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Article 1767 share corresponding to eight percent (8%), and for damages.

Antonieta
claimed that in 1946, she had entered into an agreement with Conchita
FEDERICO JARANTILLA, JR., and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio
Petitioner, Deocampo to engage in business.Antonieta alleged that the initial
- versus - contribution of property and money came from the heirs inheritance,
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE,SUBSTITUTED BY and her subsequent annual investment of seven thousand five hundred
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, pesos (P7,500.00) as additional capital came from the proceeds of her
Respondents. farm. Antonieta also alleged that from 1946-1969, she had helped in the
management of the business they co-owned without receiving any
salary.Her salary was supposedly rolled back into the business as
This petition for review on certiorari[1] seeks to modify the Decision[2] of
additional investments in her behalf. Antonieta further claimed co-
the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which
ownership of certain properties[14] (the subject real properties) in the
set aside the Decision[3] dated December 18, 1992 of the Regional Trial
name of the defendants since the only way the defendants could have
Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
purchased these properties were through the partnership as they had
no other source of income.
The pertinent facts are as follows:
The respondents, including petitioner herein, in their
The spouses Andres Jarantilla and Felisa Jaleco were survived
Answer,[15] denied having formed a partnership with Antonieta in
by eight children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita,
1946. They claimed that she was in no position to do so as she was still
Rafael and Antonieta.[4] Petitioner Federico Jarantilla, Jr. is the
in school at that time. In fact, the proceeds of the lands they partitioned
grandchild of the late Jarantilla spouses by their son Federico Jarantilla,
were devoted to her studies. They also averred that while she may have
Sr. and his wife Leda Jamili.[5] Petitioner also has two other brothers:
helped in the businesses that her older sister Conchita had formed with
Doroteo and Tomas Jarantilla.
Buenaventura Remotigue, she was paid her due salary. They did not
deny the existence and validity of the Acknowledgement of Participating
Petitioner was one of the defendants in the complaint before
Capital and in fact used this as evidence to support their claim that
the RTC while Antonieta Jarantilla, his aunt, was the plaintiff therein. His
Antonietas 8% share was limited to the businesses enumerated
co-respondents before he joined his aunt Antonieta in her complaint,
therein. With regard to Antonietas claim in their other corporations and
were his late aunt Conchita Jarantillas husband Buenaventura
businesses, the respondents said these should also be limited to the
Remotigue, who died during the pendency of the case, his cousin
number of her shares as specified in the respective articles of
Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and
incorporation. The respondents denied using the partnerships income
Buenaventura Remotigue, and his brothers Doroteo and Tomas
to purchase the subject real properties and said that the certificates of
Jarantilla.[6]
title should be binding on her.[16]
In 1948, the Jarantilla heirs extrajudicially partitioned amongst
During the course of the trial at the RTC, petitioner Federico
themselves the real properties of their deceased parents.[7] With the
Jarantilla, Jr., who was one of the original defendants, entered into a
exception of the real property adjudicated to Pacita Jarantilla, the heirs
compromise agreement[17] with Antonieta Jarantilla wherein he
also agreed to allot the produce of the said real properties for the years
supported Antonietas claims and asserted that he too was entitled to six
1947-1949 for the studies of Rafael and Antonieta Jarantilla.[8]
percent (6%) of the supposed partnership in the same manner as
Antonieta was. He prayed for a favorable judgment in this wise:
In the same year, the spouses Rosita Jarantilla and Vivencio
Deocampo entered into an agreement with the spouses Buenaventura
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for
Remotigue and Conchita Jarantilla to provide mutual assistance to each
an accounting from the other defendants, and the partition of the
other by way of financial support to any commercial and agricultural
properties of the co-ownership and the delivery to the plaintiff and
activity on a joint business arrangement. This business relationship
to defendant Federico Jarantilla, Jr. of their rightful share of the
proved to be successful as they were able to establish a manufacturing
assets and properties in the co-ownership.[18]
and trading business, acquire real properties, and construct buildings,
among other things.[9] This partnership ended in 1973 when the parties,
in an Agreement,[10]voluntarily agreed to completely dissolve their joint
The RTC, in an Order[19] dated March 25, 1992, approved the
business relationship/arrangement.[11]
Joint Motion to Approve Compromise Agreement[20] and on December
18, 1992, decided in favor of Antonieta, to wit:
On April 29, 1957, the spouses Buenaventura and Conchita
Remotigue executed a document wherein they acknowledged that while
WHEREFORE, premises above-considered, the
registered only in Buenaventura Remotigues name, they were not the
Court renders judgment in favor of the plaintiff Antonieta
only owners of the capital of the businesses Manila Athletic Supply (712
Jarantilla and against defendants Cynthia Remotigue, Doroteo
Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and
Jarantilla and Tomas Jarantilla ordering the latter:
Remotigue Trading (Cotabato City). In this same Acknowledgement of
Participating Capital, they stated the participating capital of their co-
1. to deliver to the plaintiff her 8% share or its equivalent
owners as of the year 1952, with Antonieta Jarantillas stated as eight
amount on the real properties covered by TCT Nos.
thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand
35655, 338398, 338399 & 335395, all of the Registry of
pesos (P5,000.00).[12]
Deeds of Quezon City; TCT Nos. (18303)23341, 142882
& 490007(4615), all of the Registry of Deeds of Rizal; and
The present case stems from the amended complaint[13] dated
TCT No. T-6309 of the Registry of Deeds of Cotabato
April 22, 1987 filed by Antonieta Jarantilla against Buenaventura
based on their present market value;
Remotigue, 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
2. to deliver to the plaintiff her 8% share or its equivalent The respondents, on August 20, 2002, filed a Motion for Partial
amount on the Remotigue Agro-Industrial Corporation, Reconsideration but the Court of Appeals denied this in a
Manila Athletic Supply, Inc., MAS Rubber Products, Inc. Resolution[24] dated March 21, 2003.
and Buendia Recapping Corporation based on the shares
of stocks present book value; Antonieta Jarantilla filed before this Court her own petition for
review on certiorari[25] dated September 16, 2002, assailing the Court of
3. to account for the assets and income of the co- Appeals decision on similar grounds and similar assignments of errors as
ownership and deliver to plaintiff her rightful share this present case[26] but it was dismissed on November 20, 2002 for
thereof equivalent to 8%; failure to file the appeal within the reglementary period of fifteen (15)
days in accordance with Section 2, Rule 45 of the Rules of Court.[27]
4. to pay plaintiff, jointly and severally, the sum
of P50,000.00 as moral damages; Petitioner filed before us this petition for review on the sole
ground that:
5. to pay, jointly and severally, the sum of P50,000.00 as
attorneys fees; and THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT
RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS
6. to pay, jointly and severally, the costs of the suit.[21] ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE
OTHER DEFENDANTS USING COMMON FUNDS FROM THE
Both the petitioner and the respondents appealed this BUSINESSES WHERE HE HAD OWNED SUCH SHARE.[28]
decision to the Court of Appeals. The petitioner claimed that the RTC
erred in not rendering a complete judgment and ordering the partition
of the co-ownership and giving to [him] six per centum (6%) of the Petitioner asserts that he was in a partnership with the
properties.[22] Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by
While the Court of Appeals agreed to some of the RTCs factual the Acknowledgement of Participating Capital the Remotigue spouses
findings, it also established that Antonieta Jarantilla was not part of the executed in 1957. He contends that from this partnership, several other
partnership formed in 1946, and that her 8% share was limited to the corporations and businesses were established and several real
businesses enumerated in the Acknowledgement of Participating properties were acquired. In this petition, he is essentially asking for his
Capital. On July 30, 2002, the Court of Appeals rendered the herein 6% share in the subject real properties. He is relying on the
challenged decision setting aside the RTCs decision, as follows: Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantillas testimony to support this contention.
WHEREFORE, the decision of the trial court, dated 18
December 1992 is SET ASIDE and a new one is hereby entered The core issue is whether or not the partnership subject of the
ordering that: Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioners right over these real
(1) after accounting, plaintiff Antonieta Jarantilla properties?
be given her share of 8% in the assets and
profits of Manila Athletic Supply, Remotigue It is a settled rule that in a petition for review
Trading in Iloilo City and Remotigue Trading in on certiorari under Rule 45 of the Rules of Civil Procedure, only
Cotabato City; questions of law may be raised by the parties and passed upon by this
Court.[29]
(2) after accounting, defendant Federico Jarantilla,
Jr. be given his share of 6% of the assets and A question of law arises when there is doubt as to
profits of the above-mentioned enterprises; what the law is on a certain state of facts, while there is a
and, holding that question of fact when the doubt arises as to the truth or falsity
of the alleged facts. For a question to be one of law, the same
(3) plaintiff Antonieta Jarantilla is a stockholder in must not involve an examination of the probative value of the
the following corporations to the extent stated evidence presented by the litigants or any of them. The
in their Articles of Incorporation: resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that
(a) Rural Bank of Barotac Nuevo, Inc.; the issue invites a review of the evidence presented, the
question posed is one of fact. Thus, the test of whether a
(b) MAS Rubber Products, Inc.; 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
(c) Manila Athletic Supply, Inc.; and whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it
(d) B. Remotigue Agro-Industrial is a question of law; otherwise it is a question of fact.[30]
Development Corp.

(4) No costs.[23] Since the Court of Appeals did not fully adopt the factual
findings of the RTC, this Court, in resolving the questions of law that are
now in issue, shall look into the facts only in so far as the two courts a
quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since (2) Co-ownership or co-possession does not itself
1946 which was affirmed in the 1957 document, the Acknowledgement establish a partnership, whether such co-owners or co-
of Participating Capital. The RTC used this as its basis for giving Antonieta possessors do or do not share any profits made by the use of
Jarantilla an 8% share in the three businesses listed therein and in the the property;
other businesses and real properties of the respondents as they had
supposedly acquired these through funds from the partnership.[31] (3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing
The Court of Appeals, on the other hand, agreed with the RTC them have a joint or common right or interest in any property
as to Antonietas 8% share in the business enumerated in the from which the returns are derived;
Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that From the above it appears that the fact that those
Antonietas claim of 8% is based on the Acknowledgement of who agree to form a co- ownership share or do not share any
Participating Capital, a duly notarized document which was specific as to profits made by the use of the property held in common does
the subject of its coverage. Hence, there was no reason to pattern her not convert their venture into a partnership. Or the sharing of
share in the other corporations from her share in the partnerships the gross returns does not of itself establish a partnership
businesses. The Court of Appeals also said that her claim in the whether or not the persons sharing therein have a joint or
respondents real properties was more precarious as these were all common right or interest in the property. This only means that,
covered by certificates of title which served as the best evidence as to aside from the circumstance of profit, the presence of other
all the matters contained therein.[32] Since petitioners claim was elements constituting partnership is necessary, such as the
essentially the same as Antonietas, the Court of Appeals also ruled that clear intent to form a partnership, the existence of a juridical
petitioner be given his 6% share in the same businesses listed in the personality different from that of the individual partners, and
Acknowledgement of Participating Capital. the freedom to transfer or assign any interest in the property
by one with the consent of the others.
Factual findings of the trial court, when confirmed by the
Court of Appeals, are final and conclusive except in the following cases: It is evident that an isolated transaction whereby
(1) when the inference made is manifestly mistaken, absurd or two or more persons contribute funds to buy certain real estate
impossible; (2) when there is a grave abuse of discretion; (3) when the for profit in the absence of other circumstances showing a
finding is grounded entirely on speculations, surmises or conjectures; (4) contrary intention cannot be considered a partnership.
when the judgment of the Court of Appeals is based on misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court Persons who contribute property or funds for a
of Appeals, in making its findings, went beyond the issues of the case common enterprise and agree to share the gross returns of
and the same is contrary to the admissions of both appellant and that enterprise in proportion to their contribution, but who
appellee; (7) when the findings of the Court of Appeals are contrary to severally retain the title to their respective contribution, are
those of the trial court; (8) when the findings of fact are conclusions not thereby rendered partners. They have no common stock
without citation of specific evidence on which they are based; (9) when or capital, and no community of interest as principal
the Court of Appeals manifestly overlooked certain relevant facts not proprietors in the business itself which the proceeds derived.
disputed by the parties and which, if properly considered, would justify
a different conclusion; and (10) when the findings of fact of the Court of A joint purchase of land, by two, does not constitute
Appeals are premised on the absence of evidence and are contradicted a co-partnership in respect thereto; nor does an agreement to
by the evidence on record.[33] share the profits and losses on the sale of land create a
partnership; the parties are only tenants in common.
In this case, we find no error in the ruling of the Court of
Appeals. Where plaintiff, his brother, and another agreed to
Both the petitioner and Antonieta Jarantilla characterize their become owners of a single tract of realty, holding as tenants
relationship with the respondents as a co-ownership, but in the same in common, and to divide the profits of disposing of it, the
breath, assert that a verbal partnership was formed in 1946 and was brother and the other not being entitled to share in plaintiffs
affirmed in the 1957 Acknowledgement of Participating Capital. commission, no partnership existed as between the three
parties, whatever their relation may have been as to third
There is a co-ownership when an undivided thing or right parties.
belongs to different persons.[34] It is a partnership when two or more
persons bind themselves to contribute money, property, or industry to In order to constitute a partnership inter sese there
a common fund, with the intention of dividing the profits among must be: (a) An intent to form the same; (b) generally
themselves.[35] The Court, in Pascual v. The Commissioner of Internal participating in both profits and losses; (c) and such a
Revenue,[36] quoted the concurring opinion of Mr. Justice Angelo community of interest, as far as third persons are concerned as
Bautista in Evangelista v. The Collector of Internal Revenue[37] to further enables each party to make contract, manage the business,
elucidate on the distinctions between a co-ownership and a partnership, and dispose of the whole property. x x x.
to wit: The common ownership of property does not itself
create a partnership between the owners, though they may
I wish however to make the following use it for the purpose of making gains; and they may, without
observation: Article 1769 of the new Civil Code lays down the becoming partners, agree among themselves as to the
rule for determining when a transaction should be deemed a management, and use of such property and the application of
partnership or a co-ownership. Said article paragraphs 2 and the proceeds therefrom.[38] (Citations omitted.)
3, provides;
Under Article 1767 of the Civil Code, there are two essential The Acknowledgement of Participating Capital is a duly notarized
elements in a contract of partnership: (a) an agreement to contribute document voluntarily executed by Conchita Jarantilla-Remotigue and
money, property or industry to a common fund; and (b) intent to divide Buenaventura Remotigue in 1957. Petitioner does not dispute its
the profits among the contracting parties. The first element is contents and is actually relying on it to prove his participation in the
undoubtedly present in the case at bar, for, admittedly, all the parties in partnership. Article 1797 of the Civil Code provides:
this case have agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their intent in acting as Art. 1797. The losses and profits shall be distributed
they did.[39] It is not denied that all the parties in this case have agreed in conformity with the agreement. If only the share of each
to contribute capital to a common fund to be able to later on share its partner in the profits has been agreed upon, the share of each
profits. They have admitted this fact, agreed to its veracity, and even in the losses shall be in the same proportion.
submitted one common documentary evidence to prove such
partnership - the Acknowledgement of Participating Capital. In the absence of stipulation, the share of each
partner in the profits and losses shall be in proportion to what
As this case revolves around the legal effects of the he may have contributed, but the industrial partner shall not
Acknowledgement of Participating Capital, it would be instructive to be liable for the losses. As for the profits, the industrial partner
examine the pertinent portions of this document: shall receive such share as may be just and equitable under
the circumstances. If besides his services he has contributed
ACKNOWLEDGEMENT OF capital, he shall also receive a share in the profits in proportion
PARTICIPATING CAPITAL to his capital. (Emphases supplied.)

