I., all dealing in athletic goods and equipments, and before the partners can be paid their shares, the creditors of the
general merchandise are recorded in their respective books with partnership must first be compensated. After all the creditors have been
Buenaventura Remotigue as the registered owner and are being paid, whatever is left of the partnership assets becomes available for the
operated by them as such: payment of the partners shares.[42]
incontrovertible against any informacion possessoria, of other title
existing prior to the issuance thereof not annotated on the Torrens title.
There is no evidence that the subject real properties were assets of the Moreover, persons dealing with property covered by a Torrens
partnership referred to in the Acknowledgement of Participating Capital. certificate of title are not required to go beyond what appears on its

The petitioner further asserts that he is entitled to respondents

properties based on the concept of trust. He claims that since the subject As we have settled that this action never really was for partition of a co-
real properties were purchased using funds of the partnership, wherein ownership, to permit petitioners claim on these properties is to allow a
he has a 6% share, then law and equity mandates that he should be collateral, indirect attack on respondents admitted titles. In the words of
considered as a co-owner of those properties in such proportion.[43] In the Court of Appeals, such evidence cannot overpower the
Pigao v. Rabanillo,[44] this Court explained the concept of trusts, to wit: conclusiveness of these certificates of title, more so since plaintiffs
[petitioners] claims amount to a collateral attack, which is prohibited
under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree.[55]
Express trusts are created by the intention of the trustor or of the parties,
while implied trusts come into being by operation of law, either through
implication of an intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even contrary to, any such SEC. 48. Certificate not subject to collateral attack. A certificate of title
intention. In turn, implied trusts are either resulting or constructive trusts. shall not be subject to collateral attack. It cannot be altered, modified, or
Resulting trusts are based on the equitable doctrine that valuable cancelled except in a direct proceeding in accordance with law.
consideration and not legal title determines the equitable title or interest
and are presumed always to have been contemplated by the parties.
They arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested This Court has deemed an action or proceeding to be an attack on a title
with legal title but is obligated in equity to hold his legal title for the benefit when its objective is to nullify the title, thereby challenging the judgment
of another.[45] pursuant to which the title was decreed.[56] In Aguilar v. Alfaro,[57] this
Court further distinguished between a direct and an indirect or collateral
On proving the existence of a trust, this Court held that: attack, as follows:

Respondent has presented only bare assertions that a trust was A collateral attack transpires when, in another action to obtain a
created. Noting the need to prove the existence of a trust, this Court different relief and as an incident to the present action, an attack is made
has held thus: against the judgment granting the title. This manner of attack is to be
distinguished from a direct attack against a judgment granting the title,
As a rule, the burden of proving the existence of a trust is on the party through an action whose main objective is to annul, set aside, or enjoin
asserting its existence, and such proof must be clear and satisfactorily the enforcement of such judgment if not yet implemented, or to seek
show the existence of the trust and its elements. While implied trusts recovery if the property titled under the judgment had been disposed of.
may be proved by oral evidence, the evidence must be trustworthy and x x x.
received by the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations. Trustworthy evidence Petitioners only piece of documentary evidence is the
is required because oral evidence can easily be fabricated. [46] Acknowledgement of Participating Capital, which as discussed above,
failed to prove that the real properties he is claiming co-ownership of
The petitioner has failed to prove that there exists a trust over the were acquired out of the proceeds of the businesses covered by such
subject real properties. Aside from his bare allegations, he has failed to document. Therefore, petitioners theory has no factual or legal leg to
show that the respondents used the partnerships money to purchase the stand on.
said properties. Even assuming arguendo that some partnership income
was used to acquire these properties, the petitioner should have WHEREFORE, the Petition is hereby DENIED and the Decision of the
successfully shown that these funds came from his share in the Court of Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is
partnership profits. After all, by his own admission, and as stated in the AFFIRMED.
Acknowledgement of Participating Capital, he owned a mere 6% equity
in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real SO ORDERED.
properties, by relying on his own self-serving testimony and the equally
biased testimony of Antonieta Jarantilla. Petitioner has not presented VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING
evidence, other than these unsubstantiated testimonies, to prove that CORPORATION, and SBT[1] TRUCKING CORPORATION,
the respondents did not have the means to fund their other businesses petitioners, vs. HON. COURT OF APPEALS and JAIME SAHOT,
and real properties without the partnerships income. On the other hand, respondents.
the respondents have not only, by testimonial evidence, proven their
case against the petitioner, but have also presented sufficient QUISUMBING, J.:
documentary evidence to substantiate their claims, allegations and
This petition for review seeks the reversal of the decision[2] of the Court
defenses. They presented preponderant proof on how they acquired and
of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming
funded such properties in addition to tax receipts and tax
with modification the decision[3] of the National Labor Relations
declarations.[47] It has been held that while tax declarations and realty
Commission promulgated on June 20, 1996 in NLRC NCR CA No.
tax receipts do not conclusively prove ownership, they may constitute
010526-96. Petitioners also pray for the reinstatement of the decision[4]
strong evidence of ownership when accompanied by possession for a
of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.
period sufficient for prescription.[48] Moreover, it is a rule in this
jurisdiction that testimonial evidence cannot prevail over documentary Culled from the records are the following facts of this case:
evidence.[49] This Court had on several occasions, expressed our
disapproval on using mere self-serving testimonies to support ones Sometime in 1958, private respondent Jaime Sahot[5] started working
claim. In Ocampo v. Ocampo,[50] a case on partition of a co-ownership, as a truck helper for petitioners family-owned trucking business named
we held that: Vicente Sy Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service, later 6Bs
Petitioners assert that their claim of co-ownership of the property was Trucking Corporation in 1985, and thereafter known as SBT Trucking
sufficiently proved by their witnesses -- Luisa Ocampo-Llorin and Melita Corporation since 1994. Throughout all these changes in names and for
Ocampo. We disagree. Their testimonies cannot prevail over the array 36 years, private respondent continuously served the trucking business
of documents presented by Belen. A claim of ownership cannot be of petitioners.
based simply on the testimonies of witnesses; much less on those of
interested parties, self-serving as they are.[51] In April 1994, Sahot was already 59 years old. He had been incurring
absences as he was suffering from various ailments. Particularly
It is true that a certificate of title is merely an evidence of ownership or causing him pain was his left thigh, which greatly affected the
title over the particular property described therein. Registration in the performance of his task as a driver. He inquired about his medical and
Torrens system does not create or vest title as registration is not a mode retirement benefits with the Social Security System (SSS) on April 25,
of acquiring ownership; hence, this cannot deprive an aggrieved party 1994, but discovered that his premium payments had not been remitted
of a remedy in law.[52] However, petitioner asserts ownership over by his employer.
portions of the subject real properties on the strength of his own
admissions and on the testimony of Antonieta Jarantilla. As held by this Sahot had filed a week-long leave sometime in May 1994. On May 27th,
Court in Republic of the Philippines v. Orfinada, Sr.[53]: he was medically examined and treated for EOR, presleyopia,
hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and
heart enlargement (Annex G, p. 107).[8] On said grounds, Belen Paulino
Indeed, a Torrens title is generally conclusive evidence of ownership of
of the SBT Trucking Service management told him to file a formal
the land referred to therein, and a strong presumption exists that a
request for extension of his leave. At the end of his week-long absence,
Torrens title was regularly issued and valid. A Torrens title is
Sahot applied for extension of his leave for the whole month of June,
1994. It was at this time when petitioners allegedly threatened to
terminate his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT
if he refused to work, But he could not retire on pension because ARTICLE 402 OF THE CIVIL CODE.[11]
petitioners never paid his correct SSS premiums. The fact remained he
could no longer work as his left thigh hurt abominably. Petitioners ended
his dilemma. They carried out their threat and dismissed him from work,
effective June 30, 1994. He ended up sick, jobless and penniless. II RESPONDENT COURT OF APPEALS VIOLATED SUPREME
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration OBSERVE THE DEMEANOR AND DEPORTMENT OF THE
Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT
No. 00-09-06717-94. He prayed for the recovery of separation pay and UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL
attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen REGION (305 SCRA 233).[12]
Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking
and SBT Trucking, herein petitioners.


For their part, petitioners admitted they had a trucking business in the
1950s but denied employing helpers and drivers. They contend that
private respondent was not illegally dismissed as a driver because he
was in fact petitioners industrial partner. They add that it was not until Three issues are to be resolved: (1) Whether or not an employer-
the year 1994, when SBT Trucking Corporation was established, and employee relationship existed between petitioners and respondent
only then did respondent Sahot become an employee of the company, Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or
with a monthly salary that reached P4,160.00 at the time of his not respondent Sahot is entitled to separation pay.