KNOW ALL MEN BY THESE PRESENTS:


It is clear from the foregoing that a partner is entitled only to
That we, the spouses Buenaventura Remotigue and Conchita his share as agreed upon, or in the absence of any such stipulations, then
Jarantilla de Remotigue, both of legal age, Filipinos and to his share in proportion to his contribution to the partnership. The
residents of Loyola Heights, Quezon City, P.I. hereby state: petitioner himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to
That the Manila Athletic Supply at 712 Raon, Manila, the realize that this document specifically enumerated the businesses
Remotigue Trading of Calle Real, Iloilo City and the Remotigue covered by the partnership: Manila Athletic Supply, Remotigue Trading
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic in Iloilo City and Remotigue Trading in Cotabato City. Since there was a
goods and equipments, and general merchandise are clear agreement that the capital the partners contributed went to the
recorded in their respective books with Buenaventura three businesses, then there is no reason to deviate from such
Remotigue as the registered owner and are being operated by agreement and go beyond the stipulations in the document. Therefore,
them as such: the Court of Appeals did not err in limiting petitioners share to the assets
of the businesses enumerated in the Acknowledgement of Participating
That they are not the only owners of the capital of Capital.
the three establishments and their participation in the capital
of the three establishments together with the other co- In Villareal v. Ramirez,[41] the Court held that since a
owners as of the year 1952 are stated as follows: partnership is a separate juridical entity, the shares to be paid out to the
partners is necessarily limited only to its total resources, to wit:
1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00
THOUSAND) Since it is the partnership, as a separate and distinct
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE entity, that must refund the shares of the partners, the
THOUSAND) 25,000.00 amount to be refunded is necessarily limited to its total
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00 resources. In other words, it can only pay out what it has in its
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00 coffers, which consists of all its assets. However, before the
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00 partners can be paid their shares, the creditors of the
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00 partnership must first be compensated. After all the creditors
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00 have been paid, whatever is left of the partnership assets
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00 becomes available for the payment of the partners shares.[42]

That aside from the persons mentioned in the next preceding


paragraph, no other person has any interest in the above- There is no evidence that the subject real properties were
mentioned three establishments. assets of the partnership referred to in the Acknowledgement of
Participating Capital.
IN WITNESS WHEREOF, they sign this instrument in the City of
Manila, P.I., this 29th day of April, 1957. The petitioner further asserts that he is entitled to
respondents properties based on the concept of trust. He claims that
since the subject real properties were purchased using funds of the
[Sgd.] partnership, wherein he has a 6% share, then law and equity mandates
BUENAVENTURA REMOTIGUE that he should be considered as a co-owner of those properties in such
proportion.[43] In Pigao v. Rabanillo,[44] this Court explained the concept
[Sgd.] of trusts, to wit:
CONCHITA JARANTILLA DE REMOTIGUE[
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 Petitioners assert that their claim of co-ownership
trust as a matter of law or through the imposition of the trust of the property was sufficiently proved by their witnesses --
irrespective of, and even contrary to, any such intention. In Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their
turn, implied trusts are either resulting or constructive trusts. testimonies cannot prevail over the array of documents
Resulting trusts are based on the equitable doctrine that presented by Belen. A claim of ownership cannot be based
valuable consideration and not legal title determines the simply on the testimonies of witnesses; much less on those of
equitable title or interest and are presumed always to have interested parties, self-serving as they are.[51]
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 with legal title It is true that a certificate of title is merely an evidence of
but is obligated in equity to hold his legal title for the benefit ownership or title over the particular property described
of another.[45] therein. Registration in the Torrens system does not create or vest title
as registration is not a mode of acquiring ownership; hence, this cannot
deprive an aggrieved party of a remedy in law.[52] However, petitioner
On proving the existence of a trust, this Court held that: asserts ownership over portions of the subject real properties on the
strength of his own admissions and on the testimony of Antonieta
Respondent has presented only bare assertions that Jarantilla. As held by this Court in Republic of the Philippines v. Orfinada,
a trust was created. Noting the need to prove the existence Sr.[53]:
of a trust, this Court has held thus:
Indeed, a Torrens title is generally conclusive evidence of
As a rule, the burden of proving the ownership of the land referred to therein, and a strong
existence of a trust is on the party asserting its presumption exists that a Torrens title was regularly issued
existence, and such proof must be clear and and valid. A Torrens title is incontrovertible against
satisfactorily show the existence of the trust and its any informacion possessoria, of other title existing prior to the
elements. While implied trusts may be proved by issuance thereof not annotated on the Torrens
oral evidence, the evidence must be trustworthy title. Moreover, persons dealing with property covered by a
and received by the courts with extreme caution, Torrens certificate of title are not required to go beyond what
and should not be made to rest on loose, equivocal appears on its face.[54]
or indefinite declarations. Trustworthy evidence is
required because oral evidence can easily be
fabricated. [46] As we have settled that this action never really was for
partition of a co-ownership, to permit petitioners claim on these
properties is to allow a collateral, indirect attack on respondents
The petitioner has failed to prove that there exists a trust over admitted titles. In the words of the Court of Appeals, such evidence
the subject real properties. Aside from his bare allegations, he has failed cannot overpower the conclusiveness of these certificates of title, more
to show that the respondents used the partnerships money to purchase so since plaintiffs [petitioners] claims amount to a collateral attack,
the said properties. Even assuming arguendo that some partnership which is prohibited under Section 48 of Presidential Decree No. 1529,
income was used to acquire these properties, the petitioner should have the Property Registration Decree.[55]
successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the SEC. 48. Certificate not subject to collateral attack. A
Acknowledgement of Participating Capital, he owned a mere 6% equity certificate of title shall not be subject to collateral attack. It
in the partnership. cannot be altered, modified, or cancelled except in a direct
proceeding in accordance with law.
In essence, the petitioner is claiming his 6% share in the
subject real properties, by relying on his own self-serving testimony and
the equally biased testimony of Antonieta Jarantilla.Petitioner has not This Court has deemed an action or proceeding to be an attack
presented evidence, other than these unsubstantiated testimonies, to on a title when its objective is to nullify the title, thereby challenging the
prove that the respondents did not have the means to fund their other judgment pursuant to which the title was decreed.[56]In Aguilar v.
businesses and real properties without the partnerships income. On the Alfaro,[57] this Court further distinguished between a direct and an
other hand, the respondents have not only, by testimonial evidence, indirect or collateral attack, as follows:
proven their case against the petitioner, but have also presented
sufficient documentary evidence to substantiate their claims, allegations A collateral attack transpires when, in another
and defenses. They presented preponderant proof on how they action to obtain a different relief and as an incident to the
acquired and funded such properties in addition to tax receipts and tax present action, an attack is made against the judgment
declarations.[47] It has been held that while tax declarations and realty granting the title. This manner of attack is to be distinguished
tax receipts do not conclusively prove ownership, they may constitute from a direct attack against a judgment granting the title,
strong evidence of ownership when accompanied by possession for a through an action whose main objective is to annul, set aside,
period sufficient for prescription.[48] Moreover, it is a rule in this or enjoin the enforcement of such judgment if not yet
jurisdiction that testimonial evidence cannot prevail over documentary implemented, or to seek recovery if the property titled under
evidence.[49] This Court had on several occasions, expressed our the judgment had been disposed of. x x x.
disapproval on using mere self-serving testimonies to support ones
claim. In Ocampo v. Ocampo,[50] a case on partition of a co-ownership,
we held that: Petitioners only piece of documentary evidence is the
Acknowledgement of Participating Capital, which as discussed above,
failed to prove that the real properties he is claiming co-ownership of
were acquired out of the proceeds of the businesses covered by such Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT
document. Therefore, petitioners theory has no factual or legal leg to Trucking, herein petitioners.
stand on.
For their part, petitioners admitted they had a trucking business in
WHEREFORE, the Petition is hereby DENIED and the Decision the 1950s but denied employing helpers and drivers. They contend that
of the Court of Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 private respondent was not illegally dismissed as a driver because he was
is AFFIRMED. in fact petitioners industrial partner. They add that it was not until the
year 1994, when SBT Trucking Corporation was established, and only
SO ORDERED. then did respondent Sahot become an employee of the company, with
a monthly salary that reached P4,160.00 at the time of his separation.
VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and Petitioners further claimed that sometime prior to June 1, 1994,
SBT[1] TRUCKING CORPORATION, petitioners, Sahot went on leave and was not able to report for work for almost
vs. seven days. On June 1, 1994, Sahot asked permission to extend his leave
HON. COURT OF APPEALS and JAIME SAHOT, respondents. of absence until June 30, 1994. It appeared that from the expiration of
[G.R. No. 142293. February 27, 2003] his leave, private respondent never reported back to work nor did he file
an extension of his leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its owners.
This petition for review seeks the reversal of the decision[2] of the Court
of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming Petitioners add that due to Sahots refusal to work after the
with modification the decision[3] of the National Labor Relations expiration of his authorized leave of absence, he should be deemed to
Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526- have voluntarily resigned from his work. They contended that Sahot had
96. Petitioners also pray for the reinstatement of the decision[4] of the all the time to extend his leave or at least inform petitioners of his health
Labor Arbiter in NLRC NCR Case No. 00-09-06717-94. condition. Lastly, they cited NLRC Case No. RE-4997-76,
entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a
Culled from the records are the following facts of this case: defense in view of the alleged similarity in the factual milieu and issues
Sometime in 1958, private respondent Jaime Sahot[5] started of said case to that of Sahots, hence they are in pari material and Sahots
working as a truck helper for petitioners family-owned trucking business complaint ought also to be dismissed.
named Vicente Sy Trucking. In 1965, he became a truck driver of the The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel
same family business, renamed T. Paulino Trucking Service, later 6Bs Cadiente Santos, ruled that there was no illegal dismissal in Sahots case.
Trucking Corporation in 1985, and thereafter known as SBT Trucking Private respondent had failed to report to work. Moreover, said the
Corporation since 1994. Throughout all these changes in names and for Labor Arbiter, petitioners and private respondent were industrial
36 years, private respondent continuously served the trucking business partners before January 1994. The Labor Arbiter concluded by ordering
of petitioners. petitioners to pay financial assistance of P15,000 to Sahot for having
In April 1994, Sahot was already 59 years old. He had been served the company as a regular employee since January 1994 only.
incurring absences as he was suffering from various On appeal, the National Labor Relations Commission modified the
ailments. Particularly causing him pain was his left thigh, which greatly judgment of the Labor Arbiter. It declared that private respondent was
affected the performance of his task as a driver. He inquired about his an employee, not an industrial partner, since the start. Private
medical and retirement benefits with the Social Security System (SSS) on respondent Sahot did not abandon his job but his employment was
April 25, 1994, but discovered that his premium payments had not been terminated on account of his illness, pursuant to Article 284[9] of the
remitted by his employer. Labor Code. Accordingly, the NLRC ordered petitioners to pay private
Sahot had filed a week-long leave sometime in May 1994. On May respondent separation pay in the amount of P60,320.00, at the rate of
27th, he was medically examined and treated for EOR, presleyopia, P2,080.00 per year for 29 years of service.
hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104, Petitioners assailed the decision of the NLRC before the Court of
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and Appeals. In its decision dated February 29, 2000, the appellate court
heart enlargement (Annex G, p. 107).[8] On said grounds, Belen Paulino affirmed with modification the judgment of the NLRC. It held that private
of the SBT Trucking Service management told him to file a formal request respondent was indeed an employee of petitioners since 1958. It also
for extension of his leave. At the end of his week-long absence, Sahot increased the amount of separation pay awarded to private respondent
applied for extension of his leave for the whole month of June, 1994. It to P74,880, computed at the rate of P2,080 per year for 36 years of
was at this time when petitioners allegedly threatened to terminate his service from 1958 to 1994. It decreed:
employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing WHEREFORE, the assailed decision is hereby AFFIRMED with
dismissal if he refused to work, But he could not retire on pension MODIFICATION. SB Trucking Corporation is hereby directed to pay
because petitioners never paid his correct SSS premiums. The fact complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT
remained he could no longer work as his left thigh hurt abominably. HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]
Petitioners ended his dilemma. They carried out their threat and
dismissed him from work, effective June 30, 1994. He ended up sick, Hence, the instant petition anchored on the following contentions:
jobless and penniless.
I RESPONDENT COURT OF APPEALS IN PROMULGATING THE
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE
Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No. DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT
00-09-06717-94. He prayed for the recovery of separation pay and IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL
attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, CODE.[11]
II RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING CA, private respondent had worked as a truck helper and driver of
THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE petitioners not for his own pleasure but under the latters control.
FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A
BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF Article 1767[21] of the Civil Code states that in a contract of
THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT partnership two or more persons bind themselves to contribute money,
UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION property or industry to a common fund, with the intention of dividing
(305 SCRA 233).[12] the profits among themselves.[22] Not one of these circumstances is
present in this case. No written agreement exists to prove the
III PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT partnership between the parties. Private respondent did not contribute
TRUCKING CORPORATION.[13] money, property or industry for the purpose of engaging in the supposed
business. There is no proof that he was receiving a share in the profits as
Three issues are to be resolved: (1) Whether or not an employer- a matter of course, during the period when the trucking business was
employee relationship existed between petitioners and respondent under operation. Neither is there any proof that he had actively
Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or participated in the management, administration and adoption of policies
not respondent Sahot is entitled to separation pay. of the business. Thus, the NLRC and the CA did not err in reversing the
Crucial to the resolution of this case is the determination of the finding of the Labor Arbiter that private respondent was an industrial
first issue. Before a case for illegal dismissal can prosper, an employer- partner from 1958 to 1994.
employee relationship must first be established.[14] On this point, we affirm the findings of the appellate court and the
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente NLRC. Private respondent Jaime Sahot was not an industrial partner but
Santos which found that respondent Sahot was not an employee but was an employee of petitioners from 1958 to 1994. The existence of an
in fact, petitioners industrial partner.[15] It is contended that it was the employer-employee relationship is ultimately a question of fact[23] and
Labor Arbiter who heard the case and had the opportunity to observe the findings thereon by the NLRC, as affirmed by the Court of Appeals,
the demeanor and deportment of the parties. The same conclusion, aver deserve not only respect but finality when supported by substantial
petitioners, is supported by substantial evidence.[16] Moreover, it is evidence. Substantial evidence is such amount of relevant evidence
argued that the findings of fact of the Labor Arbiter was wrongly which a reasonable mind might accept as adequate to justify a
overturned by the NLRC when the latter made the following conclusion.[24]
pronouncement: Time and again this Court has said that if doubt exists between the
evidence presented by the employer and the employee, the scales of
We agree with complainant that there was error committed by the Labor justice must be tilted in favor of the latter.[25] Here, we entertain no
Arbiter when he concluded that complainant was an industrial partner doubt. Private respondent since the beginning was an employee of, not
prior to 1994. A computation of the age of complainant shows that he an industrial partner in, the trucking business.
was only twenty-three (23) years when he started working with
respondent as truck helper. How can we entertain in our mind that a Coming now to the second issue, was private respondent validly
twenty-three (23) year old man, working as a truck helper, be considered dismissed by petitioners?
an industrial partner. Hence we rule that complainant was only an Petitioners contend that it was private respondent who refused to
employee, not a partner of respondents from the time complainant go back to work. The decision of the Labor Arbiter pointed out that
started working for respondent.[17] during the conciliation proceedings, petitioners requested respondent
Sahot to report back for work. However, in the same proceedings, Sahot
Because the Court of Appeals also found that an employer- stated that he was no longer fit to continue working, and instead he
employee relationship existed, petitioners aver that the appellate courts demanded separation pay. Petitioners then retorted that if Sahot did not
decision gives an imprimatur to the illegal finding and conclusion of the like to work as a driver anymore, then he could be given a job that was
NLRC. less strenuous, such as working as a checker. However, Sahot declined
that suggestion. Based on the foregoing recitals, petitioners assert that
Private respondent, for his part, denies that he was ever an
it is clear that Sahot was not dismissed but it was of his own volition that
industrial partner of petitioners. There was no written agreement, no
he did not report for work anymore.
proof that he received a share in petitioners profits, nor was there
anything to show he had any participation with respect to the running of In his decision, the Labor Arbiter concluded that:
the business.[18]

The elements to determine the existence of an employment While it may be true that respondents insisted that complainant
relationship are: (a) the selection and engagement of the employee; (b) continue working with respondents despite his alleged illness, there is
the payment of wages; (c) the power of dismissal; and (d) the employers no direct evidence that will prove that complainants illness prevents or
power to control the employees conduct. The most important element incapacitates him from performing the function of a driver. The fact
is the employers control of the employees conduct, not only as to the remains that complainant suddenly stopped working due to boredom or
result of the work to be done, but also as to the means and methods to otherwise when he refused to work as a checker which certainly is a
accomplish it.[19] much less strenuous job than a driver.[26]

As found by the appellate court, petitioners owned and operated But dealing the Labor Arbiter a reversal on this score the NLRC,
a trucking business since the 1950s and by their own allegations, they concurred in by the Court of Appeals, held that:
determined private respondents wages and rest day.[20] Records of the
case show that private respondent actually engaged in work as an
employee. During the entire course of his employment he did not have While it was very obvious that complainant did not have any intention
the freedom to determine where he would go, what he would do, and to report back to work due to his illness which incapacitated him to
how he would do it. He merely followed instructions of petitioners and perform his job, such intention cannot be construed to be an
was content to do so, as long as he was paid his wages. Indeed, said the abandonment. Instead, the same should have been considered as one
of those falling under the just causes of terminating an employment. The private respondents to prove by the quantum of evidence required by
insistence of respondent in making complainant work did not change the law that petitioner was not dismissed, or if dismissed, that the dismissal
scenario. was not illegal; otherwise, the dismissal would be unjustified. This Court
will not sanction a dismissal premised on mere conjectures and
It is worthy to note that respondent is engaged in the trucking business suspicions, the evidence must be substantial and not arbitrary and must
where physical strength is of utmost requirement (sic). Complainant be founded on clearly established facts sufficient to warrant his
started working with respondent as truck helper at age twenty-three separation from work.[32]
(23), then as truck driver since 1965. Complainant was already fifty-nine
(59) when the complaint was filed and suffering from various illness In addition, we must likewise determine if the procedural aspect
triggered by his work and age. of due process had been complied with by the employer.

From the records, it clearly appears that procedural due process


x x x[27] was not observed in the separation of private respondent by the
management of the trucking company. The employer is required to
In termination cases, the burden is upon the employer to show by furnish an employee with two written notices before the latter is
substantial evidence that the termination was for lawful cause and dismissed: (1) the notice to apprise the employee of the particular acts
validly made.[28] Article 277(b) of the Labor Code puts the burden of or omissions for which his dismissal is sought, which is the equivalent of
proving that the dismissal of an employee was for a valid or authorized a charge; and (2) the notice informing the employee of his dismissal, to
cause on the employer, without distinction whether the employer be issued after the employee has been given reasonable opportunity to
admits or does not admit the dismissal.[29] For an employees dismissal to answer and to be heard on his defense.[33] These, the petitioners failed
be valid, (a) the dismissal must be for a valid cause and (b) the employee to do, even only for record purposes. What management did was to
must be afforded due process.[30] threaten the employee with dismissal, then actually implement the
threat when the occasion presented itself because of private
Article 284 of the Labor Code authorizes an employer to terminate
respondents painful left thigh.
an employee on the ground of disease, viz:
All told, both the substantive and procedural aspects of due
Art. 284. Disease as a ground for termination- An employer may process were violated. Clearly, therefore, Sahots dismissal is tainted with
terminate the services of an employee who has been found to be invalidity.
suffering from any disease and whose continued employment is
On the last issue, as held by the Court of Appeals, respondent
prohibited by law or prejudicial to his health as well as the health of his
Jaime Sahot is entitled to separation pay. The law is clear on the matter.
co-employees: xxx
An employee who is terminated because of disease is entitled to
separation pay equivalent to at least one month salary or to one-half
However, in order to validly terminate employment on this month salary for every year of service, whichever is greater
ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of xxx.[34] Following the formula set in Art. 284 of the Labor Code, his
the Labor Code requires: separation pay was computed by the appellate court at P2,080 times 36
years (1958 to 1994) or P74,880. We agree with the computation, after
Sec. 8. Disease as a ground for dismissal- Where the employee suffers noting that his last monthly salary was P4,160.00 so that one-half
from a disease and his continued employment is prohibited by law or thereof is P2,080.00. Finding no reversible error nor grave abuse of
prejudicial to his health or to the health of his co-employees, the discretion on the part of appellate court, we are constrained to sustain
employer shall not terminate his employment unless there is a its decision. To avoid further delay in the payment due the separated
certification by competent public health authority that the disease is of worker, whose claim was filed way back in 1994, this decision is
such nature or at such a stage that it cannot be cured within a period of immediately executory. Otherwise, six percent (6%) interest per annum
six (6) months even with proper medical treatment. If the disease or should be charged thereon, for any delay, pursuant to provisions of the
ailment can be cured within the period, the employer shall not terminate Civil Code.
the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon WHEREFORE, the petition is DENIED and the decision of the Court
the restoration of his normal health. (Italics supplied). of Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay
private respondent Jaime Sahot his separation pay for 36 years of service
at the rate of one-half monthly pay for every year of service, amounting
As this Court stated in Triple Eight integrated Services, Inc. vs. to P74,880.00, with interest of six per centum (6%) per annum from
NLRC,[31] the requirement for a medical certificate under Article 284 of finality of this decision until fully paid.
the Labor Code cannot be dispensed with; otherwise, it would sanction
the unilateral and arbitrary determination by the employer of the gravity Costs against petitioners.
or extent of the employees illness and thus defeat the public policy in
the protection of labor. SO ORDERED.

In the case at bar, the employer clearly did not comply with the
medical certificate requirement before Sahots dismissal was effected. In
the same case of Sevillana vs. I.T. (International) Corp., we ruled:

Since the burden of proving the validity of the dismissal of the employee
rests on the employer, the latter should likewise bear the burden of
showing that the requisites for a valid dismissal due to a disease have
been complied with. In the absence of the required certification by a
competent public health authority, this Court has ruled against the
validity of the employees dismissal. It is therefore incumbent upon the
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted.Thereafter, they
filed the present civil case which, upon respondent's motion, was later
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further
proceedings.Thereafter, the RTC issued its assailed Decision, which, as
earlier stated, was affirmed by the CA.
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners, Hence, this Petition.[6]
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
Ruling of the Court of Appeals
[G.R. No. 134559. December 9, 1999]
In affirming the trial court, the Court of Appeals held that petitioners and
Courts may not extricate parties from the necessary consequences of
respondent had formed a partnership for the development of the
their acts. That the terms of a contract turn out to be financially
subdivision. Thus, they must bear the loss suffered by the partnership in
disadvantageous to them will not relieve them of their obligations
the same proportion as their share in the profits stipulated in the
therein. The lack of an inventory of real property will not ipso
contract. Disagreeing with the trial courts pronouncement that losses as
facto release the contracting partners from their respective
well as profits in a joint venture should be distributed equally,[7] the CA
obligations to each other arising from acts executed in accordance with
invoked Article 1797 of the Civil Code which provides:
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
The Petition for Review on Certiorari before us assails the March 5, 1998 been agreed upon, the share of each in the losses shall be in the same
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV proportion.
No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the The CA elucidated further:
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
WHEREFORE, for all the foregoing considerations, the Court, finding for losses shall be in proportion to what he may have contributed, but the
the defendant and against the plaintiffs, orders the dismissal of the industrial partner shall not be liable for the losses. As for the profits, the
plaintiffs complaint. The counterclaims of the defendant are likewise industrial partner shall receive such share as may be just and equitable
ordered dismissed. No pronouncement as to costs.[3] under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his
capital.
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered
into a "joint venture agreement" with Respondent Manuel Torres for the The Issue
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 Petitioners impute to the Court of Appeals the following error:
mortgaging the property, respondent obtained from Equitable Bank a x x x [The] Court of Appeals erred in concluding that the transaction x x
loan of P40,000 which, under the Joint Venture Agreement, was to be x between the petitioners and respondent was that of a joint
used for the development of the subdivision.[4] All three of them also venture/partnership, ignoring outright the provision of Article 1769, and
agreed to share the proceeds from the sale of the subdivided lots. other related provisions of the Civil Code of the Philippines.[8]
The project did not push through, and the land was subsequently
foreclosed by the bank. The Courts Ruling

According to petitioners, the project failed because of


respondents lack of funds or means and skills. They add that respondent The Petition is bereft of merit.
used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company. Main Issue: Existence of a Partnership

On the other hand, respondent alleged that he used the loan to


implement the Agreement. With the said amount, he was able to effect Petitioners deny having formed a partnership with
the survey and the subdivision of the lots. He secured the Lapu Lapu City respondent. They contend that the Joint Venture Agreement and the
Councils approval of the subdivision project which he advertised in a earlier Deed of Sale, both of which were the bases of the appellate courts
local newspaper. He also caused the construction of roads, curbs and finding of a partnership, were void.
gutters.Likewise, he entered into a contract with an engineering firm for
the building of sixty low-cost housing units and actually even set up a In the same breath, however, they assert that under those very
model house on one of the subdivision lots. He did all of these for a total same contracts, respondent is liable for his failure to implement the
expense of P85,000. project. Because the agreement entitled them to receive 60 percent of
the proceeds from the sale of the subdivision lots, they pray that
Respondent claimed that the subdivision project failed, however, respondent pay them damages equivalent to 60 percent of the value of
because petitioners and their relatives had separately caused the the property.[9]
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners The pertinent portions of the Joint Venture Agreement read as
refused to cause the clearing of the claims, thereby forcing him to give follows:
up on the project.[5]
KNOW ALL MEN BY THESE PRESENTS: THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
This AGREEMENT, is made and entered into at Cebu City, Philippines, this necessary improvements spent by the FIRST PARTY, and the FIRST PARTY
5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x will be given a grace period to turnover the property mentioned above.
the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY: That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
W I T N E S S E T H: stated.[10]

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, A reading of the terms embodied in the Agreement indubitably
this property located at Lapu-Lapu City, Island of Mactan, under Lot No. shows the existence of a partnership pursuant to Article 1767 of the Civil
1368 covering TCT No. T-0184 with a total area of 17,009 square meters, Code, which provides:
to be sub-divided by the FIRST PARTY; ART. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum fund, with the intention of dividing the profits among themselves.
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon
the execution of this contract for the property entrusted by the SECOND Under the above-quoted Agreement, petitioners would contribute
PARTY, for sub-division projects and development purposes; property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in addition
NOW THEREFORE, for and in consideration of the above covenants and to his industry, the amount needed for general expenses and other
promises herein contained the respective parties hereto do hereby costs. Furthermore, the income from the said project would be divided
stipulate and agree as follows: according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership.[11]
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x
It should be stressed that the parties implemented the
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
contract. Thus, petitioners transferred the title to the land to facilitate
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for
its use in the name of the respondent. On the other hand, respondent
1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
caused the subject land to be mortgaged, the proceeds of which were
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
used for the survey and the subdivision of the land. As noted earlier, he
actually receive the payment.
developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, property.
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, for their personal obligations and this particular Respondents actions clearly belie petitioners contention that he
amount will serve as an advance payment from the FIRST PARTY for the made no contribution to the partnership. Under Article 1767 of the Civil
property mentioned to be sub-divided and to be deducted from the Code, a partner may contribute not only money or property, but also
sales. industry.

Petitioners Bound by Terms of Contract


THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY,
the interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub- Under Article 1315 of the Civil Code, contracts bind the parties not
division project is terminated and ready for sale to any interested only to what has been expressly stipulated, but also to all necessary
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, consequences thereof, as follows:
Philippine currency, will be deducted accordingly.
ART. 1315. Contracts are perfected by mere consent, and from that
FOURTH: That all general expense[s] and all cost[s] involved in the sub- moment the parties are bound not only to the fulfillment of what has
division project should be paid by the FIRST PARTY, exclusively and all been expressly stipulated but also to all the consequences which,
the expenses will not be deducted from the sales after the development according to their nature, may be in keeping with good faith, usage and
of the sub-division project. law.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY It is undisputed that petitioners are educated and are thus
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% presumed to have understood the terms of the contract they voluntarily
for the FIRST PARTY, and additional profits or whatever income deriving signed. If it was not in consonance with their expectations, they should
from the sales will be divided equally according to the x x x percentage have objected to it and insisted on the provisions they wanted.
[agreed upon] by both parties. Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations
SIXTH: That the intended sub-division project of the property involved may turn out to be financially disadvantageous will not relieve parties
will start the work and all improvements upon the adjacent lots will be thereto of their obligations. They cannot now disavow the relationship
negotiated in both parties['] favor and all sales shall [be] decided by both formed from such agreement due to their supposed misunderstanding
parties. of its terms.

Alleged Nullity of the Partnership Agreement


SEVENTH: That the SECOND PARTIES, should be given an option to get
back the property mentioned provided the amount of TWENTY
Petitioners argue that the Joint Venture Agreement is void under pay damages equivalent to 60 percent of the value of the property,
Article 1773 of the Civil Code, which provides: which was their share in the profits under the Joint Venture Agreement.

ART. 1773. A contract of partnership is void, whenever immovable We are not persuaded. True, the Court of Appeals held that
property is contributed thereto, if an inventory of said property is not petitioners acts were not the cause of the failure of the project.[16] But it
made, signed by the parties, and attached to the public instrument. also ruled that neither was respondent responsible therefor.[17] In
imputing the blame solely to him, petitioners failed to give any reason
They contend that since the parties did not make, sign or attach to why we should disregard the factual findings of the appellate court
the public instrument an inventory of the real property contributed, the relieving him of fault. Verily, factual issues cannot be resolved in a
partnership is void. petition for review under Rule 45, as in this case. Petitioners have not
alleged, not to say shown, that their Petition constitutes one of the
We clarify. First, Article 1773 was intended primarily to protect exceptions to this doctrine.[18] Accordingly, we find no reversible error in
third persons. Thus, the eminent Arturo M. Tolentino states that under the CA's ruling that petitioners are not entitled to damages.
the aforecited provision which is a complement of Article 1771,[12] the
execution of a public instrument would be useless if there is no inventory WHEREFORE, the Petition is hereby DENIED and the challenged
of the property contributed, because without its designation and Decision AFFIRMED. Costs against petitioners.
description, they cannot be subject to inscription in the Registry of SO ORDERED.
Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief
[in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such
inventory is made. The case at bar does not involve third parties who
may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract


as basis for their claim that respondent should pay them 60 percent of
the value of the property.[13] They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in regard
to a contract and courts will not tolerate, much less approve, such
practice.

In short, the alleged nullity of the partnership will not prevent


courts from considering the Joint Venture Agreement an ordinary
contract from which the parties rights and obligations to each other may
be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void


under Article 1422[14] of the Civil Code, because it is the direct result of
an earlier illegal contract, which was for the sale of the land without valid
consideration.