Crucial to the resolution of this case is the determination of the first

Petitioners further claimed that sometime prior to June 1, 1994, Sahot issue. Before a case for illegal dismissal can prosper, an employer-
went on leave and was not able to report for work for almost seven days. employee relationship must first be established.[14]
On June 1, 1994, Sahot asked permission to extend his leave of
absence until June 30, 1994. It appeared that from the expiration of his
leave, private respondent never reported back to work nor did he file an
extension of his leave. Instead, he filed the complaint for illegal dismissal Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente
against the trucking company and its owners. Santos which found that respondent Sahot was not an employee but
was in fact, petitioners industrial partner.[15] It is contended that it was
the Labor Arbiter who heard the case and had the opportunity to observe
the demeanor and deportment of the parties. The same conclusion, aver
Petitioners add that due to Sahots refusal to work after the expiration of petitioners, is supported by substantial evidence.[16] Moreover, it is
his authorized leave of absence, he should be deemed to have argued that the findings of fact of the Labor Arbiter was wrongly
voluntarily resigned from his work. They contended that Sahot had all overturned by the NLRC when the latter made the following
the time to extend his leave or at least inform petitioners of his health pronouncement:
condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled
Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a defense
in view of the alleged similarity in the factual milieu and issues of said
case to that of Sahots, hence they are in pari material and Sahots We agree with complainant that there was error committed by the Labor
complaint ought also to be dismissed. Arbiter when he concluded that complainant was an industrial partner
prior to 1994. A computation of the age of complainant shows that he
was only twenty-three (23) years when he started working with
respondent as truck helper. How can we entertain in our mind that a
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente twenty-three (23) year old man, working as a truck helper, be considered
Santos, ruled that there was no illegal dismissal in Sahots case. Private an industrial partner. Hence we rule that complainant was only an
respondent had failed to report to work. Moreover, said the Labor employee, not a partner of respondents from the time complainant
Arbiter, petitioners and private respondent were industrial partners started working for respondent.[17]
before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay financial assistance of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.
Because the Court of Appeals also found that an employer-employee
relationship existed, petitioners aver that the appellate courts decision
gives an imprimatur to the illegal finding and conclusion of the NLRC.
On appeal, the National Labor Relations Commission modified the
judgment of the Labor Arbiter. It declared that private respondent was
an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was Private respondent, for his part, denies that he was ever an industrial
terminated on account of his illness, pursuant to Article 284[9] of the partner of petitioners. There was no written agreement, no proof that he
Labor Code. Accordingly, the NLRC ordered petitioners to pay private received a share in petitioners profits, nor was there anything to show
respondent separation pay in the amount of P60,320.00, at the rate of he had any participation with respect to the running of the business.[18]
P2,080.00 per year for 29 years of service.

The elements to determine the existence of an employment relationship

Petitioners assailed the decision of the NLRC before the Court of are: (a) the selection and engagement of the employee; (b) the payment
Appeals. In its decision dated February 29, 2000, the appellate court of wages; (c) the power of dismissal; and (d) the employers power to
affirmed with modification the judgment of the NLRC. It held that private control the employees conduct. The most important element is the
respondent was indeed an employee of petitioners since 1958. It also employers control of the employees conduct, not only as to the result of
increased the amount of separation pay awarded to private respondent the work to be done, but also as to the means and methods to
to P74,880, computed at the rate of P2,080 per year for 36 years of accomplish it.[19]
service from 1958 to 1994. It decreed:

As found by the appellate court, petitioners owned and operated a

WHEREFORE, the assailed decision is hereby AFFIRMED with trucking business since the 1950s and by their own allegations, they
MODIFICATION. SB Trucking Corporation is hereby directed to pay determined private respondents wages and rest day.[20] Records of the
complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND case show that private respondent actually engaged in work as an
EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his employee. During the entire course of his employment he did not have
separation pay.[10] the freedom to determine where he would go, what he would do, and
how he would do it. He merely followed instructions of petitioners and
was content to do so, as long as he was paid his wages. Indeed, said
the CA, private respondent had worked as a truck helper and driver of
Hence, the instant petition anchored on the following contentions: petitioners not for his own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that in a contract of partnership In termination cases, the burden is upon the employer to show by
two or more persons bind themselves to contribute money, property or substantial evidence that the termination was for lawful cause and validly
industry to a common fund, with the intention of dividing the profits made.[28] Article 277(b) of the Labor Code puts the burden of proving
among themselves.[22] Not one of these circumstances is present in this that the dismissal of an employee was for a valid or authorized cause on
case. No written agreement exists to prove the partnership between the the employer, without distinction whether the employer admits or does
parties. Private respondent did not contribute money, property or not admit the dismissal.[29] For an employees dismissal to be valid, (a)
industry for the purpose of engaging in the supposed business. There is the dismissal must be for a valid cause and (b) the employee must be
no proof that he was receiving a share in the profits as a matter of afforded due process.[30]
course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in
the management, administration and adoption of policies of the
business. Thus, the NLRC and the CA did not err in reversing the finding Article 284 of the Labor Code authorizes an employer to terminate an
of the Labor Arbiter that private respondent was an industrial partner employee on the ground of disease, viz:
from 1958 to 1994.

Art. 284. Disease as a ground for termination- An employer may

On this point, we affirm the findings of the appellate court and the NLRC. terminate the services of an employee who has been found to be
Private respondent Jaime Sahot was not an industrial partner but an suffering from any disease and whose continued employment is
employee of petitioners from 1958 to 1994. The existence of an prohibited by law or prejudicial to his health as well as the health of his
employer-employee relationship is ultimately a question of fact[23] and co-employees: xxx
the findings thereon by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported by substantial
evidence. Substantial evidence is such amount of relevant evidence
However, in order to validly terminate employment on this ground, Book
which a reasonable mind might accept as adequate to justify a
VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor
Code requires:

Time and again this Court has said that if doubt exists between the
Sec. 8. Disease as a ground for dismissal- Where the employee suffers
evidence presented by the employer and the employee, the scales of
from a disease and his continued employment is prohibited by law or
justice must be tilted in favor of the latter.[25] Here, we entertain no
prejudicial to his health or to the health of his co-employees, the
doubt. Private respondent since the beginning was an employee of, not
employer shall not terminate his employment unless there is a
an industrial partner in, the trucking business.
certification by competent public health authority that the disease is of
such nature or at such a stage that it cannot be cured within a period of
six (6) months even with proper medical treatment. If the disease or
Coming now to the second issue, was private respondent validly ailment can be cured within the period, the employer shall not terminate
dismissed by petitioners? the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon
the restoration of his normal health. (Italics supplied).

Petitioners contend that it was private respondent who refused to go

back to work. The decision of the Labor Arbiter pointed out that during
the conciliation proceedings, petitioners requested respondent Sahot to As this Court stated in Triple Eight integrated Services, Inc. vs.
report back for work. However, in the same proceedings, Sahot stated NLRC,[31] the requirement for a medical certificate under Article 284 of
that he was no longer fit to continue working, and instead he demanded the Labor Code cannot be dispensed with; otherwise, it would sanction
separation pay. Petitioners then retorted that if Sahot did not like to work the unilateral and arbitrary determination by the employer of the gravity
as a driver anymore, then he could be given a job that was less or extent of the employees illness and thus defeat the public policy in
strenuous, such as working as a checker. However, Sahot declined that the protection of labor.
suggestion. Based on the foregoing recitals, petitioners assert that it is
clear that Sahot was not dismissed but it was of his own volition that he
did not report for work anymore.
In the case at bar, the employer clearly did not comply with the medical
certificate requirement before Sahots dismissal was effected. In the
same case of Sevillana vs. I.T. (International) Corp., we ruled:
In his decision, the Labor Arbiter concluded that:

Since the burden of proving the validity of the dismissal of the employee
While it may be true that respondents insisted that complainant continue rests on the employer, the latter should likewise bear the burden of
working with respondents despite his alleged illness, there is no direct showing that the requisites for a valid dismissal due to a disease have
evidence that will prove that complainants illness prevents or been complied with. In the absence of the required certification by a
incapacitates him from performing the function of a driver. The fact competent public health authority, this Court has ruled against the
remains that complainant suddenly stopped working due to boredom or validity of the employees dismissal. It is therefore incumbent upon the
otherwise when he refused to work as a checker which certainly is a private respondents to prove by the quantum of evidence required by
much less strenuous job than a driver.[26] law that petitioner was not dismissed, or if dismissed, that the dismissal
was not illegal; otherwise, the dismissal would be unjustified. This Court
will not sanction a dismissal premised on mere conjectures and
suspicions, the evidence must be substantial and not arbitrary and must
But dealing the Labor Arbiter a reversal on this score the NLRC, be founded on clearly established facts sufficient to warrant his
concurred in by the Court of Appeals, held that: separation from work.[32]