This argument is puerile. The Joint Venture Agreement clearly


states that the consideration for the sale was the expectation of profits
from the subdivision project. Its first stipulation states that petitioners
did not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can
take different forms, such as the prestation or promise of a thing or
LIM TONG LIM, petitioner,
service by another.[15]
vs.
In this case, the cause of the contract of sale consisted not in the PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
stated peso value of the land, but in the expectation of profits from the [G.R. No. 136448. November 3, 1999]
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 A partnership may be deemed to exist among parties who agree to
partnership as [petitioners] participation therein. x x x There was borrow money to pursue a business and to divide the profits or losses
therefore a consideration for the sale, the [petitioners] acting in the that may arise therefrom, even if it is shown that they have not
expectation that, should the venture come into fruition, they [would] get contributed any capital of their own to a "common fund." Their
sixty percent of the net profits. 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
Liability of the Parties
by or on behalf of the partnership. The liability for a contract entered
into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted on
Claiming that respondent was solely responsible for the failure of
its behalf, but reaped benefits from that contract.
the subdivision project, petitioners maintain that he should be made to
The Case of the nets [was] retained by the plaintiff until full payment [was] made
as stipulated in the invoices; hence, in effect, the plaintiff attached its
own properties. It [was] for this reason also that this Court earlier
In the Petition for Review on Certiorari before us, Lim Tong Lim assails ordered the attachment bond filed by plaintiff to guaranty damages to
the November 26, 1998 Decision of the Court of Appeals in CA-GR CV defendants to be cancelled and for the P900,000.00 cash bidded and
41477,[1] which disposed as follows: paid for by plaintiff to serve as its bond in favor of defendants.
WHEREFORE, [there being] no reversible error in the appealed decision,
the same is hereby affirmed.[2] From the foregoing, it would appear therefore that whatever judgment
the plaintiff may be entitled to in this case will have to be satisfied from
the amount of P900,000.00 as this amount replaced the attached nets
The decretal portion of the Quezon City Regional Trial Court (RTC) and floats. Considering, however, that the total judgment obligation as
ruling, which was affirmed by the CA, reads as follows: computed above would amount to only P840,216.92, it would be
WHEREFORE, the Court rules: inequitable, unfair and unjust to award the excess to the defendants
who are not entitled to damages and who did not put up a single centavo
to raise the amount of P900,000.00 aside from the fact that they are not
1. That plaintiff is entitled to the writ of preliminary attachment issued
the owners of the nets and floats. For this reason, the defendants are
by this Court on September 20, 1990;
hereby relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to retain
2. That defendants are jointly liable to plaintiff for the following possession and ownership of the nets and floats and for the
amounts, subject to the modifications as hereinafter made by reason of reimbursement of the P900,000.00 deposited by it with the Clerk of
the special and unique facts and circumstances and the proceedings that Court.
transpired during the trial of this case;
SO ORDERED. [3]
a. P532,045.00 representing [the] unpaid purchase price of the fishing
nets covered by the Agreement plus P68,000.00 representing the
The Facts
unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
computed on their respective amounts as follows: and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 Industries, Inc. (herein respondent). They claimed that they were
dated February 9, 1990; engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00
dated February 13, 1990; worth P68,000 were also sold to the Corporation.[4]

The buyers, however, failed to pay for the fishing nets and the
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 floats; hence, private respondent filed a collection suit against Chua, Yao
dated February 19, 1990; 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
c. P50,000.00 as and for attorneys fees, plus P8,500.00 general partners, on the allegation that Ocean Quest Fishing Corporation
representing P500.00 per appearance in court; was a nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission.[5] On September 20, 1990, the
lower court issued a Writ of Preliminary Attachment, which the sheriff
d. P65,000.00 representing P5,000.00 monthly rental for storage
enforced by attaching the fishing nets on board F/B Lourdes which was
charges on the nets counted from September 20, 1990 (date of
then docked at the Fisheries Port, Navotas, Metro Manila.
attachment) to September 12, 1991 (date of auction sale);
Instead of answering the Complaint, Chua filed a Manifestation
e. Cost of suit. admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed to
With respect to the joint liability of defendants for the principal
have waived his right to cross-examine witnesses and to present
obligation or for the unpaid price of nets and floats in the amount
evidence on his behalf, because of his failure to appear in subsequent
of P532,045.00 and P68,000.00, respectively, or for the total amount
hearings. Lim Tong Lim, on the other hand, filed an Answer with
of P600,045.00, this Court noted that these items were attached to
Counterclaim and Crossclaim and moved for the lifting of the Writ of
guarantee any judgment that may be rendered in favor of the plaintiff
Attachment.[6] The trial court maintained the Writ, and upon motion of
but, upon agreement of the parties, and, to avoid further deterioration
private respondent, ordered the sale of the fishing nets at a public
of the nets during the pendency of this case, it was ordered sold at public
auction. Philippine Fishing Gear Industries won the bidding and
auction for not less than P900,000.00 for which the plaintiff was the sole
deposited with the said court the sales proceeds of P900,000.[7]
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 On November 18, 1992, the trial court rendered its Decision, ruling
attached property as a guaranty for any judgment that plaintiff may be that Philippine Fishing Gear Industries was entitled to the Writ of
able to secure in this case with the ownership and possession of the nets Attachment and that Chua, Yao and Lim, as general partners, were jointly
and floats awarded and delivered by the sheriff to plaintiff as the highest liable to pay respondent.[8]
bidder in the public auction sale. It has also been noted that ownership
The trial court ruled that a partnership among Lim, Chua and Yao In determining whether petitioner may be held liable for the
existed based (1) on the testimonies of the witnesses presented and (2) fishing nets and floats purchased from respondent, the Court must
on a Compromise Agreement executed by the three[9] in Civil Case No. resolve this key issue: whether by their acts, Lim, Chua and Yao could be
1492-MN which Chua and Yao had brought against Lim in the RTC of deemed to have entered into a partnership.
Malabon, Branch 72, for (a) a declaration of nullity of commercial
This Courts Ruling
documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.[10] The
Compromise Agreement provided:
The Petition is devoid of merit.
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing First and Second Issues: Existence of a Partnership and Petitioner's
net. This P5,750,000.00 shall be applied as full payment Liability
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding that
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price a partnership existed between him, Peter Yao and Antonio Chua. He
than P5,750,000.00 whatever will be the excess will be divided into asserts that the CA based its finding on the Compromise Agreement
3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao; alone. Furthermore, he disclaims any direct participation in the purchase
of the nets, alleging that the negotiations were conducted by Chua and
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 Yao only, and that he has not even met the representatives of the
whatever the deficiency shall be shouldered and paid to JL Holding respondent company. Petitioner further argues that he was a lessor, not
Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11] a partner, of Chua and Yao, for the "Contract of Lease" dated February
1, 1990, showed that he had merely leased to the two the main asset of
The trial court noted that the Compromise Agreement was silent the purported partnership -- the fishing boat F/B Lourdes. The lease was
as to the nature of their obligations, but that joint liability could be for six months, with a monthly rental of P37,500 plus 25 percent of the
presumed from the equal distribution of the profit and loss.[12] gross catch of the boat.

Lim appealed to the Court of Appeals (CA) which, as already stated, We are not persuaded by the arguments of petitioner. The facts
affirmed the RTC. as found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the
Ruling of the Court of Appeals Civil Code which provides:
In affirming the trial court, the CA held that petitioner was a Article 1767 - By the contract of partnership, two or more persons bind
partner of Chua and Yao in a fishing business and may thus be held liable themselves to contribute money, property, or industry to a common
as a such for the fishing nets and floats purchased by and for the use of fund, with the intention of dividing the profits among themselves.
the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein Specifically, both lower courts ruled that a partnership among the
appellant Lim Tong Lim undertook a partnership for a specific three existed based on the following factual findings:[15]
undertaking, that is for commercial fishing x x x. Obviously, the ultimate (1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged
undertaking of the defendants was to divide the profits among in commercial fishing to join him, while Antonio Chua was already Yaos
themselves which is what a partnership essentially is x x x. By a contract partner;
of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New Civil Code).[13] (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;
Hence, petitioner brought this recourse before this Court.[14]

The Issues (3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.

In his Petition and Memorandum, Lim asks this Court to reverse (4) That they bought the boats from CMF Fishing Corporation, which
the assailed Decision on the following grounds: executed a Deed of Sale over these two (2) boats in favor of Petitioner
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A Lim Tong Lim only to serve as security for the loan extended by Jesus
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM Lim;
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM. (5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping,
repairing, dry docking and other expenses for the boats would be
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING shouldered by Chua and Yao;
FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE
NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS (6) That because of the unavailability of funds, Jesus Lim again extended
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL. a loan to the partnership in the amount of P1 million secured by a check,
because of which, Yao and Chua entrusted the ownership papers of two
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
ATTACHMENT OF PETITIONER LIMS GOODS.
(7) That in pursuance of the business agreement, Peter Yao and Antonio CA and the RTC delved into the history of the document and explored all
Chua bought nets from Respondent Philippine Fishing Gear, in behalf of the possible consequential combinations in harmony with law, logic and
"Ocean Quest Fishing Corporation," their purported business name. fairness. Verily, the two lower courts factual findings mentioned above
nullified petitioners argument that the existence of a partnership was
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon based only on the Compromise Agreement.
RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for Petitioner Was a Partner, Not a Lessor
(a) declaration of nullity of commercial documents; (b) reformation of
contracts; (c) declaration of ownership of fishing boats; (4) injunction;
and (e) damages. We are not convinced by petitioners argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the fishing
(9) That the case was amicably settled through a Compromise venture. His argument allegedly finds support in the Contract of Lease
Agreement executed between the parties-litigants the terms of which and the registration papers showing that he was the owner of the boats,
are already enumerated above. including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to


From the factual findings of both lower courts, it is clear that Chua,
believe that he consented to the sale of his own boats to pay a debt
Yao and Lim had decided to engage in a fishing business, which they
of Chua and Yao, with the excess of the proceeds to be divided
started by buying boats worth P3.35 million, financed by a loan secured
among the three of them. No lessor would do what petitioner
from Jesus Lim who was petitioners brother. In their Compromise
did. Indeed, his consent to the sale proved that there was a preexisting
Agreement, they subsequently revealed their intention to pay the loan
partnership among all three.
with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of Verily, as found by the lower courts, petitioner entered into a
which were financed with borrowed money, fell under the term business agreement with Chua and Yao, in which debts were undertaken
common fund under Article 1767. The contribution to such fund need in order to finance the acquisition and the upgrading of the vessels which
not be cash or fixed assets; it could be an intangible like credit or would be used in their fishing business. The sale of the boats, as well as
industry. That the parties agreed that any loss or profit from the sale and the division among the three of the balance remaining after the payment
operation of the boats would be divided equally among them also shows of their loans, proves beyond cavil that F/B Lourdes, though registered
that they had indeed formed a partnership. in his name, was not his own property but an asset of the partnership. It
is not uncommon to register the properties acquired from a loan in the
Moreover, it is clear that the partnership extended not only to the
name of the person the lender trusts, who in this case is the petitioner
purchase of the boat, but also to that of the nets and the floats. The
himself. After all, he is the brother of the creditor, Jesus Lim.
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been We stress that it is unreasonable indeed, it is absurd -- for
inconceivable for Lim to involve himself so much in buying the boat but petitioner to sell his property to pay a debt he did not incur, if the
not in the acquisition of the aforesaid equipment, without which the relationship among the three of them was merely that of lessor-lessee,
business could not have proceeded. instead of partners.
Given the preceding facts, it is clear that there was, among Corporation by Estoppel
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main assets
of the partnership, and they agreed that the proceeds from the sales and Petitioner argues that under the doctrine of corporation by
operations thereof would be divided among them. estoppel, liability can be imputed only to Chua and Yao, and not to
him. Again, we disagree.
We stress that under Rule 45, a petition for review like the present
case should involve only questions of law. Thus, the foregoing factual Section 21 of the Corporation Code of the Philippines provides:
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 Sec. 21. Corporation by estoppel. - All persons who assume to act as a
exceptions to the rule.[16] In assailing the factual findings of the two corporation knowing it to be without authority to do so shall be liable as
lower courts, petitioner effectively goes beyond the bounds of a petition general partners for all debts, liabilities and damages incurred or arising
for review under Rule 45. as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or
Compromise Agreement Not the Sole Basis of Partnership on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.

Petitioner argues that the appellate courts sole basis for assuming One who assumes an obligation to an ostensible corporation as such,
the existence of a partnership was the Compromise Agreement. He also cannot resist performance thereof on the ground that there was in fact
claims that the settlement was entered into only to end the dispute no corporation.
among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its Thus, even if the ostensible corporate entity is proven to be legally
execution. nonexistent, a party may be estopped from denying its corporate
existence. The reason behind this doctrine is obvious - an
A proper adjudication of claimants rights mandates that courts unincorporated association has no personality and would be
must review and thoroughly appraise all relevant facts.Both lower courts incompetent to act and appropriate for itself the power and attributes
have done so and have found, correctly, a preexisting partnership among of a corporation as provided by law; it cannot create agents or confer
the parties. In implying that the lower courts have decided on the basis authority on another to act in its behalf; thus, those who act or purport
of one piece of document alone, petitioner fails to appreciate that the to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person Third Issue: Validity of Attachment
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of Finally, petitioner claims that the Writ of Attachment was
a corporation which has no valid existence assumes such privileges and improperly issued against the nets. We agree with the Court of Appeals
obligations and becomes personally liable for contracts entered into or that this issue is now moot and academic. As previously discussed, F/B
for other acts performed as such agent.[17] Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his
The doctrine of corporation by estoppel may apply to the alleged partners owed. The nets and the floats were specifically manufactured
corporation and to a third party. In the first instance, an unincorporated and tailor-made according to their own design, and were bought and
association, which represented itself to be a corporation, will be used in the fishing venture they agreed upon. Hence, the issuance of the
estopped from denying its corporate capacity in a suit against it by a Writ to assure the payment of the price stipulated in the invoices is
third person who relied in good faith on such representation. It cannot proper. Besides, by specific agreement, ownership of the nets remained
allege lack of personality to be sued to evade its responsibility for a with Respondent Philippine Fishing Gear, until full payment thereof.
contract it entered into and by virtue of which it received advantages
and benefits. WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
On the other hand, a third party who, knowing an association to
be unincorporated, nonetheless treated it as a corporation and received SO ORDERED.
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION;
benefited from the transaction made by the ostensible corporation, CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION;
despite knowledge of its legal defects, may be held liable for contracts COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE
they impliedly assented to or took advantage of. CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION;
DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES; EASTERN
There is no dispute that the respondent, Philippine Fishing Gear ASSURANCE COMPANY & SURETY CORP.; EMPIRE INSURANCE
Industries, is entitled to be paid for the nets it sold.The only question COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL
here is whether petitioner should be held jointly[18] liable with Chua and INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION;
Yao. Petitioner contests such liability, insisting that only those who dealt FIDELITY & SURETY COMPANY OF THE PHILS., INC.; FILIPINO
in the name of the ostensible corporation should be held liable. Since his MERCHANTS INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE
name does not appear on any of the contracts and since he never SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE
directly transacted with the respondent corporation, ergo, he cannot be CO., INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN
held liable. INSURANCE COMPANY; METRO-TAISHO INSURANCE CORPORATION;
NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE
Unquestionably, petitioner benefited from the use of the nets
CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOPLES
found inside F/B Lourdes, the boat which has earlier been proven to be
TRANS-EAST ASIA INSURANCE CORPORATION; PERLA COMPANIA DE
an asset of the partnership. He in fact questions the attachment of the
SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE
nets, because the Writ has effectively stopped his use of the fishing
FIRST INSURANCE CO., INC.; PIONEER INSURANCE & SURETY CORP.;
vessel.
PIONEER INTERCONTINENTAL INSURANCE CORPORATION; PROVIDENT
It is difficult to disagree with the RTC and the CA that Lim, Chua INSURANCE COMPANY OF THE PHILIPPINES; PYRAMID INSURANCE CO.,
and Yao decided to form a corporation. Although it was never legally INC.; RELIANCE SURETY & INSURANCE COMPANY; RIZAL SURETY &
formed for unknown reasons, this fact alone does not preclude the INSURANCE COMPANY; SANPIRO INSURANCE CORPORATION;
liabilities of the three as contracting parties in representation of SEABOARD-EASTERN INSURANCE CO., INC.; SOLID GUARANTY, INC.;
it. Clearly, under the law on estoppel, those acting on behalf of a SOUTH SEA SURETY & INSURANCE CO., INC.; STATE BONDING &
corporation and those benefited by it, knowing it to be without valid INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION;TABACALERA
existence, are held liable as general partners. INSURANCE CO., INC.all assessed as POOL OF
MACHINERYINSURERS, petitioners,
Technically, it is true that petitioner did not directly act on behalf vs.
of the corporation. However, having reaped the benefits of the contract COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
entered into by persons with whom he previously had an existing INTERNAL REVENUE, respondents.
relationship, he is deemed to be part of said association and is covered [G.R. No. 112675. January 25, 1999]
by the scope of the doctrine of corporation by estoppel. We reiterate the
ruling of the Court in Alonso v. Villamor:[19] Pursuant to reinsurance treaties, a number of local insurance firms
A litigation is not a game of technicalities in which one, more deeply formed themselves into a pool in order to facilitate the handling of
schooled and skilled in the subtle art of movement and position , entraps business contracted with a nonresident foreign reinsurance
and destroys the other. It is, rather, a contest in which each contending company. May the clearing house or insurance pool so formed be
party fully and fairly lays before the court the facts in issue and then, deemed a partnership or an association that is taxable as a corporation
brushing aside as wholly trivial and indecisive all imperfections of form under the National Internal Revenue Code (NIRC)? Should the pools
and technicalities of procedure, asks that justice be done upon the remittances to the member companies and to the said foreign firm be
merits. Lawsuits, unlike duels, are not to be won by a rapiers taxable as dividends? Under the facts of this case, has the governments
thrust. Technicality, when it deserts its proper office as an aid to justice right to assess and collect said tax prescribed?
and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in The Case
technicalities.
These are the main questions raised in the Petition for Review
on Certiorari before us, assailing the October 11, 1993 Decision[1] of the
Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners Dividend paid to Pool Members P 655,636.00
appeal of the October 19, 1992 Decision[3] of the Court of Tax ===========
Appeals[4] (CTA) which had previously sustained petitioners liability for
deficiency income tax, interest and withholding tax. The Court of 10% withholding tax at
Appeals ruled: source due thereon P 65,563.60
Add: 25% surcharge 16,390.90
WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5] 14% interest from
1/25/76 to 1/25/79 6,884.18
The petition also challenges the November 15, 1993 Court of Compromise penalty-
Appeals (CA) Resolution[6] denying reconsideration. non-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P 89,438.68
The Facts COLLECTIBLE ===========[8]

The petitioners are 41 non-life insurance corporations, organized and The CA ruled in the main that the pool of machinery insurers was
existing under the laws of the Philippines. Upon issuance by them of a partnership taxable as a corporation, and that the latters collection of
Erection, Machinery Breakdown, Boiler Explosion and Contractors All premiums on behalf of its members, the ceding companies, was taxable
Risk insurance policies, the petitioners on August 1, 1965 entered into a income. It added that prescription did not bar the Bureau of Internal
Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with Revenue (BIR) from collecting the taxes due, because the taxpayer
the Munchener Ruckversicherungs-Gesselschaft (hereafter called cannot be located at the address given in the information return
Munich), a non-resident foreign insurance corporation. The reinsurance filed. Hence, this Petition for Review before us.[9]
treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.

The Issues
On April 14, 1976, the pool of machinery insurers submitted a financial
statement and filed an Information Return of Organization Exempt from
Income Tax for the year ending in 1975, on the basis of which it was Before this Court, petitioners raise the following issues:
assessed by the Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich 1.Whether or not the Clearing House, acting as a mere agent and
and to the petitioners, respectively. These assessments were protested performing strictly administrative functions, and which did not insure or
by the petitioners through its auditors Sycip, Gorres, Velayo and Co. assume any risk in its own name, was a partnership or association
subject to tax as a corporation;
On January 27, 1986, the Commissioner of Internal Revenue denied the
protest and ordered the petitioners, assessed as Pool of Machinery 2.Whether or not the remittances to petitioners and MUNICHRE of their
Insurers, to pay deficiency income tax, interest, and with[h]olding tax, respective shares of reinsurance premiums, pertaining to their individual
itemized as follows: and separate contracts of reinsurance, were dividends subject to tax;
and
Net income per information
return P3,737,370.00 3.Whether or not the respondent Commissioners right to assess the
Clearing House had already prescribed.[10]
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76 The Courts Ruling
to 4/15/79 545,193.60
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE =========== 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
Dividend paid to Munich governments right to assess and collect the taxes had not prescribed.
Reinsurance Company P3,728,412.00
===========
First Issue:
35% withholding tax at Pool Taxable as a Corporation
source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from Petitioners contend that the Court of Appeals erred in finding that
1/25/76 to 1/25/79 137,019.14 the pool or clearing house was an informal partnership, which was
Compromise penalty- taxable as a corporation under the NIRC. They point out that the
non-filing of return 300.00 reinsurance policies were written by them individually and separately,
late payment 300.00 and that their liability was limited to the extent of their allocated share
TOTAL AMOUNT DUE & P1,768,799.39 in the original risks thus reinsured.[11] Hence, the pool did not act or earn
COLLECTIBLE =========== 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 but does not include general professional partnerships [or] a joint
on their ability to absorb the risk(s) ceded[;] as well as the performance venture or consortium formed for the purpose of undertaking
of incidental functions, such as records, maintenance, collection and construction projects or engaging in petroleum, coal, geothermal
custody of funds, etc.[13] and other energy operations pursuant to an operating or
consortium agreement under a service contract without the
Petitioners belie the existence of a partnership in this case, Government. General professional partnershipsare partnerships
because (1) they, the reinsurers, did not share the same risk or solidary formed by persons for the sole purpose of exercising their
liability;[14] (2) there was no common fund;[15] (3) the executive board of common profession, no part of the income of which is derived
the pool did not exercise control and management of its funds, unlike from engaging in any trade or business.
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 xxx xxx xxx."
reinsurance from which it could have derived income for itself.[17]
Thus, the Court in Evangelista v. Collector of Internal
The Court is not persuaded. The opinion or ruling of the Revenue[22] held that Section 24 covered these unregistered
Commission of Internal Revenue, the agency tasked with the partnerships and even associations or joint accounts, which had no legal
enforcement of tax laws, is accorded much weight and even finality, personalities apart from their individual members.[23] The Court of
when there is no showing that it is patently wrong,[18] particularly in this Appeals astutely applied Evangelista:[24]
case where the findings and conclusions of the internal revenue
commissioner were subsequently affirmed by the CTA, a specialized xxx Accordingly, a pool of individual real property owners dealing in real
body created for the exclusive purpose of reviewing tax cases, and the estate business was considered a corporation for purposes of the tax in
Court of Appeals.[19] Indeed, sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue,
supra. The Supreme Court said:
[I]t has been the long standing policy and practice of this Court to respect
the conclusions of quasi-judicial agencies, such as the Court of Tax The term partnership includes a syndicate, group, pool, joint
Appeals which, by the nature of its functions, is dedicated exclusively to venture or other unincorporated organization, through or by
the study and consideration of tax problems and has necessarily means of which any business, financial operation, or venture is
developed an expertise on the subject, unless there has been an abuse carried on. * * * (8 Mertens Law of Federal Income Taxation, p.
or improvident exercise of its authority.[20] 562 Note 63)

This Court rules that the Court of Appeals, in affirming the CTA Article 1767 of the Civil Code recognizes the creation of a contract
which had previously sustained the internal revenue commissioner, of partnership when two or more persons bind themselves to contribute
committed no reversible error. Section 24 of the NIRC, as worded in the money, property, or industry to a common fund, with the intention of
year ending 1975, provides: dividing the profits among themselves.[25] Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest in the
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic profits.[26] In other words, a partnership is formed when persons
corporations. -- A tax is hereby imposed upon the taxable net income contract to devote to a common purpose either money, property, or
received during each taxable year from all sources by every corporation labor with the intention of dividing the profits between
organized in, or existing under the laws of the Philippines, no matter how themselves.[27] Meanwhile, an association implies associates who enter
created or organized, but not including duly registered general co- into a joint enterprise x x x for the transaction of business.[28]
partnership (compaias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx. In the case before us, the ceding companies entered into a Pool
Agreement[29] or an association[30] that would handle all the insurance
businesses covered under their quota-share reinsurance treaty[31] and
Ineludibly, the Philippine legislature included in the concept of surplus reinsurance treaty[32]with Munich. The following unmistakably
corporations those entities that resembled them such as unregistered indicates a partnership or an association covered by Section 24 of the
partnerships and associations. Parenthetically, the NLRCs inclusion of NIRC:
such entities in the tax on corporations was made even clearer by the
Tax Reform Act of 1997,[21] which amended the Tax Code. Pertinent (1) The pool has a common fund, consisting of money and other
provisions of the new law read as follows: valuables that are deposited in the name and credit of the
pool.[33] This common fund pays for the administration and
SEC. 27. Rates of Income Tax on Domestic Corporations. -- operation expenses of the pool.[34]

(2) The pool functions through an executive board, which


(A) In General. -- Except as otherwise provided in this Code, an income resembles the board of directors of a corporation, composed
tax of thirty-five percent (35%) is hereby imposed upon the taxable of one representative for each of the ceding companies.[35]
income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22 (B) (3) True, the pool itself is not a reinsurer and does not issue any
of this Code, and taxable under this Title as a corporation xxx. insurance policy; however, its work is indispensable, beneficial
and economically useful to the business of the ceding
companies and Munich, because without it they would not
SEC. 22. -- Definition. -- When used in this Title:
have received their premiums. The ceding companies share in
the business ceded to the pool and in the expenses according
xxx xxx xxx to a Rules of Distribution annexed to the Pool
(B) The term corporation shall include partnerships, no matter Agreement.[36] Profit motive or business is, therefore, the
primordial reason for the pools formation. As aptly found by
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations, or insurance companies, the CTA:
xxx The fact that the pool does not retain any profit or income does which are domestic corporations. Nor can Munich, a foreign
not obliterate an antecedent fact, that of the pool being used in corporation, be granted exemption based solely on this provision of the
the transaction of business for profit. It is apparent, and Tax Code, because the same subsection specifically taxes dividends, the
petitioners admit, that their association or coaction was type of remittances forwarded to it by the pool. Although not a signatory
indispensable [to] the transaction of the business. x x x If together to the Pool Agreement, Munich is patently an associate of the ceding
they have conducted business, profit must have been the object companies in the entity formed, pursuant to their reinsurance treaties
as, indeed, profit was earned. Though the profit was apportioned which required the creation of said pool.
among the members, this is only a matter of consequence, as it
implies that profit actually resulted.[37] Under its pool arrangement with the ceding companies, Munich
shared in their income and loss. This is manifest from a reading of
The petitioners reliance on Pascual v. Commissioner[38] is Articles 3[49] and 10[50] of the Quota Share Reinsurance Treaty and
misplaced, because the facts obtaining therein are not on all fours with Articles 3[51] and 10[52] of the Surplus Reinsurance Treaty. The foregoing
the present case. In Pascual, there was no unregistered partnership, but interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
merely a co-ownership which took up only two isolated exemption must be construed strictissimi juris, and the statutory
transactions.[39] The Court of Appeals did not err in exemption claimed must be expressed in a language too plain to be
applying Evangelista, which involved a partnership that engaged in a mistaken.[53]
series of transactions spanning more than ten years, as in the case
before us. Finally, the petitioners claim that Munich is tax-exempt based on
the RP-West German Tax Treaty is likewise unpersuasive, because the
internal revenue commissioner assessed the pool for corporate taxes on
the basis of the information return it had submitted for the year ending
Second Issue: 1975, a taxable year when said treaty was not yet in effect.[54]Although
Pools Remittances Are Taxable 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]
Petitioners further contend that the remittances of the pool to the
ceding companies and Munich are not dividends subject to tax. They
insist that taxing such remittances contravene Sections 24 (b) (I) and 263
of the 1977 NIRC and would be tantamount to an illegal double taxation, Third Issue: Prescription
as it would result in taxing the same premium income twice in the hands
of the same taxpayer.[40] Moreover, petitioners argue that since Munich
was not a signatory to the Pool Agreement, the remittances it received Petitioners also argue that the governments right to assess and
from the pool cannot be deemed dividends.[41] They add that even if collect the subject tax had prescribed. They claim that the subject
such remittances were treated as dividends, they would have been information return was filed by the pool on April 14, 1976. On the basis
exempt under the previously mentioned sections of the 1977 NIRC,[42] as of this return, the BIR telephoned petitioners on November 11, 1981, to
well as Article 7 of paragraph 1[43] and Article 5 of paragraph 5[44] of the give them notice of its letter of assessment dated March 27, 1981. Thus,
RP-West German Tax Treaty.[45] the petitioners contend that the five-year statute of limitations then
provided in the NIRC had already lapsed, and that the internal revenue
Petitioners are clutching at straws. Double taxation means taxing commissioner was already barred by prescription from making an
the same property twice when it should be taxed only once. That is, xxx assessment.[56]
taxing the same person twice by the same jurisdiction for the same
thing.[46] In the instant case, the pool is a taxable entity distinct from the We cannot sustain the petitioners. The CA and the CTA
individual corporate entities of the ceding companies. The tax on categorically found that the prescriptive period was tolled under
its income is obviously different from the tax on the dividends received then Section 333 of the NIRC,[57] because the taxpayer cannot be located
by the said companies. Clearly, there is no double taxation here. at the address given in the information return filed and for which reason
there was delay in sending the assessment.[58] Indeed, whether the
The tax exemptions claimed by petitioners cannot be granted, governments right to collect and assess the tax has prescribed involves
since their entitlement thereto remains unproven and facts which have been ruled upon by the lower courts. It is axiomatic that
unsubstantiated. It is axiomatic in the law of taxation that taxes are the in the absence of a clear showing of palpable error or grave abuse of
lifeblood of the nation. Hence, exemptions therefrom are highly discretion, as in this case, this Court must not overturn the factual
disfavored in law and he who claims tax exemption must be able to findings of the CA and the CTA.
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 Furthermore, petitioners admitted in their Motion for
inapplicable, because these were not yet in effect when the income was Reconsideration before the Court of Appeals that the pool changed its
earned and when the subject information return for the year ending address, for they stated that the pools information return filed in 1980
1975 was filed. indicated therein its present address. The Court finds that this falls short
of the requirement of Section 333 of the NIRC for the suspension of the
Referring to the 1975 version of the counterpart sections of the prescriptive period. The law clearly states that the said period will be
NIRC, the Court still cannot justify the exemptions claimed. Section 255 suspended only if the taxpayer informs the Commissioner of Internal
provides that no tax shall xxx be paid upon reinsurance by any company Revenue of any change in the address.
that has already paid the tax xxx. This cannot be applied to the present
case because, as previously discussed, the pool is a taxable entity distinct WHEREFORE, the petition is DENIED. The Resolutions of the Court
from the ceding companies; therefore, the latter cannot individually of Appeals dated October 11, 1993 and November 15, 1993 are
claim the income tax paid by the former as their own. hereby AFFIRMED. Costs against petitioners.

On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign SO ORDERED.
corporations; hence, it cannot be claimed by the ceding companies
PHILEX MINING CORPORATION, petitioner, Sto. Nino PROJECT be re-transferred to them. Until such assets
vs. are transferred to the MANAGERS, this Agency shall remain
COMMISSIONER OF INTERNAL REVENUE, respondent. subsisting.
G.R. No. 148187 April 16, 2008
xxxx
This is a petition for review on certiorari of the June 30, 2000 Decision1
of
the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the 12. The compensation of the MANAGER shall be fifty per cent (50%) of
Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also the net profit of the Sto. Nino PROJECT before income tax. It is
assailed is the April 3, 2001 Resolution3 denying the motion for understood that the MANAGERS shall pay income tax on their
reconsideration. compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
The facts of the case are as follows: MANAGERS’ compensation.