While it was very obvious that complainant did not have any intention to In addition, we must likewise determine if the procedural aspect of due
report back to work due to his illness which incapacitated him to perform process had been complied with by the employer.
his job, such intention cannot be construed to be an abandonment.
Instead, the same should have been considered as one of those falling
under the just causes of terminating an employment. The insistence of
respondent in making complainant work did not change the scenario. From the records, it clearly appears that procedural due process was
not observed in the separation of private respondent by the
management of the trucking company. The employer is required to
furnish an employee with two written notices before the latter is
It is worthy to note that respondent is engaged in the trucking business dismissed: (1) the notice to apprise the employee of the particular acts
where physical strength is of utmost requirement (sic). Complainant or omissions for which his dismissal is sought, which is the equivalent of
started working with respondent as truck helper at age twenty-three (23), a charge; and (2) the notice informing the employee of his dismissal, to
then as truck driver since 1965. Complainant was already fifty-nine (59) be issued after the employee has been given reasonable opportunity to
when the complaint was filed and suffering from various illness triggered answer and to be heard on his defense.[33] These, the petitioners failed
by his work and age. to do, even only for record purposes. What management did was to
threaten the employee with dismissal, then actually implement the threat
when the occasion presented itself because of private respondents
painful left thigh.
x x x[27]
The project did not push through, and the land was subsequently
foreclosed by the bank.
All told, both the substantive and procedural aspects of due process
were violated. Clearly, therefore, Sahots dismissal is tainted with
According to petitioners, the project failed because of respondents lack
of funds or means and skills. They add that respondent used the loan
not for the development of the subdivision, but in furtherance of his own
On the last issue, as held by the Court of Appeals, respondent Jaime company, Universal Umbrella Company.
Sahot is entitled to separation pay. The law is clear on the matter. An
employee who is terminated because of disease is entitled to separation
pay equivalent to at least one month salary or to one-half month salary
for every year of service, whichever is greater xxx.[34] Following the On the other hand, respondent alleged that he used the loan to
formula set in Art. 284 of the Labor Code, his separation pay was implement the Agreement. With the said amount, he was able to effect
computed by the appellate court at P2,080 times 36 years (1958 to the survey and the subdivision of the lots. He secured the Lapu Lapu
1994) or P74,880. We agree with the computation, after noting that his City Councils approval of the subdivision project which he advertised in
last monthly salary was P4,160.00 so that one-half thereof is P2,080.00. a local newspaper. He also caused the construction of roads, curbs and
Finding no reversible error nor grave abuse of discretion on the part of gutters. Likewise, he entered into a contract with an engineering firm for
appellate court, we are constrained to sustain its decision. To avoid the building of sixty low-cost housing units and actually even set up a
further delay in the payment due the separated worker, whose claim was model house on one of the subdivision lots. He did all of these for a total
filed way back in 1994, this decision is immediately executory. expense of P85,000.
Otherwise, six percent (6%) interest per annum should be charged
thereon, for any delay, pursuant to provisions of the Civil Code.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
WHEREFORE, the petition is DENIED and the decision of the Court of annotations of adverse claims on the title to the land, which eventually
Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay scared away prospective buyers. Despite his requests, petitioners
private respondent Jaime Sahot his separation pay for 36 years of refused to cause the clearing of the claims, thereby forcing him to give
service at the rate of one-half monthly pay for every year of service, up on the project.[5]
amounting to P74,880.00, with interest of six per centum (6%) per
annum from finality of this decision until fully paid.
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter, they
Costs against petitioners. filed the present civil case which, upon respondent's motion, was later
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision, which,
SO ORDERED. as earlier stated, was affirmed by the CA.
ANTONIA TORRES, assisted by her husband, ANGELO TORRES;
and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and
MANUEL TORRES, respondents. Hence, this Petition.[6]

DECISION Ruling of the Court of Appeals


In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
Courts may not extricate parties from the necessary consequences of subdivision. Thus, they must bear the loss suffered by the partnership in
their acts. That the terms of a contract turn out to be financially the same proportion as their share in the profits stipulated in the
disadvantageous to them will not relieve them of their obligations contract. Disagreeing with the trial courts pronouncement that losses as
therein. The lack of an inventory of real property will not ipso facto well as profits in a joint venture should be distributed equally,[7] the CA
release the contracting partners from their respective obligations to each invoked Article 1797 of the Civil Code which provides:
other arising from acts executed in accordance with their agreement.

Article 1797 - The losses and profits shall be distributed in conformity

The Case with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR
CV No. 42378 and its June 25, 1998 Resolution denying The CA elucidated further:
reconsideration. The assailed Decision affirmed the ruling of the
Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208,
which disposed as follows:
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
WHEREFORE, for all the foregoing considerations, the Court, finding for industrial partner shall receive such share as may be just and equitable
the defendant and against the plaintiffs, orders the dismissal of the under the circumstances. If besides his services he has contributed
plaintiffs complaint. The counterclaims of the defendant are likewise capital, he shall also receive a share in the profits in proportion to his
ordered dismissed. No pronouncement as to costs.[3] capital.

The Facts The Issue

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered Petitioners impute to the Court of Appeals the following error:
into a "joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By x x x [The] Court of Appeals erred in concluding that the transaction x x
mortgaging the property, respondent obtained from Equitable Bank a x between the petitioners and respondent was that of a joint
loan of P40,000 which, under the Joint Venture Agreement, was to be venture/partnership, ignoring outright the provision of Article 1769, and
used for the development of the subdivision.[4] All three of them also other related provisions of the Civil Code of the Philippines.[8]
agreed to share the proceeds from the sale of the subdivided lots.
The Courts Ruling the expenses will not be deducted from the sales after the development
of the sub-division project.

The Petition is bereft of merit.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 40% for the FIRST PARTY, and additional profits or
Main Issue: Existence of a Partnership whatever income deriving from the sales will be divided equally
according to the x x x percentage [agreed upon] by both parties.

Petitioners deny having formed a partnership with respondent. They

contend that the Joint Venture Agreement and the earlier Deed of Sale, SIXTH: That the intended sub-division project of the property involved
both of which were the bases of the appellate courts finding of a will start the work and all improvements upon the adjacent lots will be
partnership, were void. negotiated in both parties['] favor and all sales shall [be] decided by both

In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project. SEVENTH: That the SECOND PARTIES, should be given an option to
Because the agreement entitled them to receive 60 percent of the get back the property mentioned provided the amount of TWENTY
proceeds from the sale of the subdivision lots, they pray that respondent THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
pay them damages equivalent to 60 percent of the value of the SECOND PARTY, will be paid in full to the FIRST PARTY, including all
property.[9] necessary improvements spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover the property mentioned
The pertinent portions of the Joint Venture Agreement read as follows:

That this AGREEMENT shall be binding and obligatory to the parties

who executed same freely and voluntarily for the uses and purposes
therein stated.[10]

This AGREEMENT, is made and entered into at Cebu City, Philippines,

A reading of the terms embodied in the Agreement indubitably shows
this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
the existence of a partnership pursuant to Article 1767 of the Civil Code,
x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and
which provides:

ART. 1767. By the contract of partnership two or more persons bind

W I T N E S S E T H:
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.

That, whereas, the SECOND PARTY, voluntarily offered the FIRST

PARTY, this property located at Lapu-Lapu City, Island of Mactan, under
Under the above-quoted Agreement, petitioners would contribute
Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009
property to the partnership in the form of land which was to be developed
square meters, to be sub-divided by the FIRST PARTY;
into a subdivision; while respondent would give, in addition to his
industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum according to the stipulated percentage. Clearly, the contract manifested
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, the intention of the parties to form a partnership.[11]
upon the execution of this contract for the property entrusted by the
SECOND PARTY, for sub-division projects and development purposes;
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name
NOW THEREFORE, for and in consideration of the above covenants of the respondent. On the other hand, respondent caused the subject
and promises herein contained the respective parties hereto do hereby land to be mortgaged, the proceeds of which were used for the survey
stipulate and agree as follows: and the subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the property.

ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x

dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND
FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Respondents actions clearly belie petitioners contention that he made
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. no contribution to the partnership. Under Article 1767 of the Civil Code,
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the a partner may contribute not only money or property, but also industry.
SECOND PARTY did not actually receive the payment.

Petitioners Bound by Terms of Contract

SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal obligations and this
Under Article 1315 of the Civil Code, contracts bind the parties not only
particular amount will serve as an advance payment from the FIRST
to what has been expressly stipulated, but also to all necessary
PARTY for the property mentioned to be sub-divided and to be deducted
consequences thereof, as follows:
from the sales.

ART. 1315. Contracts are perfected by mere consent, and from that
THIRD: That the FIRST PARTY, will not collect from the SECOND
moment the parties are bound not only to the fulfillment of what has been
PARTY, the interest and the principal amount involving the amount of
expressly stipulated but also to all the consequences which, according
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
to their nature, may be in keeping with good faith, usage and law.
the sub-division project is terminated and ready for sale to any interested
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it
was not in consonance with their expectations, they should have
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
objected to it and insisted on the provisions they wanted.
division project should be paid by the FIRST PARTY, exclusively and all
Courts are not authorized to extricate parties from the necessary Claiming that respondent was solely responsible for the failure of the
consequences of their acts, and the fact that the contractual stipulations subdivision project, petitioners maintain that he should be made to pay
may turn out to be financially disadvantageous will not relieve parties damages equivalent to 60 percent of the value of the property, which
thereto of their obligations. They cannot now disavow the relationship was their share in the profits under the Joint Venture Agreement.
formed from such agreement due to their supposed misunderstanding
of its terms.