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), xxxx
entered into an agreement4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latter’s mining claim, 16. The PRINCIPAL has current pecuniary obligation in favor of the
known as the Sto. Nino mine, located in Atok and Tublay, Benguet MANAGERS and, in the future, may incur other obligations in favor of
Province. The parties’ agreement was denominated as "Power of the MANAGERS. This Power of Attorney has been executed as security
Attorney" and provided for the following terms: for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio same. Therefore, this Agency shall be irrevocable while any obligation
Gold) shall make available to the MANAGERS (Philex Mining) up to of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from of the MANAGERS’ account. After all obligations of the PRINCIPAL in
time to time may be required by the MANAGERS within the said 3-year favor of the MANAGERS have been paid and satisfied in full, this
period, for use in the MANAGEMENT of the STO. NINO MINE. The said Agency shall be revocable by the PRINCIPAL upon 36-month notice to
ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for the MANAGERS.
internal audit purposes, as the owner’s account in the Sto. Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO 17. Notwithstanding any agreement or understanding between the
MINE, which is left with the Sto. Nino PROJECT, shall be added to such PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
owner’s account. withdraw from this Agency by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be held liable to the
5. Whenever the MANAGERS shall deem it necessary and convenient PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof
in connection with the MANAGEMENT of the STO. NINO MINE, they shall be operative in case of the MANAGERS’ withdrawal.
may transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements: x x x x5

(a) The properties shall be appraised and, together with the In the course of managing and operating the project, Philex Mining made
cash, shall be carried by the Sto. Nino PROJECT as a special fund advances of cash and property in accordance with paragraph 5 of the
to be known as the MANAGERS’ account. agreement. However, the mine suffered continuing losses over the years
which resulted to petitioner’s withdrawal as manager of the mine on
(b) The total of the MANAGERS’ account shall not exceed January 28, 1982 and in the eventual cessation of mine operations on
P11,000,000.00, except with prior approval of the PRINCIPAL; February 20, 1982.6
provided, however, that if the compensation of the MANAGERS
as herein provided cannot be paid in cash from the Sto. Nino Thereafter, on September 27, 1982, the parties executed a
PROJECT, the amount not so paid in cash shall be added to the "Compromise with Dation in Payment"7 wherein Baguio Gold admitted
MANAGERS’ account. an indebtedness to petitioner in the amount of P179,394,000.00 and
agreed to pay the same in three segments by first assigning Baguio
(c) The cash and property shall not thereafter be withdrawn Gold’s tangible assets to petitioner, transferring to the latter Baguio
from the Sto. Nino PROJECT until termination of this Agency. Gold’s equitable title in its Philodrill assets and finally settling the
remaining liability through properties that Baguio Gold may acquire in
the future.
(d) The MANAGERS’ account shall not accrue interest. Since it is
the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a On December 31, 1982, the parties executed an "Amendment to
projected termination of this Agency, the ratio which the Compromise with Dation in Payment"8 where the parties determined
MANAGERS’ account has to the owner’s account will be that Baguio Gold’s indebtedness to petitioner actually amounted to
determined, and the corresponding proportion of the entire P259,137,245.00, which sum included liabilities of Baguio Gold to other
assets of the STO. NINO MINE, excluding the claims, shall be creditors that petitioner had assumed as guarantor. These liabilities
transferred to the MANAGERS, except that such transferred pertained to long-term loans amounting to US$11,000,000.00
assets shall not include mine development, roads, buildings, and contracted by Baguio Gold from the Bank of America NT & SA and
similar property which will be valueless, or of slight value, to the Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
MANAGERS. The MANAGERS can, on the other hand, require at segments by first assigning its tangible assets for P127,838,051.00 and
their option that property originally transferred by them to the 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 The CTA rejected petitioner’s assertion that the advances it made for the
P114,996,768.00. Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioner’s investment in a partnership with Baguio Gold
Subsequently, petitioner wrote off in its 1982 books of account the for the development and exploitation of the Sto. Nino mine. The CTA
remaining outstanding indebtedness of Baguio Gold by charging held that the "Power of Attorney" executed by petitioner and Baguio
P112,136,000.00 to allowances and reserves that were set up in 1981 Gold was actually a partnership agreement. Since the advanced amount
and P2,860,768.00 to the 1982 operations. partook of the nature of an investment, it could not be deducted as a
bad debt from petitioner’s gross income.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of The CTA likewise held that the amount paid by petitioner for the long-
receivables from Baguio Gold against reserves and term loan obligations of Baguio Gold could not be allowed as a bad debt
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed deduction. At the time the payments were made, Baguio Gold was not
the amount as deduction for bad debt and assessed petitioner a in default since its loans were not yet due and demandable. What
deficiency income tax of P62,811,161.39. petitioner did was to pre-pay the loans as evidenced by the notice sent
by Bank of America showing that it was merely demanding payment of
the installment and interests due. Moreover, Citibank imposed and
Petitioner protested before the BIR arguing that the deduction must be
collected a "pre-termination penalty" for the pre-payment.
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 The Court of Appeals affirmed the decision of the CTA.12 Hence, upon
it was determined to be worthless. denial of its motion for reconsideration,13petitioner took this recourse
under Rule 45 of the Rules of Court, alleging that:
Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction I. The Court of Appeals erred in construing that the advances made
represented advances made by petitioner which, pursuant to the by Philex in the management of the Sto. Nino Mine pursuant to the
management contract, formed part of Baguio Gold’s "pecuniary Power of Attorney partook of the nature of an investment rather
obligations" to petitioner. It also included payments made by petitioner than a loan.
as guarantor of Baguio Gold’s long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor. II. The Court of Appeals erred in ruling that the 50%-50% sharing in
the net profits of the Sto. Nino Mine indicates that Philex is a partner
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it of Baguio Gold in the development of the Sto. Nino Mine
became evident that it would not be able to recover the advances and notwithstanding the clear absence of any intent on the part of Philex
payments it had made in behalf of Baguio Gold. For a debt to be and Baguio Gold to form a partnership.
considered worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor nor to sell or III. The Court of Appeals erred in relying only on the Power of
dispose of collateral assets in satisfaction of the debt. It is enough that a Attorney and in completely disregarding the Compromise
taxpayer exerted diligent efforts to enforce collection and exhausted all Agreement and the Amended Compromise Agreement when it
reasonable means to collect. construed the nature of the advances made by Philex.

On October 28, 1994, the BIR denied petitioner’s protest for lack of legal IV. The Court of Appeals erred in refusing to delve upon the issue of
and factual basis. It held that the alleged debt was not ascertained to be the propriety of the bad debts write-off.14
worthless since Baguio Gold remained existing and had not filed a
petition for bankruptcy; and that the deduction did not consist of a valid Petitioner insists that in determining the nature of its business
and subsisting debt considering that, under the management contract, relationship with Baguio Gold, we should not only rely on the "Power of
petitioner was to be paid fifty percent (50%) of the project’s net profit.10 Attorney", but also on the subsequent "Compromise with Dation in
Payment" and "Amended Compromise with Dation in Payment" that the
Petitioner appealed before the Court of Tax Appeals (CTA) which parties executed in 1982. These documents, allegedly evinced the
rendered judgment, as follows: parties’ intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in The petition lacks merit.
question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED. The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
ACCORDINGLY, petitioner Philex Mining Corporation is hereby business relationship between petitioner and Baguio Gold. Before resort
ORDERED to PAY respondent Commissioner of Internal Revenue the may be had to the two compromise agreements, the parties’ contractual
amount of P62,811,161.39, plus, 20% delinquency interest due intent must first be discovered from the expressed language of the
computed from February 10, 1995, which is the date after the 20- primary contract under which the parties’ business relations were
day grace period given by the respondent within which petitioner founded. It should be noted that the compromise agreements were
has to pay the deficiency amount x x x up to actual date of payment. mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the "Power of
SO ORDERED.11 Attorney". On the other hand, it is the latter which established the
juridical relation of the parties and defined the parameters of their
dealings with one another.
The execution of the two compromise agreements can hardly be property to the Sto. Niño project "(w)henever the MANAGERS shall
considered as a subsequent or contemporaneous act that is reflective of deem it necessary and convenient in connection with the
the parties’ true intent. The compromise agreements were executed MANAGEMENT of the STO. NIÑO MINE."18
eleven years after the "Power of Attorney" and merely laid out a plan or
procedure by which petitioner could recover the advances and The wording of the parties’ agreement as to petitioner’s contribution to
payments it made under the "Power of Attorney". The parties entered the common fund does not detract from the fact that petitioner
into the compromise agreements as a consequence of the dissolution of transferred its funds and property to the project as specified in
their business relationship. It did not define that relationship or indicate paragraph 5, thus rendering effective the other stipulations of the
its real character. contract, particularly paragraph 5(c) which prohibits petitioner from
withdrawing the advances until termination of the parties’ business
An examination of the "Power of Attorney" reveals that a partnership or relations. As can be seen, petitioner became bound by its contributions
joint venture was indeed intended by the parties. Under a contract of once the transfers were made. The contributions acquired an obligatory
partnership, two or more persons bind themselves to contribute money, nature as soon as petitioner had chosen to exercise its option under
property, or industry to a common fund, with the intention of dividing paragraph 5.
the profits among themselves.15 While a corporation, like petitioner,
cannot generally enter into a contract of partnership unless authorized There is no merit to petitioner’s claim that the prohibition in paragraph
by law or its charter, it has been held that it may enter into a joint 5(c) against withdrawal of advances should not be taken as an indication
venture which is akin to a particular partnership: that it had entered into a partnership with Baguio Gold; that the
stipulation only showed that what the parties entered into was actually
The legal concept of a joint venture is of common law origin. It has a contract of agency coupled with an interest which is not revocable at
no precise legal definition, but it has been generally understood to will and not a partnership.
mean an organization formed for some temporary purpose. x x x It
is in fact hardly distinguishable from the partnership, since their In an agency coupled with interest, it is the agency that cannot be
elements are similar – community of interest in the business, sharing revoked or withdrawn by the principal due to an interest of a third party
of profits and losses, and a mutual right of control. x x x The main that depends upon it, or the mutual interest of both principal and
distinction cited by most opinions in common law jurisdictions is that agent.19 In this case, the non-revocation or non-withdrawal under
the partnership contemplates a general business with some degree paragraph 5(c) applies to the advances made by petitioner who is
of continuity, while the joint venture is formed for the execution of supposedly the agent and not the principal under the contract. Thus, it
a single transaction, and is thus of a temporary nature. x x x This cannot be inferred from the stipulation that the parties’ relation under
observation is not entirely accurate in this jurisdiction, since under the agreement is one of agency coupled with an interest and not a
the Civil Code, a partnership may be particular or universal, and a partnership.
particular partnership may have for its object a specific undertaking.
x x x It would seem therefore that under Philippine law, a joint
Neither can paragraph 16 of the agreement be taken as an indication
venture is a form of partnership and should be governed by the law
that the relationship of the parties was one of agency and not a
of partnerships. The Supreme Court has however recognized a
partnership. Although the said provision states that "this Agency shall be
distinction between these two business forms, and has held that
irrevocable while any obligation of the PRINCIPAL in favor of the
although a corporation cannot enter into a partnership contract, it
MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does
may however engage in a joint venture with others. x x x (Citations
not necessarily follow that the parties entered into an agency contract
omitted) 16
coupled with an interest that cannot be withdrawn by Baguio Gold.

Perusal of the agreement denominated as the "Power of Attorney"


It should be stressed that the main object of the "Power of Attorney"
indicates that the parties had intended to create a partnership and
was not to confer a power in favor of petitioner to contract with third
establish a common fund for the purpose. They also had a joint interest
persons on behalf of Baguio Gold but to create a business relationship
in the profits of the business as shown by a 50-50 sharing in the income
between petitioner and Baguio Gold, in which the former was to manage
of the mine.
and operate the latter’s mine through the parties’ mutual contribution
of material resources and industry. The essence of an agency, even one
Under the "Power of Attorney", petitioner and Baguio Gold undertook that is coupled with interest, is the agent’s ability to represent his
to contribute money, property and industry to the common fund known principal and bring about business relations between the latter and third
as the Sto. Niño mine.17 In this regard, we note that there is a substantive persons.20 Where representation for and in behalf of the principal is
equivalence in the respective contributions of the parties to the merely incidental or necessary for the proper discharge of one’s
development and operation of the mine. Pursuant to paragraphs 4 and paramount undertaking under a contract, the latter may not necessarily
5 of the agreement, petitioner and Baguio Gold were to contribute be a contract of agency, but some other agreement depending on the
equally to the joint venture assets under their respective accounts. ultimate undertaking of the parties.21
Baguio Gold would contribute P11M under its owner’s account plus any
of its income that is left in the project, in addition to its actual mining
In this case, the totality of the circumstances and the stipulations in the
claim. Meanwhile, petitioner’s contribution would consist of
parties’ agreement indubitably lead to the conclusion that a partnership
its expertise in the management and operation of mines, as well as the
was formed between petitioner and Baguio Gold.
manager’s account which is comprised of P11M in funds and property
and petitioner’s "compensation" as manager that cannot be paid in cash.
First, it does not appear that Baguio Gold was unconditionally obligated
to return the advances made by petitioner under the agreement.
However, petitioner asserts that it could not have entered into a
Paragraph 5 (d) thereof provides that upon termination of the parties’
partnership agreement with Baguio Gold because it did not "bind" itself
business relations, "the ratio which the MANAGER’S account has to the
to contribute money or property to the project; that under paragraph 5
owner’s account will be determined, and the corresponding proportion
of the agreement, it was only optional for petitioner to transfer funds or
of the entire assets of the STO. NINO MINE, excluding the claims" shall Consequently, we find that petitioner’s "compensation" under
be transferred to petitioner.22 As pointed out by the Court of Tax paragraph 12 of the agreement actually constitutes its share in the net
Appeals, petitioner was merely entitled to a proportionate return of the profits of the partnership. Indeed, petitioner would not be entitled to an
mine’s assets upon dissolution of the parties’ business relations. There equal share in the income of the mine if it were just an employee of
was nothing in the agreement that would require Baguio Gold to make Baguio Gold.25 It is not surprising that petitioner was to receive a 50%
payments of the advances to petitioner as would be recognized as an share in the net profits, considering that the "Power of Attorney" also
item of obligation or "accounts payable" for Baguio Gold. provided for an almost equal contribution of the parties to the St. Nino
mine. The "compensation" agreed upon only serves to reinforce the
Thus, the tax court correctly concluded that the agreement provided for notion that the parties’ relations were indeed of partners and not
a distribution of assets of the Sto. Niño mine upon termination, a employer-employee.
provision that is more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a contract of loan, a All told, the lower courts did not err in treating petitioner’s advances as
person who receives a loan or money or any fungible thing acquires investments in a partnership known as the Sto. Nino mine. The advances
ownership thereof and is bound to pay the creditor an equal amount of were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
the same kind and quality.23 In this case, however, there was no under no unconditional obligation to return the same to the former
stipulation for Baguio Gold to actually repay petitioner the cash and under the "Power of Attorney". As for the amounts that petitioner paid
property that it had advanced, but only the return of an amount pegged as guarantor to Baguio Gold’s creditors, we find no reason to depart
at a ratio which the manager’s account had to the owner’s account. from the tax court’s factual finding that Baguio Gold’s debts were not
yet due and demandable at the time that petitioner paid the same.
In this connection, we find no contractual basis for the execution of the Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its bank
two compromise agreements in which Baguio Gold recognized a debt in creditors and this conclusion is supported by the evidence on record.26
favor of petitioner, which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The "Power of Attorney" In sum, petitioner cannot claim the advances as a bad debt deduction
clearly provides that petitioner would only be entitled to the return of a from its gross income. Deductions for income tax purposes partake of
proportionate share of the mine assets to be computed at a ratio that the nature of tax exemptions and are strictly construed against the
the manager’s account had to the owner’s account. Except to provide a taxpayer, who must prove by convincing evidence that he is entitled to
basis for claiming the advances as a bad debt deduction, there is no the deduction claimed.27 In this case, petitioner failed to substantiate its
reason for Baguio Gold to hold itself liable to petitioner under the assertion that the advances were subsisting debts of Baguio Gold that
compromise agreements, for any amount over and above the could be deducted from its gross income. Consequently, it could not
proportion agreed upon in the "Power of Attorney". claim the advances as a valid bad debt deduction.

Next, the tax court correctly observed that it was unlikely for a business WHEREFORE, the petition is DENIED. The decision of the Court of
corporation to lend hundreds of millions of pesos to another corporation Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed
with neither security, or collateral, nor a specific deed evidencing the the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
terms and conditions of such loans. The parties also did not provide a is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to
specific maturity date for the advances to become due and demandable, PAY the deficiency tax on its 1982 income in the amount of
and the manner of payment was unclear. All these point to the inevitable P62,811,161.31, with 20% delinquency interest computed from
conclusion that the advances were not loans but capital contributions to February 10, 1995, which is the due date given for the payment of the
a partnership. deficiency income tax, up to the actual date of payment.

The strongest indication that petitioner was a partner in the Sto Niño SO ORDERED.
mine is the fact that it would receive 50% of the net profits as
"compensation" under paragraph 12 of the agreement. The entirety of
the parties’ contractual stipulations simply leads to no other conclusion
than that petitioner’s "compensation" is actually its share in the income
of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by
a person of a share in the profits of a business is prima facie evidence Article 1768
that he is a partner in the business." Petitioner asserts, however, that no
such inference can be drawn against it since its share in the profits of the
ALFREDO N. AGUILA, JR, petitioner,
Sto Niño project was in the nature of compensation or "wages of an
vs.
employee", under the exception provided in Article 1769 (4) (b).24
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
On this score, the tax court correctly noted that petitioner was not an [G.R. No. 127347. November 25, 1999]
employee of Baguio Gold who will be paid "wages" pursuant to an
employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in This is a petition for review on certiorari of the decision[1] of the Court of
order to ensure its viability and profitability. By pegging its compensation Appeals, dated November 29, 1990, which reversed the decision of the
to profits, petitioner also stood not to be remunerated in case the mine Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April
had no income. It is hard to believe that petitioner would take the risk of 11, 1995. The trial court dismissed the petition for declaration of nullity
not being paid at all for its services, if it were truly just an ordinary of a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar
employee. against petitioner Alfredo N. Aguila, Jr.
The facts are as follows: cancellation of TCT No. 195101 and the issuance of a new certificate of
title in the name of A.C. Aguila and Sons, Co., in the event she failed to
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership redeem the subject property as provided in the Memorandum of
engaged in lending activities. Private respondent and her late husband, Agreement.[4]
Ruben M. Abrogar, were the registered owners of a house and lot,
covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Private respondent failed to redeem the property within the 90-
Manila. On April 18, 1991, private respondent, with the consent of her day period as provided in the Memorandum of Agreement. Hence,
late husband, and A.C. Aguila & Sons, Co., represented by petitioner, pursuant to the special power of attorney mentioned above, petitioner
entered into a Memorandum of Agreement, which provided: caused the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co.[5]
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above- Private respondent then received a letter dated August 10, 1991
described property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co.,
and pursuant to this agreement, a Deed of Absolute Sale shall be demanding that she vacate the premises within 15 days after receipt of
executed by the FIRST PARTY conveying the property to the SECOND the letter and surrender its possession peacefully to A.C. Aguila & Sons,
PARTY for and in consideration of the sum of Two Hundred Thousand Co. Otherwise, the latter would bring the appropriate action in court.[6]
Pesos (P200,000.00), Philippine Currency;
Upon the refusal of private respondent to vacate the subject
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in
repurchase the said property within a period of ninety (90) days from the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a
the execution of this memorandum of agreement effective April 18, decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor
1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS of A.C. Aguila & Sons, Co. on the ground that private respondent did not
(P230,000.00); redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro
(3) In the event that the FIRST PARTY fail to exercise her option to
Manila, then to the Court of Appeals, and later to this Court, but she lost
repurchase the said property within a period of ninety (90) days, the
in all the cases.
FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the Private respondent then filed a petition for declaration of nullity
expiration of the said 90 day grace period; of a deed of sale with the Regional Trial Court, Branch 273, Marikina,
Metro Manila on December 4, 1993. She alleged that the signature of
(4) During the said grace period, the FIRST PARTY obliges herself not to her husband on the deed of sale was a forgery because he was already
file any lis pendens or whatever claims on the property nor shall be dead when the deed was supposed to have been executed on June 11,
cause the annotation of say claim at the back of the title to the said 1991.
property;
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
(5) With the execution of the deed of absolute sale, the FIRST PARTY Prosecutor of Quezon City which was dismissed in a resolution, dated
warrants her ownership of the property and shall defend the rights of February 14, 1994.
the SECOND PARTY against any party whom may have any interests over
the property; On April 11, 1995, Branch 273 of RTC-Marikina rendered its
decision:
(6) All expenses for documentation and other incidental expenses shall
be for the account of the FIRST PARTY; Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public
(7) Should the FIRST PARTY fail to deliver peaceful possession of the Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
property to the SECOND PARTY after the expiration of the 15-day grace Abrogar, died on May 8, 1991 or one month and 2 days before the
period given in paragraph 3 above, the FIRST PARTY shall pay an amount execution of the Deed of Absolute Sale, while the plaintiff was still in the
equivalent to Five Percent of the principal amount of TWO HUNDRED Quezon City Medical Center recuperating from wounds which she
PESOS (P200.00) or P10,000.00 per month of delay as and for rentals suffered at the same vehicular accident on May 8, 1991, cannot be
and liquidated damages; sustained. The Court is convinced that the three required documents, to
wit: the Memorandum of Agreement, the Special Power of Attorney,
and the Deed of Absolute Sale were all signed by the parties on the same
(8) Should the FIRST PARTY fail to exercise her option to repurchase the date on April 18, 1991. It is a common and accepted business practice
property within ninety (90) days period above-mentioned, this of those engaged in money lending to prepare an undated absolute
memorandum of agreement shall be deemed cancelled and the Deed of deed of sale in loans of money secured by real estate for various
Absolute Sale, executed by the parties shall be the final contract reasons, foremost of which is the evasion of taxes and surcharges. The
considered as entered between the parties and the SECOND PARTY shall plaintiff never questioned receiving the sum of P200,000.00
proceed to transfer ownership of the property above described to its representing her loan from the defendant. Common sense dictates that
name free from lines and encumbrances.[2] an established lending and realty firm like the Aguila & Sons, Co. would
not part with P200,000.00 to the Abrogar spouses, who are virtual
On the same day, April 18, 1991, the parties likewise executed a strangers to it, without the simultaneous accomplishment and signing
deed of absolute sale,[3]dated June 11, 1991, wherein private of all the required documents, more particularly the Deed of Absolute
respondent, with the consent of her late husband, sold the subject Sale, to protect its interest.
property to A.C. Aguila & Sons, Co., represented by petitioner, for
P200,000.00. In a special power of attorney dated the same day, April ....
18, 1991, private respondent authorized petitioner to cause the
WHEREFORE, foregoing premises considered, the case in caption is Being a mortgage, the transaction entered into by the parties is in the
hereby ORDERED DISMISSED, with costs against the plaintiff. nature of a pactum commissorium which is clearly prohibited by Article
2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
On appeal, the Court of Appeals reversed. It held:
ART. 2088. The creditor cannot appropriate the things given by way of
The facts and evidence show that the transaction between plaintiff- pledge or mortgage, or dispose of them. Any stipulation to the contrary
appellant and defendant-appellee is indubitably an equitable is null and void.
mortgage. Article 1602 of the New Civil Code finds strong application in
the case at bar in the light of the following circumstances. The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
First: The purchase price for the alleged sale with right to repurchase is wherein a property is pledged or mortgaged by way of security for the
unusually inadequate. The property is a two hundred forty (240) sq. m. payment of principal obligation; and (2) that there should be a
lot. On said lot, the residential house of plaintiff-appellant stands. The stipulation for an automatic appropriation by the creditor of the thing
property is inside a subdivision/village. The property is situated in pledged and mortgaged in the event of non-payment of the principal
Marikina which is already part of Metro Manila. The alleged sale took obligation within the stipulated period.
place in 1991 when the value of the land had considerably increased.
In this case, defendant-appellee in reality extended a P200,000.00 loan
For this property, defendant-appellee pays only a measly P200,000.00 to plaintiff-appellant secured by a mortgage on the property of plaintiff-
or P833.33 per square meter for both the land and for the house. appellant. The loan was payable within ninety (90) days, the period
within which plaintiff-appellant can repurchase the property.Plaintiff-
appellant will pay P230,000.00 and not P200,000.00, the P30,000.00
Second: The disputed Memorandum of Agreement specifically provides
excess is the interest for the loan extended. Failure of plaintiff-appellee
that plaintiff-appellant is obliged to deliver peacefully the possession of
to pay the P230,000,00 within the ninety (90) days period, the property
the property to the SECOND PARTY within fifteen (15) days after the
shall automatically belong to defendant-appellee by virtue of the deed
expiration of the said ninety (90) day grace period. Otherwise stated,
of sale executed.
plaintiff-appellant is to retain physical possession of the thing allegedly
sold.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
In fact, plaintiff-appellant retained possession of the property sold as if
declared void as we hereby so declare to be invalid, for being violative
they were still the absolute owners. There was no provision for
of law.
maintenance or expenses, much less for payment of rent.

....
Third: The apparent vendor, plaintiff-appellant herein, continued to pay
taxes on the property sold. It is well-known that payment of taxes
accompanied by actual possession of the land covered by the tax WHEREFORE, foregoing considered, the appealed decision is hereby
declaration, constitute evidence of great weight that a person under REVERSED and SET ASIDE. The questioned Deed of Sale and the
whose name the real taxes were declared has a claim of right over the cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant
land. and the issuance of TCT No. 267073 issued in favor of defendant-
appellee pursuant to the questioned Deed of Sale is hereby declared
VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101
It is well-settled that the presence of even one of the circumstances in
of the Registry of Marikina is hereby ordered REINSTATED. The loan in
Article 1602 of the New Civil Code is sufficient to declare a contract of
the amount of P230,000.00 shall be paid within ninety (90) days from
sale with right to repurchase an equitable mortgage.
the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold
Considering that plaintiff-appellant, as vendor, was paid a price which is at public auction to satisfy the mortgage debt and costs and if there is
unusually inadequate, has retained possession of the subject property an excess, the same is to be given to the owner.
and has continued paying the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the
Petitioner now contends that: (1) he is not the real party in
New Civil Code), it must be conclusively presumed that the transaction
interest but A.C. Aguila & Co., against which this case should have been
the parties actually entered into is an equitable mortgage, not a sale
brought; (2) the judgment in the ejectment case is a bar to the filing of
with right to repurchase. The factors cited are in support to the finding
the complaint for declaration of nullity of a deed of sale in this case; and
that the Deed of Sale/Memorandum of Agreement with right to
(3) the contract between A.C. Aguila & Sons, Co. and private respondent
repurchase is in actuality an equitable mortgage.
is a pacto de retro sale and not an equitable mortgage as held by the
appellate court.
Moreover, it is undisputed that the deed of sale with right of repurchase
was executed by reason of the loan extended by defendant-appellee to The petition is meritorious.
plaintiff-appellant. The amount of loan being the same with the amount
Rule 3, 2 of the Rules of Court of 1964, under which the complaint
of the purchase price.
in this case was filed, provided that every action must be prosecuted and
defended in the name of the real party in interest. A real party in interest
.... is one who would be benefited or injured by the judgment, or who is
entitled to the avails of the suit.[7] This ruling is now embodied in Rule 3,
Since the real intention of the party is to secure the payment of debt, 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered
now deemed to be repurchase price: the transaction shall then be against a person who is not a real party in interest in the case cannot be
considered to be an equitable mortgage.
executed.[8] Hence, a complaint filed against such a person should be After Jesus Jose withdrew from the partnership in January 1987, his
dismissed for failure to state a cause of action.[9] capital contribution of P250,000 was refunded to him in cash by
agreement of the partners.[7]
Under Art. 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The In the same month, without prior knowledge of respondents, petitioners
partners cannot be held liable for the obligations of the partnership closed down the restaurant, allegedly because of increased rental. The
unless it is shown that the legal fiction of a different juridical personality restaurant furniture and equipment were deposited in the respondents
is being used for fraudulent, unfair, or illegal purposes.[10] In this case, house for storage.[8]
private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal On March 1, 1987, respondent spouses wrote petitioners, saying that
purposes. Moreover, the title to the subject property is in the name of they were no longer interested in continuing their partnership or in
A.C. Aguila & Sons, Co. and the Memorandum of Agreement was reopening the restaurant, and that they were accepting the latters offer
executed between private respondent, with the consent of her late to return their capital contribution.[9]
husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence, On October 13, 1987, Carmelita Ramirez wrote another letter informing
it is the partnership, not its officers or agents, which should be petitioners of the deterioration of the restaurant furniture and
impleaded in any litigation involving property registered in its name. A equipment stored in their house. She also reiterated the request for the
violation of this rule will result in the dismissal of the complaint.[11] We return of their one-third share in the equity of the partnership. The
cannot understand why both the Regional Trial Court and the Court of repeated oral and written requests were, however, left unheeded.[10]
Appeals sidestepped this issue when it was squarely raised before them
by petitioner. Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint[11] dated November 10, 1987, for the
Our conclusion that petitioner is not the real party in interest collection of a sum of money from petitioners.
against whom this action should be prosecuted makes it unnecessary to
discuss the other issues raised by him in this appeal. In their Answer, petitioners contended that respondents had expressed
a desire to withdraw from the partnership and had called for its
WHEREFORE, the decision of the Court of Appeals is hereby dissolution under Articles 1830 and 1831 of the Civil Code; that
REVERSED and the complaint against petitioner is DISMISSED. respondents had been paid, upon the turnover to them of furniture and
SO ORDERED. equipment worth over P400,000; and that the latter had no right to
demand a return of their equity because their share, together with the
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO rest of the capital of the partnership, had been spent as a result of
JOSE, petitioners, irreversible business losses.[12]
vs.
In their Reply, respondents alleged that they did not know of any loan
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
encumbrance on the restaurant. According to them, if such allegation
CARMELITA C. RAMIREZ, respondents.
were true, then the loans incurred by petitioners should be regarded as
[G.R. No. 144214. July 14, 2003]
purely personal and, as such, not chargeable to the partnership. The
former further averred that they had not received any regular report or
A share in a partnership can be returned only after the completion of accounting from the latter, who had solely managed the
the latters dissolution, liquidation and winding up of the business. business. Respondents also alleged that they expected the equipment
and the furniture stored in their house to be removed by petitioners as
The Case soon as the latter found a better location for the restaurant.[13]
The Petition for Review on Certiorari before us challenges the Respondents filed an Urgent Motion for Leave to Sell or Otherwise
March 23, 2000 Decision[1] and the July 26, 2000 Resolution[2] of the Dispose of Restaurant Furniture and Equipment[14] on July 8, 1988. The
Court of Appeals[3] (CA) in CA-GR CV No. 41026. The assailed Decision furniture and the equipment stored in their house were inventoried and
disposed as follows: appraised at P29,000.[15] The display freezer was sold for P5,000 and the
proceeds were paid to them.[16]
WHEREFORE, foregoing premises considered, the Decision dated July
After trial, the RTC[17] ruled that the parties had voluntarily entered into
21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City
a partnership, which could be dissolved at any time. Petitioners clearly
is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is
intended to dissolve it when they stopped operating the
rendered ordering the [petitioners] jointly and severally to pay and
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them
reimburse to [respondents] the amount of P253,114.00. No
liable as follows:[18]
pronouncement as to costs.[4]

WHEREFORE, judgment is hereby rendered in favor of [respondents]


Reconsideration was denied in the impugned Resolution.
and against the [petitioners] ordering the [petitioners] to pay jointly and
The Facts severally the following:

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose (a) Actual damages in the amount of P250,000.00
formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name Aquarius Food House (b) Attorneys fee in the amount of P30,000.00
and Catering Services.[5] Villareal was appointed general manager and
Carmelito Jose, operations manager.
(c) Costs of suit.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by The CA Ruling
his parents, Respondents Cesar and Carmelita Ramirez.[6]
The CA held that, although respondents had no right to demand the partnership, petitioners did not personally hold its equity or assets. The
return of their capital contribution, the partnership was nonetheless partnership has a juridical personality separate and distinct from that of
dissolved when petitioners lost interest in continuing the restaurant each of the partners.[23] Since the capital was contributed to the
business with them. Because petitioners never gave a proper accounting partnership, not to petitioners, it is the partnership that must refund the
of the partnership accounts for liquidation purposes, and because no equity of the retiring partners.[24]
sufficient evidence was presented to show financial losses, the CA
computed their liability as follows: Second Issue:
What Must Be Returned?
Consequently, since what has been proven is only the outstanding Since it is the partnership, as a separate and distinct entity, that
obligation of the partnership in the amount of P240,658.00, although must refund the shares of the partners, the amount to be refunded is
contracted by the partnership before [respondents] have joined the necessarily limited to its total resources. In other words, it can only pay
partnership but in accordance with Article 1826 of the New Civil Code, out what it has in its coffers, which consists of all its assets. However,
they are liable which must have to be deducted from the remaining before the partners can be paid their shares, the creditors of the
capitalization of the said partnership which is in the amount partnership must first be compensated.[25]After all the creditors have
of P1,000,000.00 resulting in the amount of P759,342.00, and in order been paid, whatever is left of the partnership assets becomes available
to get the share of [respondents], this amount of P759,342.00 must be for the payment of the partners shares.
divided into three (3) shares or in the amount of P253,114.00 for each
share and which is the only amount which [petitioner] will return to Evidently, in the present case, the exact amount of refund
[respondents] representing the contribution to the partnership minus equivalent to respondents one-third share in the partnership cannot be
the outstanding debt thereof.[19] determined until all the partnership assets will have been liquidated --
in other words, sold and converted to cash -- and all partnership
creditors, if any, paid.The CAs computation of the amount to be
Hence, this Petition.[20]
refunded to respondents as their share was thus erroneous.
Issues
First, it seems that the appellate court was under the
In their Memorandum,[21] petitioners submit the following issues misapprehension that the total capital contribution was equivalent to
for our consideration: the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the partnership remains
9.1. Whether the Honorable Court of Appeals decision ordering the
intact, unimpaired and available for distribution or return to the
distribution of the capital contribution, instead of the net capital after
partners. Such idea is speculative, conjectural and totally without factual
the dissolution and liquidation of a partnership, thereby treating the
or legal support.
capital contribution like a loan, is in accordance with law and
jurisprudence; Generally, in the pursuit of a partnership business, its capital is
either increased by profits earned or decreased by losses sustained. It
9.2. Whether the Honorable Court of Appeals decision ordering the does not remain static and unaffected by the changing fortunes of the
petitioners to jointly and severally pay and reimburse the amount of business. In the present case, the financial statements presented before
[P]253,114.00 is supported by the evidence on record; and the trial court showed that the business had made meager
profits.[26] However, notable therefrom is the omission of any provision
9.3. Whether the Honorable Court of Appeals was correct in making [n]o for the depreciation[27] of the furniture and the equipment. The
pronouncement as to costs.[22] amortization of the goodwill[28] (initially valued at P500,000) is not
reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses,
On closer scrutiny, the issues are as follows: (1) whether which consequently decreased the capital of the partnership. Both the
petitioners are liable to respondents for the latters share in the trial and the appellate courts in fact recognized the decrease of the
partnership; (2) whether the CAs computation of P253,114 as partnership assets to almost nil, but the latter failed to recognize the
respondents share is correct; and (3) whether the CA was likewise consequent corresponding decrease of the capital.
correct in not assessing costs.
Second, the CAs finding that the partnership had an outstanding
This Courts Ruling obligation in the amount of P240,658 was not supported by
The Petition has merit. evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership
for the following reason:
First Issue:
Share in Partnership x x x [E]vidence on record failed to show the exact loan owed by the
Both the trial and the appellate courts found that a partnership partnership to its creditors. The balance sheet (Exh. 4) does not reveal
had indeed existed, and that it was dissolved on March 1, 1987. They the total loan. The Agreement (Exh. A) par. 6 shows an outstanding
found that the dissolution took place when respondents informed obligation of P240,055.00 which the partnership owes to different
petitioners of the intention to discontinue it because of the formers creditors, while the Certification issued by Mercator Finance (Exh. 8)
dissatisfaction with, and loss of trust in, the latters management of the shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal,
partnership affairs. These findings were amply supported by the the former being the nominal party defendant in the instant case, who
evidence on record. Respondents consequently demanded from obtained a loan of P355,000.00 on Oct. 1983, when the original
petitioners the return of their one-third equity in the partnership. partnership was not yet formed.