We are not persuaded. True, the Court of Appeals held that petitioners
acts were not the cause of the failure of the project.[16] But it also ruled
Alleged Nullity of the Partnership Agreement that neither was respondent responsible therefor.[17] In imputing the
blame solely to him, petitioners failed to give any reason why we should
disregard the factual findings of the appellate court relieving him of fault.
Verily, factual issues cannot be resolved in a petition for review under
Petitioners argue that the Joint Venture Agreement is void under Article Rule 45, as in this case. Petitioners have not alleged, not to say shown,
1773 of the Civil Code, which provides: that their Petition constitutes one of the exceptions to this doctrine.[18]
Accordingly, we find no reversible error in the CA's ruling that petitioners
are not entitled to damages.
ART. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument. WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.

They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the SO ORDERED.
partnership is void.
INDUSTRIES, INC., respondent.
We clarify. First, Article 1773 was intended primarily to protect third DECISION
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,[12] the PANGANIBAN, J.:
execution of a public instrument would be useless if there is no inventory
of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will A partnership may be deemed to exist among parties who agree to
result in fraud to those who contract with the partnership in the belief [in] borrow money to pursue a business and to divide the profits or losses
the efficacy of the guaranty in which the immovables may consist. Thus, that may arise therefrom, even if it is shown that they have not
the contract is declared void by the law when no such inventory is made. contributed any capital of their own to a "common fund." Their
The case at bar does not involve third parties who may be prejudiced. 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
Second, petitioners themselves invoke the allegedly void contract as lie in a person who may not have directly transacted on its behalf, but
basis for their claim that respondent should pay them 60 percent of the reaped benefits from that contract.
value of the property.[13] They cannot in one breath deny the contract
and in another recognize it, depending on what momentarily suits their
purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice. The Case

In short, the alleged nullity of the partnership will not prevent courts from In the Petition for Review on Certiorari before us, Lim Tong Lim assails
considering the Joint Venture Agreement an ordinary contract from the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
which the parties rights and obligations to each other may be inferred 41477,[1] which disposed as follows:
and enforced.

WHEREFORE, [there being] no reversible error in the appealed

Partnership Agreement Not the Result of an Earlier Illegal Contract decision, the same is hereby affirmed.[2]

Petitioners also contend that the Joint Venture Agreement is void under The decretal portion of the Quezon City Regional Trial Court (RTC)
Article 1422[14] of the Civil Code, because it is the direct result of an ruling, which was affirmed by the CA, reads as follows:
earlier illegal contract, which was for the sale of the land without valid
WHEREFORE, the Court rules:

This argument is puerile. The Joint Venture Agreement clearly states

that the consideration for the sale was the expectation of profits from the
subdivision project. Its first stipulation states that petitioners did not 1. That plaintiff is entitled to the writ of preliminary attachment issued by
actually receive payment for the parcel of land sold to respondent. this Court on September 20, 1990;
Consideration, more properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or service by
another.[15] 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
In this case, the cause of the contract of sale consisted not in the stated during the trial of this case;
peso value of the land, but in the expectation of profits from the
subdivision project, for which the land was intended to be used. As
explained by the trial court, the land was in effect given to the partnership a. P532,045.00 representing [the] unpaid purchase price of the fishing
as [petitioners] participation therein. x x x There was therefore a nets covered by the Agreement plus P68,000.00 representing the
consideration for the sale, the [petitioners] acting in the expectation that, unpaid price of the floats not covered by said Agreement;
should the venture come into fruition, they [would] get sixty percent of
the net profits.

b. 12% interest per annum counted from date of plaintiffs invoices and
computed on their respective amounts as follows:
Liability of the Parties
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 1990, the lower court issued a Writ of Preliminary Attachment, which the
dated February 9, 1990; sheriff enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro Manila.

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00

dated February 13, 1990; 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
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 to have waived his right to cross-examine witnesses and to present
dated February 19, 1990; 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
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing
private respondent, ordered the sale of the fishing nets at a public
P500.00 per appearance in court;
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000.[7]

d. P65,000.00 representing P5,000.00 monthly rental for storage

charges on the nets counted from September 20, 1990 (date of
On November 18, 1992, the trial court rendered its Decision, ruling that
attachment) to September 12, 1991 (date of auction sale);
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]
e. Cost of suit.

The trial court ruled that a partnership among Lim, Chua and Yao existed
With respect to the joint liability of defendants for the principal obligation based (1) on the testimonies of the witnesses presented and (2) on a
or for the unpaid price of nets and floats in the amount of P532,045.00 Compromise Agreement executed by the three[9] in Civil Case No.
and P68,000.00, respectively, or for the total amount of P600,045.00, 1492-MN which Chua and Yao had brought against Lim in the RTC of
this Court noted that these items were attached to guarantee any Malabon, Branch 72, for (a) a declaration of nullity of commercial
judgment that may be rendered in favor of the plaintiff but, upon documents; (b) a reformation of contracts; (c) a declaration of ownership
agreement of the parties, and, to avoid further deterioration of the nets of fishing boats; (d) an injunction and (e) damages.[10] The Compromise
during the pendency of this case, it was ordered sold at public auction Agreement provided:
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
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
attached property as a guaranty for any judgment that plaintiff may be
vessels sold in the amount of P5,750,000.00 including the fishing net.
able to secure in this case with the ownership and possession of the
This P5,750,000.00 shall be applied as full payment for P3,250,000.00
nets and floats awarded and delivered by the sheriff to plaintiff as the
in favor of JL Holdings Corporation and/or Lim Tong Lim;
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 b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
earlier ordered the attachment bond filed by plaintiff to guaranty than P5,750,000.00 whatever will be the excess will be divided into 3:
damages to defendants to be cancelled and for the P900,000.00 cash 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
bidded and paid for by plaintiff to serve as its bond in favor of defendants.

c) If the proceeds of the sale the vessels will be less than P5,750,000.00
From the foregoing, it would appear therefore that whatever judgment whatever the deficiency shall be shouldered and paid to JL Holding
the plaintiff may be entitled to in this case will have to be satisfied from Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
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 The trial court noted that the Compromise Agreement was silent as to
are not entitled to damages and who did not put up a single centavo to the nature of their obligations, but that joint liability could be presumed
raise the amount of P900,000.00 aside from the fact that they are not from the equal distribution of the profit and loss.[12]
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 Lim appealed to the Court of Appeals (CA) which, as already stated,
reimbursement of the P900,000.00 deposited by it with the Clerk of affirmed the RTC.

Ruling of the Court of Appeals


In affirming the trial court, the CA held that petitioner was a partner of
The Facts 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:

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 The evidence establishes that all the defendants including herein
Gear Industries, Inc. (herein respondent). They claimed that they were appellant Lim Tong Lim undertook a partnership for a specific
engaged in a business venture with Petitioner Lim Tong Lim, who undertaking, that is for commercial fishing x x x. Obviously, the ultimate
however was not a signatory to the agreement. The total price of the undertaking of the defendants was to divide the profits among
nets amounted to P532,045. Four hundred pieces of floats worth themselves which is what a partnership essentially is x x x. By a contract
P68,000 were also sold to the Corporation.[4] 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
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 Hence, petitioner brought this recourse before this Court.[14]
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,
The Issues
(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
In his Petition and Memorandum, Lim asks this Court to reverse the Lim Tong Lim only to serve as security for the loan extended by Jesus
assailed Decision on the following grounds: Lim;

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A (5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping,
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER repairing, dry docking and other expenses for the boats would be

(6) That because of the unavailability of funds, Jesus Lim again

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS extended a loan to the partnership in the amount of P1 million secured
ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE by a check, because of which, Yao and Chua entrusted the ownership
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy

(7) That in pursuance of the business agreement, Peter Yao and Antonio
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND Chua bought nets from Respondent Philippine Fishing Gear, in behalf
ATTACHMENT OF PETITIONER LIMS GOODS. of "Ocean Quest Fishing Corporation," their purported business name.

In determining whether petitioner may be held liable for the fishing nets (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon
and floats purchased from respondent, the Court must resolve this key RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim
issue: whether by their acts, Lim, Chua and Yao could be deemed to for (a) declaration of nullity of commercial documents; (b) reformation of
have entered into a partnership. contracts; (c) declaration of ownership of fishing boats; (4) injunction;
and (e) damages.

This Courts Ruling

(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which are
already enumerated above.
The Petition is devoid of merit.

From the factual findings of both lower courts, it is clear that Chua, Yao
First and Second Issues: Existence of a Partnership and Petitioner's and Lim had decided to engage in a fishing business, which they started
Liability 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
In arguing that he should not be held liable for the equipment purchased proceeds of the sale of the boats, and to divide equally among them the
from respondent, petitioner controverts the CA finding that a partnership excess or loss. These boats, the purchase and the repair of which were
existed between him, Peter Yao and Antonio Chua. He asserts that the financed with borrowed money, fell under the term common fund under
CA based its finding on the Compromise Agreement alone. Article 1767. The contribution to such fund need not be cash or fixed
Furthermore, he disclaims any direct participation in the purchase of the assets; it could be an intangible like credit or industry. That the parties
nets, alleging that the negotiations were conducted by Chua and Yao agreed that any loss or profit from the sale and operation of the boats
only, and that he has not even met the representatives of the respondent would be divided equally among them also shows that they had indeed
company. Petitioner further argues that he was a lessor, not a partner, formed a partnership.
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 Moreover, it is clear that the partnership extended not only to the
six months, with a monthly rental of P37,500 plus 25 percent of the gross purchase of the boat, but also to that of the nets and the floats. The
catch of the boat. 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
We are not persuaded by the arguments of petitioner. The facts as found not in the acquisition of the aforesaid equipment, without which the
by the two lower courts clearly showed that there existed a partnership business could not have proceeded.
among Chua, Yao and him, pursuant to Article 1767 of the Civil Code
which provides:
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
Article 1767 - By the contract of partnership, two or more persons bind purchased the boats, which constituted the main assets of the
themselves to contribute money, property, or industry to a common fund, partnership, and they agreed that the proceeds from the sales and
with the intention of dividing the profits among themselves. operations thereof would be divided among them.

Specifically, both lower courts ruled that a partnership among the three We stress that under Rule 45, a petition for review like the present case
existed based on the following factual findings:[15] 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,
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged petitioner effectively goes beyond the bounds of a petition for review
in commercial fishing to join him, while Antonio Chua was already Yaos under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

(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;
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
(3) That they borrowed P3.25 million from Jesus Lim, brother of among them, but not to adjudicate their preexisting rights and
Petitioner Lim Tong Lim, to finance the venture. obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its
a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or
A proper adjudication of claimants rights mandates that courts must for other acts performed as such agent.[17]
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 The doctrine of corporation by estoppel may apply to the alleged
and the RTC delved into the history of the document and explored all corporation and to a third party. In the first instance, an unincorporated
the possible consequential combinations in harmony with law, logic and association, which represented itself to be a corporation, will be
fairness. Verily, the two lower courts factual findings mentioned above estopped from denying its corporate capacity in a suit against it by a
nullified petitioners argument that the existence of a partnership was third person who relied in good faith on such representation. It cannot
based only on the Compromise Agreement. 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

Petitioner Was a Partner, Not a Lessor

On the other hand, a third party who, knowing an association to be

unincorporated, nonetheless treated it as a corporation and received
We are not convinced by petitioners argument that he was merely the benefits from it, may be barred from denying its corporate existence in a
lessor of the boats to Chua and Yao, not a partner in the fishing venture. suit brought against the alleged corporation. In such case, all those who
His argument allegedly finds support in the Contract of Lease and the benefited from the transaction made by the ostensible corporation,
registration papers showing that he was the owner of the boats, despite knowledge of its legal defects, may be held liable for contracts
including F/B Lourdes where the nets were found. they impliedly assented to or took advantage of.

His allegation defies logic. In effect, he would like this Court to believe There is no dispute that the respondent, Philippine Fishing Gear
that he consented to the sale of his own boats to pay a debt of Chua and Industries, is entitled to be paid for the nets it sold. The only question
Yao, with the excess of the proceeds to be divided among the three of here is whether petitioner should be held jointly[18] liable with Chua and
them. No lessor would do what petitioner did. Indeed, his consent to the Yao. Petitioner contests such liability, insisting that only those who dealt
sale proved that there was a preexisting partnership among all three. 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.
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 Unquestionably, petitioner benefited from the use of the nets found
division among the three of the balance remaining after the payment of inside F/B Lourdes, the boat which has earlier been proven to be an
their loans, proves beyond cavil that F/B Lourdes, though registered in asset of the partnership. He in fact questions the attachment of the nets,
his name, was not his own property but an asset of the partnership. It is because the Writ has effectively stopped his use of the fishing vessel.
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.
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
We stress that it is unreasonable indeed, it is absurd -- for petitioner to the three as contracting parties in representation of it. Clearly, under the
sell his property to pay a debt he did not incur, if the relationship among law on estoppel, those acting on behalf of a corporation and those
the three of them was merely that of lessor-lessee, instead of partners. benefited by it, knowing it to be without valid existence, are held liable
as general partners.

Corporation by Estoppel
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
Petitioner argues that under the doctrine of corporation by estoppel, relationship, he is deemed to be part of said association and is covered
liability can be imputed only to Chua and Yao, and not to him. Again, we by the scope of the doctrine of corporation by estoppel. We reiterate the
disagree. ruling of the Court in Alonso v. Villamor:[19]

Section 21 of the Corporation Code of the Philippines provides: 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
Sec. 21. Corporation by estoppel. - All persons who assume to act as a party fully and fairly lays before the court the facts in issue and then,
corporation knowing it to be without authority to do so shall be liable as brushing aside as wholly trivial and indecisive all imperfections of form
general partners for all debts, liabilities and damages incurred or arising and technicalities of procedure, asks that justice be done upon the
as a result thereof: Provided however, That when any such ostensible merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust.
corporation is sued on any transaction entered by it as a corporation or Technicality, when it deserts its proper office as an aid to justice and
on any tort committed by it as such, it shall not be allowed to use as a becomes its great hindrance and chief enemy, deserves scant
defense its lack of corporate personality. consideration from courts. There should be no vested rights in

One who assumes an obligation to an ostensible corporation as such,

cannot resist performance thereof on the ground that there was in fact Third Issue: Validity of Attachment
no corporation.

Finally, petitioner claims that the Writ of Attachment was improperly

Thus, even if the ostensible corporate entity is proven to be legally issued against the nets. We agree with the Court of Appeals that this
nonexistent, a party may be estopped from denying its corporate issue is now moot and academic. As previously discussed, F/B Lourdes
existence. The reason behind this doctrine is obvious - an was an asset of the partnership and that it was placed in the name of
unincorporated association has no personality and would be petitioner, only to assure payment of the debt he and his partners owed.
incompetent to act and appropriate for itself the power and attributes of The nets and the floats were specifically manufactured and tailor-made
a corporation as provided by law; it cannot create agents or confer according to their own design, and were bought and used in the fishing
authority on another to act in its behalf; thus, those who act or purport to venture they agreed upon. Hence, the issuance of the Writ to assure the
act as its representatives or agents do so without authority and at their payment of the price stipulated in the invoices is proper. Besides, by
own risk. And as it is an elementary principle of law that a person who specific agreement, ownership of the nets remained with Respondent
acts as an agent without authority or without a principal is himself Philippine Fishing Gear, until full payment thereof.
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
WHEREFORE, the Petition is DENIED and the assailed Decision ===========
AFFIRMED. Costs against petitioner.
Income tax due thereon P1,298,080.00

Add: 14% Int. fr. 4/15/76

to 4/15/79 545,193.60
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE ===========

Dividend paid to Munich

Pursuant to reinsurance treaties, a number of local insurance firms
formed themselves into a pool in order to facilitate the handling of Reinsurance Company P3,728,412.00
business contracted with a nonresident foreign reinsurance company.
May the clearing house or insurance pool so formed be deemed a ===========
partnership or an association that is taxable as a corporation under the
National Internal Revenue Code (NIRC)? Should the pools remittances
to the member companies and to the said foreign firm be taxable as
35% withholding tax at
dividends? Under the facts of this case, has the governments right to
assess and collect said tax prescribed? source due thereon P1,304,944.20

Add: 25% surcharge 326,236.05

The Case 14% interest from

1/25/76 to 1/25/79 137,019.14

These are the main questions raised in the Petition for Review on Compromise penalty-
Certiorari before us, assailing the October 11, 1993 Decision[1] of the
Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners non-filing of return 300.00
appeal of the October 19, 1992 Decision[3] of the Court of Tax
Appeals[4] (CTA) which had previously sustained petitioners liability for late payment 300.00
deficiency income tax, interest and withholding tax. The Court of
Appeals ruled: TOTAL AMOUNT DUE & P1,768,799.39

COLLECTIBLE ===========

WHEREFORE, the petition is DISMISSED, with costs against

Dividend paid to Pool Members P 655,636.00

The petition also challenges the November 15, 1993 Court of Appeals
(CA) Resolution[6] denying reconsideration.
10% withholding tax at

The Facts source due thereon P 65,563.60

Add: 25% surcharge 16,390.90

The antecedent facts,[7] as found by the Court of Appeals, are as 14% interest from
1/25/76 to 1/25/79 6,884.18

Compromise penalty-
The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines. Upon issuance by them of non-filing of return 300.00
Erection, Machinery Breakdown, Boiler Explosion and Contractors All
late payment 300.00
Risk insurance policies, the petitioners on August 1, 1965 entered into
a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty
TOTAL AMOUNT DUE & P 89,438.68
with the Munchener Ruckversicherungs-Gesselschaft (hereafter called
Munich), a non-resident foreign insurance corporation. The reinsurance COLLECTIBLE ===========[8]
treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.

The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latters collection of
On April 14, 1976, the pool of machinery insurers submitted a financial premiums on behalf of its members, the ceding companies, was taxable
statement and filed an Information Return of Organization Exempt from income. It added that prescription did not bar the Bureau of Internal
Income Tax for the year ending in 1975, on the basis of which it was Revenue (BIR) from collecting the taxes due, because the taxpayer
assessed by the Commissioner of Internal Revenue deficiency cannot be located at the address given in the information return filed.
corporate taxes in the amount of P1,843,273.60, and withholding taxes Hence, this Petition for Review before us.[9]
in the amount of P1,768,799.39 and P89,438.68 on dividends paid to
Munich and to the petitioners, respectively. These assessments were
protested by the petitioners through its auditors Sycip, Gorres, Velayo
and Co. The Issues

On January 27, 1986, the Commissioner of Internal Revenue denied the Before this Court, petitioners raise the following issues:
protest and ordered the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest, and with[h]olding tax,
itemized as follows:
1.Whether or not the Clearing House, acting as a mere agent and
performing strictly administrative functions, and which did not insure or
assume any risk in its own name, was a partnership or association
Net income per information subject to tax as a corporation;

return P3,737,370.00

2.Whether or not the remittances to petitioners and MUNICHRE of their

respective shares of reinsurance premiums, pertaining to their individual
and separate contracts of reinsurance, were dividends subject to tax; SEC. 27. Rates of Income Tax on Domestic Corporations. --

(A) In General. -- Except as otherwise provided in this Code, an income

3.Whether or not the respondent Commissioners right to assess the tax of thirty-five percent (35%) is hereby imposed upon the taxable
Clearing House had already prescribed.[10] income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22
(B) of this Code, and taxable under this Title as a corporation xxx.

The Courts Ruling

SEC. 22. -- Definition. -- When used in this Title:

The petition is devoid of merit. We sustain the ruling of the Court of
Appeals that the pool is taxable as a corporation, and that the
governments right to assess and collect the taxes had not prescribed. xxx xxx xxx

First Issue: (B) The term corporation shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
Pool Taxable as a Corporation participacion), associations, or insurance companies, but does not
include general professional partnerships [or] a joint venture or
consortium formed for the purpose of undertaking construction projects
or engaging in petroleum, coal, geothermal and other energy operations
Petitioners contend that the Court of Appeals erred in finding that the pursuant to an operating or consortium agreement under a service
pool or clearing house was an informal partnership, which was taxable contract without the Government. General professional partnerships are
as a corporation under the NIRC. They point out that the reinsurance partnerships formed by persons for the sole purpose of exercising their
policies were written by them individually and separately, and that their common profession, no part of the income of which is derived from
liability was limited to the extent of their allocated share in the original engaging in any trade or business.
risks thus reinsured.[11] Hence, the pool did not act or earn income as
a reinsurer.[12] Its role was limited to its principal function of allocating
and distributing the risk(s) arising from the original insurance among the
signatories to the treaty or the members of the pool based on their ability xxx xxx xxx."
to absorb the risk(s) ceded[;] as well as the performance of incidental
functions, such as records, maintenance, collection and custody of
funds, etc.[13]
Thus, the Court in Evangelista v. Collector of Internal Revenue[22] held
that Section 24 covered these unregistered partnerships and even
associations or joint accounts, which had no legal personalities apart
Petitioners belie the existence of a partnership in this case, because (1) from their individual members.[23] The Court of Appeals astutely applied
they, the reinsurers, did not share the same risk or solidary liability;[14] Evangelista:[24]
(2) there was no common fund;[15] (3) the executive board of the pool
did not exercise control and management of its funds, unlike the board
of directors of a corporation;[16] and (4) the pool or clearing house was
not and could not possibly have engaged in the business of reinsurance xxx Accordingly, a pool of individual real property owners dealing in real
from which it could have derived income for itself.[17] estate business was considered a corporation for purposes of the tax in
sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue,
supra. The Supreme Court said:

The Court is not persuaded. The opinion or ruling of the Commission of

Internal Revenue, the agency tasked with the enforcement of tax laws,
is accorded much weight and even finality, when there is no showing The term partnership includes a syndicate, group, pool, joint venture or
that it is patently wrong,[18] particularly in this case where the findings other unincorporated organization, through or by means of which any
and conclusions of the internal revenue commissioner were business, financial operation, or venture is carried on. * * * (8 Mertens
subsequently affirmed by the CTA, a specialized body created for the Law of Federal Income Taxation, p. 562 Note 63)
exclusive purpose of reviewing tax cases, and the Court of Appeals.[19]
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when two or more persons bind themselves to contribute
[I]t has been the long standing policy and practice of this Court to respect money, property, or industry to a common fund, with the intention of
the conclusions of quasi-judicial agencies, such as the Court of Tax dividing the profits among themselves.[25] Its requisites are: (1) mutual
Appeals which, by the nature of its functions, is dedicated exclusively to contribution to a common stock, and (2) a joint interest in the profits.[26]
the study and consideration of tax problems and has necessarily In other words, a partnership is formed when persons contract to devote
developed an expertise on the subject, unless there has been an abuse to a common purpose either money, property, or labor with the intention
or improvident exercise of its authority.[20] of dividing the profits between themselves.[27] Meanwhile, an
association implies associates who enter into a joint enterprise x x x for
the transaction of business.[28]

This Court rules that the Court of Appeals, in affirming the CTA which
had previously sustained the internal revenue commissioner, committed
no reversible error. Section 24 of the NIRC, as worded in the year ending In the case before us, the ceding companies entered into a Pool
1975, provides: Agreement[29] or an association[30] that would handle all the insurance
businesses covered under their quota-share reinsurance treaty[31] and
surplus reinsurance treaty[32]with Munich. The following unmistakably
indicates a partnership or an association covered by Section 24 of the
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic NIRC:
corporations. -- A tax is hereby imposed upon the taxable net income
received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co- (1) The pool has a common fund, consisting of money and other
partnership (compaias colectivas), general professional partnerships, valuables that are deposited in the name and credit of the pool.[33] This
private educational institutions, and building and loan associations xxx. common fund pays for the administration and operation expenses of the

Ineludibly, the Philippine legislature included in the concept of

corporations those entities that resembled them such as unregistered (2) The pool functions through an executive board, which resembles the
partnerships and associations. Parenthetically, the NLRCs inclusion of board of directors of a corporation, composed of one representative for
such entities in the tax on corporations was made even clearer by the each of the ceding companies.[35]
Tax Reform Act of 1997,[21] which amended the Tax Code. Pertinent
provisions of the new law read as follows:
(3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial and
economically useful to the business of the ceding companies and Under its pool arrangement with the ceding companies, Munich shared
Munich, because without it they would not have received their premiums. in their income and loss. This is manifest from a reading of Articles 3[49]
The ceding companies share in the business ceded to the pool and in and 10[50] of the Quota Share Reinsurance Treaty and Articles 3[51]
the expenses according to a Rules of Distribution annexed to the Pool and 10[52] of the Surplus Reinsurance Treaty. The foregoing
Agreement.[36] Profit motive or business is, therefore, the primordial interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
reason for the pools formation. As aptly found by the CTA: exemption must be construed strictissimi juris, and the statutory
exemption claimed must be expressed in a language too plain to be
xxx The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the
transaction of business for profit. It is apparent, and petitioners admit, Finally, the petitioners claim that Munich is tax-exempt based on the RP-
that their association or coaction was indispensable [to] the transaction West German Tax Treaty is likewise unpersuasive, because the internal
of the business. x x x If together they have conducted business, profit revenue commissioner assessed the pool for corporate taxes on the
must have been the object as, indeed, profit was earned. Though the basis of the information return it had submitted for the year ending 1975,
profit was apportioned among the members, this is only a matter of a taxable year when said treaty was not yet in effect.[54] Although
consequence, as it implies that profit actually resulted.[37] petitioners omitted in their pleadings the date of effectivity of the treaty,
the Court takes judicial notice that it took effect only later, on December
14, 1984.[55]
The petitioners reliance on Pascual v. Commissioner[38] is misplaced,
because the facts obtaining therein are not on all fours with the present
case. In Pascual, there was no unregistered partnership, but merely a Third Issue: Prescription
co-ownership which took up only two isolated transactions.[39] The
Court of Appeals did not err in applying Evangelista, which involved a
partnership that engaged in a series of transactions spanning more than
ten years, as in the case before us. Petitioners also argue that the governments right to assess and collect
the subject tax had prescribed. They claim that the subject information
return was filed by the pool on April 14, 1976. On the basis of this return,
the BIR telephoned petitioners on November 11, 1981, to give them
Second Issue: notice of its letter of assessment dated March 27, 1981. Thus, the
petitioners contend that the five-year statute of limitations then provided
Pools Remittances Are Taxable in the NIRC had already lapsed, and that the internal revenue
commissioner was already barred by prescription from making an
Petitioners further contend that the remittances of the pool to the ceding
companies and Munich are not dividends subject to tax. They insist that
taxing such remittances contravene Sections 24 (b) (I) and 263 of the We cannot sustain the petitioners. The CA and the CTA categorically
1977 NIRC and would be tantamount to an illegal double taxation, as it found that the prescriptive period was tolled under then Section 333 of
would result in taxing the same premium income twice in the hands of the NIRC,[57] because the taxpayer cannot be located at the address
the same taxpayer.[40] Moreover, petitioners argue that since Munich given in the information return filed and for which reason there was delay
was not a signatory to the Pool Agreement, the remittances it received in sending the assessment.[58] Indeed, whether the governments right
from the pool cannot be deemed dividends.[41] They add that even if to collect and assess the tax has prescribed involves facts which have
such remittances were treated as dividends, they would have been been ruled upon by the lower courts. It is axiomatic that in the absence
exempt under the previously mentioned sections of the 1977 NIRC,[42] of a clear showing of palpable error or grave abuse of discretion, as in
as well as Article 7 of paragraph 1[43] and Article 5 of paragraph 5[44] this case, this Court must not overturn the factual findings of the CA and
of the RP-West German Tax Treaty.[45] the CTA.

Petitioners are clutching at straws. Double taxation means taxing the Furthermore, petitioners admitted in their Motion for Reconsideration
same property twice when it should be taxed only once. That is, xxx before the Court of Appeals that the pool changed its address, for they
taxing the same person twice by the same jurisdiction for the same stated that the pools information return filed in 1980 indicated therein its
thing.[46] In the instant case, the pool is a taxable entity distinct from the present address. The Court finds that this falls short of the requirement
individual corporate entities of the ceding companies. The tax on its of Section 333 of the NIRC for the suspension of the prescriptive period.
income is obviously different from the tax on the dividends received by The law clearly states that the said period will be suspended only if the
the said companies. Clearly, there is no double taxation here. taxpayer informs the Commissioner of Internal Revenue of any change
in the address.

The tax exemptions claimed by petitioners cannot be granted, since their

entitlement thereto remains unproven and unsubstantiated. It is WHEREFORE, the petition is DENIED. The Resolutions of the Court of
axiomatic in the law of taxation that taxes are the lifeblood of the nation. Appeals dated October 11, 1993 and November 15, 1993 are hereby
Hence, exemptions therefrom are highly disfavored in law and he who AFFIRMED. Costs against petitioners.
claims tax exemption must be able to justify his claim or right.[47]
Petitioners have failed to discharge this burden of proof. The sections of
the 1977 NIRC which they cite are inapplicable, because these were not
yet in effect when the income was earned and when the subject SO ORDERED.
information return for the year ending 1975 was filed.


Referring to the 1975 version of the counterpart sections of the NIRC,
the Court still cannot justify the exemptions claimed. Section 255 April 16, 2008
provides that no tax shall xxx be paid upon reinsurance by any company
that has already paid the tax xxx. This cannot be applied to the present YNARES-SANTIAGO, J.:
case because, as previously discussed, the pool is a taxable entity
This is a petition for review on certiorari of the June 30, 2000 Decision[1]
distinct from the ceding companies; therefore, the latter cannot
of the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the
individually claim the income tax paid by the former as their own.
Decision[2] of the Court of Tax Appeals in C.T.A. Case No. 5200. Also
assailed is the April 3, 2001 Resolution[3] denying the motion for
On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign
corporations; hence, it cannot be claimed by the ceding companies
which are domestic corporations. Nor can Munich, a foreign corporation,
The facts of the case are as follows:
be granted exemption based solely on this provision of the Tax Code,
because the same subsection specifically taxes dividends, the type of
remittances forwarded to it by the pool. Although not a signatory to the
Pool Agreement, Munich is patently an associate of the ceding On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
companies in the entity formed, pursuant to their reinsurance treaties entered into an agreement[4] with Baguio Gold Mining Company
which required the creation of said pool. (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:
x x x x[5]

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 In the course of managing and operating the project, Philex Mining made
time to time may be required by the MANAGERS within the said 3-year advances of cash and property in accordance with paragraph 5 of the
period, for use in the MANAGEMENT of the STO. NINO MINE. The said agreement. However, the mine suffered continuing losses over the
ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for years which resulted to petitioners withdrawal as manager of the mine
internal audit purposes, as the owners account in the Sto. Nino on January 28, 1982 and in the eventual cessation of mine operations
PROJECT. Any part of any income of the PRINCIPAL from the STO. on February 20, 1982.[6]
NINO MINE, which is left with the Sto. Nino PROJECT, shall be added
to such owners account.
Thereafter, on September 27, 1982, the parties executed a Compromise
with Dation in Payment[7] wherein Baguio Gold admitted an
5. Whenever the MANAGERS shall deem it necessary and convenient indebtedness to petitioner in the amount of P179,394,000.00 and
in connection with the MANAGEMENT of the STO. NINO MINE, they agreed to pay the same in three segments by first assigning Baguio
may transfer their own funds or property to the Sto. Nino PROJECT, in Golds tangible assets to petitioner, transferring to the latter Baguio
accordance with the following arrangements: Golds equitable title in its Philodrill assets and finally settling the
remaining liability through properties that Baguio Gold may acquire in
the future.

(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. 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
(b) The total of the MANAGERS account shall not exceed creditors that petitioner had assumed as guarantor. These liabilities
P11,000,000.00, except with prior approval of the PRINCIPAL; provided, pertained to long-term loans amounting to US$11,000,000.00
however, that if the compensation of the MANAGERS as herein contracted by Baguio Gold from the Bank of America NT & SA and
provided cannot be paid in cash from the Sto. Nino PROJECT, the Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
amount not so paid in cash shall be added to the MANAGERS account. 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
(c) The cash and property shall not thereafter be withdrawn from the Sto. P114,996,768.00.
Nino PROJECT until termination of this Agency.

Subsequently, petitioner wrote off in its 1982 books of account the

(d) The MANAGERS account shall not accrue interest. Since it is the remaining outstanding indebtedness of Baguio Gold by charging
desire of the PRINCIPAL to extend to the MANAGERS the benefit of P112,136,000.00 to allowances and reserves that were set up in 1981
subsequent appreciation of property, upon a projected termination of and P2,860,768.00 to the 1982 operations.
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 In its 1982 annual income tax return, petitioner deducted from its gross
not include mine development, roads, buildings, and similar property income the amount of P112,136,000.00 as loss on settlement of
which will be valueless, or of slight value, to the MANAGERS. The receivables from Baguio Gold against reserves and allowances.[9]
MANAGERS can, on the other hand, require at their option that property However, the Bureau of Internal Revenue (BIR) disallowed the amount
originally transferred by them to the Sto. Nino PROJECT be re- as deduction for bad debt and assessed petitioner a deficiency income
transferred to them. Until such assets are transferred to the tax of P62,811,161.39.
MANAGERS, this Agency shall remain subsisting.

Petitioner protested before the BIR arguing that the deduction must be
xxxx 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.
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 Petitioner emphasized that the debt arose out of a valid management
profit of the Sto. Nino PROJECT after deduction therefrom of the contract it entered into with Baguio Gold. The bad debt deduction
MANAGERS compensation. 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
xxxx petitioner to be subrogated to the rights of the original creditor.

16. The PRINCIPAL has current pecuniary obligation in favor of the Petitioner also asserted that due to Baguio Golds irreversible losses, it
MANAGERS and, in the future, may incur other obligations in favor of became evident that it would not be able to recover the advances and
the MANAGERS. This Power of Attorney has been executed as security payments it had made in behalf of Baguio Gold. For a debt to be
for the payment and satisfaction of all such obligations of the considered worthless, petitioner claimed that it was neither required to
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the institute a judicial action for collection against the debtor nor to sell or
same. Therefore, this Agency shall be irrevocable while any obligation dispose of collateral assets in satisfaction of the debt. It is enough that
of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive a taxpayer exerted diligent efforts to enforce collection and exhausted
of the MANAGERS account. After all obligations of the PRINCIPAL in all reasonable means to collect.
favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to
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
17. Notwithstanding any agreement or understanding between the petition for bankruptcy; and that the deduction did not consist of a valid
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may and subsisting debt considering that, under the management contract,
withdraw from this Agency by giving 6-month notice to the PRINCIPAL. petitioner was to be paid fifty percent (50%) of the projects net profit.[10]
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.
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
hand, it is the latter which established the juridical relation of the parties
and defined the parameters of their dealings with one another.
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. 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
ACCORDINGLY, petitioner Philex Mining Corporation is hereby procedure by which petitioner could recover the advances and
ORDERED to PAY respondent Commissioner of Internal Revenue the payments it made under the Power of Attorney. The parties entered into
amount of P62,811,161.39, plus, 20% delinquency interest due the compromise agreements as a consequence of the dissolution of their
computed from February 10, 1995, which is the date after the 20-day business relationship. It did not define that relationship or indicate its real
grace period given by the respondent within which petitioner has to pay character.
the deficiency amount x x x up to actual date of payment.

An examination of the Power of Attorney reveals that a partnership or

SO ORDERED.[11] 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,
The CTA rejected petitioners assertion that the advances it made for the cannot generally enter into a contract of partnership unless authorized
Sto. Nino mine were in the nature of a loan. It instead characterized the by law or its charter, it has been held that it may enter into a joint venture
advances as petitioners investment in a partnership with Baguio Gold which is akin to a particular partnership:
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 The legal concept of a joint venture is of common law origin. It has no
debt from petitioners gross income. 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
The CTA likewise held that the amount paid by petitioner for the long- a mutual right of control. x x x The main distinction cited by most opinions
term loan obligations of Baguio Gold could not be allowed as a bad debt in common law jurisdictions is that the partnership contemplates a
deduction. At the time the payments were made, Baguio Gold was not general business with some degree of continuity, while the joint venture
in default since its loans were not yet due and demandable. What is formed for the execution of a single transaction, and is thus of a
petitioner did was to pre-pay the loans as evidenced by the notice sent temporary nature. x x x This observation is not entirely accurate in this
by Bank of America showing that it was merely demanding payment of jurisdiction, since under the Civil Code, a partnership may be particular
the installment and interests due. Moreover, Citibank imposed and or universal, and a particular partnership may have for its object a
collected a pre-termination penalty for the pre-payment. 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
The Court of Appeals affirmed the decision of the CTA.[12] Hence, upon distinction between these two business forms, and has held that
denial of its motion for reconsideration,[13] petitioner took this recourse although a corporation cannot enter into a partnership contract, it may
under Rule 45 of the Rules of Court, alleging that: however engage in a joint venture with others. x x x (Citations omitted)
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.
Perusal of the agreement denominated as the Power of Attorney
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint interest
II. The Court of Appeals erred in ruling that the 50%-50% sharing in the in the profits of the business as shown by a 50-50 sharing in the income
net profits of the Sto. Nino Mine indicates that Philex is a partner of of the mine.
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.
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 this regard, we note that there is a substantive
III. The Court of Appeals erred in relying only on the Power of Attorney equivalence in the respective contributions of the parties to the
and in completely disregarding the Compromise Agreement and the development and operation of the mine. Pursuant to paragraphs 4 and
Amended Compromise Agreement when it construed the nature of the 5 of the agreement, petitioner and Baguio Gold were to contribute
advances made by Philex. equally to the joint venture assets under their respective accounts.
Baguio Gold would contribute P11M under its owners account plus any
of its income that is left in the project, in addition to its actual mining
claim. Meanwhile, petitioners contribution would consist of its expertise
IV. The Court of Appeals erred in refusing to delve upon the issue of the in the management and operation of mines, as well as the managers
propriety of the bad debts write-off.[14] account which is comprised of P11M in funds and property and
petitioners compensation as manager that cannot be paid in cash.

Petitioner insists that in determining the nature of its business

relationship with Baguio Gold, we should not only rely on the Power of However, petitioner asserts that it could not have entered into a
Attorney, but also on the subsequent Compromise with Dation in partnership agreement with Baguio Gold because it did not bind itself to
Payment and Amended Compromise with Dation in Payment that the contribute money or property to the project; that under paragraph 5 of
parties executed in 1982. These documents, allegedly evinced the the agreement, it was only optional for petitioner to transfer funds or
parties intent to treat the advances and payments as a loan and property to the Sto. Nio project (w)henever the MANAGERS shall deem
establish a creditor-debtor relationship between them. it necessary and convenient in connection with the MANAGEMENT of
the STO. NIO MINE.[18]

The petition lacks merit.

The wording of the parties agreement as to petitioners contribution to
the common fund does not detract from the fact that petitioner
transferred its funds and property to the project as specified in paragraph
The lower courts correctly held that the Power of Attorney is the 5, thus rendering effective the other stipulations of the contract,
instrument that is material in determining the true nature of the business particularly paragraph 5(c) which prohibits petitioner from withdrawing
relationship between petitioner and Baguio Gold. Before resort may be the advances until termination of the parties business relations. As can
had to the two compromise agreements, the parties contractual intent be seen, petitioner became bound by its contributions once the transfers
must first be discovered from the expressed language of the primary were made. The contributions acquired an obligatory nature as soon as
contract under which the parties business relations were founded. It petitioner had chosen to exercise its option under paragraph 5.
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
There is no merit to petitioners claim that the prohibition in paragraph Next, the tax court correctly observed that it was unlikely for a business
5(c) against withdrawal of advances should not be taken as an indication corporation to lend hundreds of millions of pesos to another corporation
that it had entered into a partnership with Baguio Gold; that the with neither security, or collateral, nor a specific deed evidencing the
stipulation only showed that what the parties entered into was actually a terms and conditions of such loans. The parties also did not provide a
contract of agency coupled with an interest which is not revocable at will specific maturity date for the advances to become due and demandable,
and not a partnership. 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.
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 The strongest indication that petitioner was a partner in the Sto Nio mine
agent.[19] In this case, the non-revocation or non-withdrawal under is the fact that it would receive 50% of the net profits as compensation
paragraph 5(c) applies to the advances made by petitioner who is under paragraph 12 of the agreement. The entirety of the parties
supposedly the agent and not the principal under the contract. Thus, it contractual stipulations simply leads to no other conclusion than that
cannot be inferred from the stipulation that the parties relation under the petitioners compensation is actually its share in the income of the joint
agreement is one of agency coupled with an interest and not a venture.

Article 1769 (4) of the Civil Code explicitly provides that the receipt by a
Neither can paragraph 16 of the agreement be taken as an indication person of a share in the profits of a business is prima facie evidence that
that the relationship of the parties was one of agency and not a he is a partner in the business. Petitioner asserts, however, that no such
partnership. Although the said provision states that this Agency shall be inference can be drawn against it since its share in the profits of the Sto
irrevocable while any obligation of the PRINCIPAL in favor of the Nio project was in the nature of compensation or wages of an employee,
MANAGERS is outstanding, inclusive of the MANAGERS account, it under the exception provided in Article 1769 (4) (b).[24]
does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio
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
It should be stressed that the main object of the Power of Attorney was manager of the project and had put substantial sums into the venture in
not to confer a power in favor of petitioner to contract with third persons order to ensure its viability and profitability. By pegging its compensation
on behalf of Baguio Gold but to create a business relationship between to profits, petitioner also stood not to be remunerated in case the mine
petitioner and Baguio Gold, in which the former was to manage and had no income. It is hard to believe that petitioner would take the risk of
operate the latters mine through the parties mutual contribution of not being paid at all for its services, if it were truly just an ordinary
material resources and industry. The essence of an agency, even one employee.
that is coupled with interest, is the agents ability to represent his principal
and bring about business relations between the latter and third
persons.[20] Where representation for and in behalf of the principal is
merely incidental or necessary for the proper discharge of ones Consequently, we find that petitioners compensation under paragraph
paramount undertaking under a contract, the latter may not necessarily 12 of the agreement actually constitutes its share in the net profits of the
be a contract of agency, but some other agreement depending on the partnership. Indeed, petitioner would not be entitled to an equal share in
ultimate undertaking of the parties.[21] 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
In this case, the totality of the circumstances and the stipulations in the compensation agreed upon only serves to reinforce the notion that the
parties agreement indubitably lead to the conclusion that a partnership parties relations were indeed of partners and not employer-employee.
was formed between petitioner and Baguio Gold.

All told, the lower courts did not err in treating petitioners advances as
First, it does not appear that Baguio Gold was unconditionally obligated investments in a partnership known as the Sto. Nino mine. The
to return the advances made by petitioner under the agreement. advances were not debts of Baguio Gold to petitioner inasmuch as the
Paragraph 5 (d) thereof provides that upon termination of the parties latter was under no unconditional obligation to return the same to the
business relations, the ratio which the MANAGERS account has to the former under the Power of Attorney. As for the amounts that petitioner
owners account will be determined, and the corresponding proportion of paid as guarantor to Baguio Golds creditors, we find no reason to depart
the entire assets of the STO. NINO MINE, excluding the claims shall be from the tax courts factual finding that Baguio Golds debts were not yet
transferred to petitioner.[22] As pointed out by the Court of Tax Appeals, due and demandable at the time that petitioner paid the same. Verily,
petitioner was merely entitled to a proportionate return of the mines petitioner pre-paid Baguio Golds outstanding loans to its bank creditors
assets upon dissolution of the parties business relations. There was and this conclusion is supported by the evidence on record.[26]
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.
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
Thus, the tax court correctly concluded that the agreement provided for taxpayer, who must prove by convincing evidence that he is entitled to
a distribution of assets of the Sto. Nio mine upon termination, a provision the deduction claimed.[27] In this case, petitioner failed to substantiate
that is more consistent with a partnership than a creditor-debtor its assertion that the advances were subsisting debts of Baguio Gold
relationship. It should be pointed out that in a contract of loan, a person that could be deducted from its gross income. Consequently, it could not
who receives a loan or money or any fungible thing acquires ownership claim the advances as a valid bad debt deduction.
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 WHEREFORE, the petition is DENIED. The decision of the Court of
managers account had to the owners account. 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,
In this connection, we find no contractual basis for the execution of the with 20% delinquency interest computed from February 10, 1995, which
two compromise agreements in which Baguio Gold recognized a debt in is the due date given for the payment of the deficiency income tax, up to
favor of petitioner, which supposedly arose from the termination of their the actual date of payment.
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 SO ORDERED.
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.