We hold that respondents have no right to demand from


petitioners the return of their equity share. Except as managers of the
Third, the CA failed to reduce the capitalization by P250,000,
which was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.

Because of the above-mentioned transactions, the partnership


capital was actually reduced.When petitioners and respondents
ventured into business together, they should have prepared for the fact
that their investment would either grow or shrink. In the present case,
the investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the
time of dissolution did not amount to that much.
Article 1769
It is a long established doctrine that the law does not relieve
parties from the effects of unwise, foolish or disastrous contracts they
have entered into with all the required formalities and with full JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and
awareness of what they were doing. Courts have no power to relieve REMEDIOS P. OBILLOS, brothers and sisters, petitioners
them from obligations they have voluntarily assumed, simply because vs.
their contracts turn out to be disastrous deals or unwise investments.[29] COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Petitioners further argue that respondents acted negligently by G.R. No. L-68118 October 29, 1985
permitting the partnership assets in their custody to deteriorate to the
point of being almost worthless. Supposedly, the latter should have This case is about the income tax liability of four brothers and sisters
liquidated these sole tangible assets of the partnership and considered who sold two parcels of land which they had acquired from their father.
the proceeds as payment of their net capital. Hence, petitioners argue
that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully settling On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co.,
the latters share in the partnership. Ltd. on two lots with areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his
We disagree. The delivery of the store furniture and equipment to four children, the petitioners, to enable them to build their residences.
private respondents was for the purpose of storage. They were unaware The company sold the two lots to petitioners for P178,708.12 on March
that the restaurant would no longer be reopened by petitioners. Hence, 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to
the former cannot be faulted for not disposing of the stored items to them would show that they were co-owners of the two lots.
recover their capital investment.

Third Issue: In 1974, or after having held the two lots for more than a year, the
Costs petitioners resold them to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
Section 1, Rule 142, provides: derived from the sale a total profit of P134,341.88 or P33,584 for each
of them. They treated the profit as a capital gain and paid an income tax
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise on one-half thereof or of P16,792.
provided in these rules, costs shall be allowed to the prevailing party as
a matter of course, but the court shall have power, for special reasons, In April, 1980, or one day before the expiration of the five-year
to adjudge that either party shall pay the costs of an action, or that the prescriptive period, the Commissioner of Internal Revenue required the
same be divided, as may be equitable. No costs shall be allowed against four petitioners to pay corporate income tax on the total profit of
the Republic of the Philippines unless otherwise provided by law. P134,336 in addition to individual income tax on their shares thereof He
assessed P37,018 as corporate income tax, P18,509 as 50% fraud
Although, as a rule, costs are adjudged against the losing party, surcharge and P15,547.56 as 42% accumulated interest, or a total
courts have discretion, for special reasons, to decree otherwise. When of P71,074.56.
a lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower courts judgment Not only that. He considered the share of the profits of each petitioner
which is presumed to have been issued in good faith, even if found later in the sum of P33,584 as a " taxable in full (not a mere capital gain of
on to be erroneous. Unless shown to be patently capricious, the award which ½ is taxable) and required them to pay deficiency income taxes
shall not be disturbed by a reviewing tribunal. aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
WHEREFORE, the Petition is GRANTED, and the assailed Decision
and Resolution SET ASIDE. This disposition is without prejudice to
Thus, the petitioners are being held liable for deficiency income taxes
proper proceedings for the accounting, the liquidation and the
and penalties totalling P127,781.76 on their profit of P134,336, in
distribution of the remaining partnership assets, if any. No
addition to the tax on capital gains already paid by them.
pronouncement as to costs.

SO ORDERED. The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the meaning
of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court The instant case is distinguishable from the cases where the parties
sustained the same. Judge Roaquin dissented. Hence, the instant engaged in joint ventures for profit. Thus, in Oña vs.
appeal.
** This view is supported by the following rulings of respondent
We hold that it is error to consider the petitioners as having formed a Commissioner:
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same Co-owership distinguished from partnership.—We find that the case
and divided the profit among themselves. at bar is fundamentally similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-
To regard the petitioners as having formed a taxable unregistered indiviso from their deceased parents; they did not contribute or
partnership would result in oppressive taxation and confirm the dictum invest additional ' capital to increase or expand the inherited
that the power to tax involves the power to destroy. That eventuality properties; they merely continued dedicating the property to the
should be obviated. use to which it had been put by their forebears; they individually
reported in their tax returns their corresponding shares in the
As testified by Jose Obillos, Jr., they had no such intention. They were income and expenses of the 'hacienda', and they continued for
co-owners pure and simple. To consider them as partners would many years the status of co-ownership in order, as conceded by
obliterate the distinction between a co-ownership and a partnership. respondent, 'to preserve its (the 'hacienda') value and to continue
The petitioners were not engaged in any joint venture by reason of that the existing contractual relations with the Central Azucarera de Bais
isolated transaction. for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31,
1963).
Their original purpose was to divide the lots for residential purposes. If
later on they found it not feasible to build their residences on the lots All co-ownerships are not deemed unregistered pratnership.—Co-
because of the high cost of construction, then they had no choice but to Ownership who own properties which produce income should not
resell the same to dissolve the co-ownership. The division of the profit automatically be considered partners of an unregistered
was merely incidental to the dissolution of the co-ownership which was partnership, or a corporation, within the purview of the income tax
in the nature of things a temporary state. It had to be terminated sooner law. To hold otherwise, would be to subject the income of all
or later. Castan Tobeñas says: co-ownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it is not
subject to any kind of income tax, whether the income tax on
Como establecer el deslinde entre la comunidad ordinaria o
individuals or the income tax on corporation. (De Leon vs. CI R, CTA
copropiedad y la sociedad?
Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp. 77-78).
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
convencion, mentras que la comunidad puede existir y existe
where after an extrajudicial settlement the co-heirs used the inheritance
ordinariamente sin ela; y por razon del fin objecto, en que el objeto
or the incomes derived therefrom as a common fund to produce profits
de la sociedad es obtener lucro, mientras que el de la indivision es
for themselves, it was held that they were taxable as an unregistered
solo mantener en su integridad la cosa comun y favorecer su
partnership.
conservacion.

It is likewise different from Reyes vs. Commissioner of Internal Revenue,


Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en
24 SCRA 198, where father and son purchased a lot and building,
la que se dice que si en nuestro Derecho positive se ofrecen a veces
entrusted the administration of the building to an administrator and
dificultades al tratar de fijar la linea divisoria entre comunidad de
divided equally the net income, and from Evangelista vs. Collector of
bienes y contrato de sociedad, la moderna orientacion de la doctrina
Internal Revenue, 102 Phil. 140, where the three Evangelista sisters
cientifica señala como nota fundamental de diferenciacion aparte
bought four pieces of real property which they leased to various tenants
del origen de fuente de que surgen, no siempre uniforme, la
and derived rentals therefrom. Clearly, the petitioners in these two
finalidad perseguida por los interesados: lucro comun partible en la
cases had formed an unregistered partnership.
sociedad, y mera conservacion y aprovechamiento en la comunidad.
(Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
In the instant case, what the Commissioner should have investigated
was whether the father donated the two lots to the petitioners and
Article 1769(3) of the Civil Code provides that "the sharing of gross
whether he paid the donor's tax (See Art. 1448, Civil Code). We are not
returns does not of itself establish a partnership, whether or not the
prejudging this matter. It might have already prescribed.
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.* WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
Such intent was present in Gatchalian vs. Collector of Internal Revenue,
67 Phil. 666, where 15 persons contributed small amounts to purchase SO ORDERED.
a two-peso sweepstakes ticket with the agreement that they would
divide the prize The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
be collected from the War Damage Commission. Later, they
received from said Commission the amount of P50,000.00, more or
less. This amount was not divided among them but was used in the
rehabilitation of properties owned by them in common (t.s.n., p. 46).
Of the ten parcels of land aforementioned, two were acquired after
the death of the decedent with money borrowed from the Philippine
Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3,
pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally
with Lorenzo T. Oña, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the
approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. Although the project of partition was approved by the Court on May
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. 16, 1949, no attempt was made to divide the properties therein
OÑA, JR., petitioners, listed. Instead, the properties remained under the management of
vs. Lorenzo T. Oña who used said properties in business by leasing or
THE COMMISSIONER OF INTERNAL REVENUE, respondent. selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As
G.R. No. L-19342 May 25, 1972
a result, petitioners' properties and investments gradually increased
from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned
Petition for review of the decision of the Court of Tax Appeals in CTA from the following year-end balances:
Case No. 617, similarly entitled as above, holding that petitioners have
constituted an unregistered partnership and are, therefore, subject to
the payment of the deficiency corporate income taxes assessed against Year Investment Land Building
them by respondent Commissioner of Internal Revenue for the years
1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and Account Account Account
1% monthly interest from December 15, 1958, subject to the provisions
of Section 51 (e) (2) of the Internal Revenue Code, as amended by 1949 — P87,860.00 P17,590.00
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as
1950 P24,657.65 128,566.72 96,076.26
the resolution of said court denying petitioners' motion for
reconsideration of said decision.
1951 51,301.31 120,349.28 110,605.11

The facts are stated in the decision of the Tax Court as follows: 1952 67,927.52 87,065.28 152,674.39

Julia Buñales died on March 23, 1944, leaving as heirs her surviving 1953 61,258.27 84,925.68 161,463.83
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the 1954 63,623.37 99,001.20 167,962.04
settlement of her estate. Later, Lorenzo T. Oña the surviving spouse
was appointed administrator of the estate of said deceased (Exhibit 1955 100,786.00 120,249.78 169,262.52
3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by the Court 1956 175,028.68 135,714.68 169,262.52
on May 16, 1949 (See Exhibit K). Because three of the heirs, namely
Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
when the project of partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a petition in Civil Case
From said investments and properties petitioners derived such
No. 9637 of the Court of First Instance of Manila for appointment as
incomes as profits from installment sales of subdivided lots, profits
guardian of said minors. On November 14, 1949, the Court
from sales of stocks, dividends, rentals and interests (see p. 3 of
appointed him guardian of the persons and property of the
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
aforenamed minors (See p. 3, BIR rec.).
recorded in the books of account kept by Lorenzo T. Oña where the
corresponding shares of the petitioners in the net income for the
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
year are also known. Every year, petitioners returned for income tax
that the heirs have undivided one-half (1/2) interest in ten parcels
purposes their shares in the net income derived from said properties
of land with a total assessed value of P87,860.00, six houses with a
and securities and/or from transactions involving them (Exhibit
total assessed value of P17,590.00 and an undetermined amount to
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually
receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
100). The income was always left in the hands of Lorenzo T. Oña PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED
who, as heretofore pointed out, invested them in real properties AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM
and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104). (sic);

On the basis of the foregoing facts, respondent (Commissioner of III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
Internal Revenue) decided that petitioners formed an unregistered PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR
partnership and therefore, subject to the corporate income tax, 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
pursuant to Section 24, in relation to Section 84(b), of the Tax Code.
Accordingly, he assessed against the petitioners the amounts of IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
86, BIR rec.). Petitioners protested against the assessment and PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE
asked for reconsideration of the ruling of respondent that they have PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE
formed an unregistered partnership. Finding no merit in petitioners' LOANS RECEIVED USING THE INHERITED PROPERTIES AS
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See COLLATERALS;
pp. 1-4, Memorandum for Respondent, June 12, 1961).
V. ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
The original assessment was as follows: PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
1955 INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON,
Net income as per investigation ................ P40,209.89 FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

Income tax due thereon ............................... 8,042.00 In other words, petitioners pose for our resolution the following
25% surcharge .............................................. 2,010.50 questions: (1) Under the facts found by the Court of Tax Appeals, should
Compromise for non-filing .......................... 50.00 petitioners be considered as co-owners of the properties inherited by
Total ............................................................... P10,102.50 them from the deceased Julia Buñales and the profits derived from
transactions involving the same, or, must they be deemed to have
1956 formed an unregistered partnership subject to tax under Sections 24
and 84(b) of the National Internal Revenue Code? (2) Assuming they
Net income as per investigation ................ P69,245.23 have formed an unregistered partnership, should this not be only in the
sense that they invested as a common fund the profits earned by the
Income tax due thereon ............................... 13,849.00 properties owned by them in common and the loans granted to them
25% surcharge .............................................. 3,462.25 upon the security of the said properties, with the result that as far as
Compromise for non-filing .......................... 50.00 their respective shares in the inheritance are concerned, the total
Total ............................................................... P17,361.25 income thereof should be considered as that of co-owners and not of
the unregistered partnership? And (3) assuming again that they are
taxable as an unregistered partnership, should not the various amounts
(See Exhibit 13, page 50, BIR records)
already paid by them for the same years 1955 and 1956 as individual
income taxes on their respective shares of the profits accruing from the
Upon further consideration of the case, the 25% surcharge was
properties they owned in common be deducted from the deficiency
eliminated in line with the ruling of the Supreme Court in Collector
corporate taxes, herein involved, assessed against such unregistered
v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that
partnership by the respondent Commissioner?
the questioned assessment refers solely to the income tax proper
for the years 1955 and 1956 and the "Compromise for non-filing,"
Pondering on these questions, the first thing that has struck the Court is
the latter item obviously referring to the compromise in lieu of the
that whereas petitioners' predecessor in interest died way back on
criminal liability for failure of petitioners to file the corporate income
March 23, 1944 and the project of partition of her estate was judicially
tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-
approved as early as May 16, 1949, and presumably petitioners have
3, Annex C to Petition)
been holding their respective shares in their inheritance since those
dates admittedly under the administration or management of the head
Petitioners have assigned the following as alleged errors of the Tax
of the family, the widower and father Lorenzo T. Oña, the assessment in
Court:
question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944
I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE to 1954, the respondent Commissioner of Internal Revenue did treat
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
petitioners as co-owners, not liable to corporate tax, and it was only
from 1955 that he considered them as having formed an unregistered basis. Withal, if this were to be allowed, it would be the easiest thing for
partnership. At least, there is nothing in the record indicating that an heirs in any inheritance to circumvent and render meaningless Sections
earlier assessment had already been made. Such being the case, and We 24 and 84(b) of the National Internal Revenue Code.
see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co- It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
partners, for the purposes of the impugned assessment, cannot be among the reasons for holding the appellants therein to be unregistered
upheld. Truth to tell, petitioners should find comfort in the fact that they co-partners for tax purposes, that their common fund "was not
were not similarly assessed earlier by the Bureau of Internal Revenue. something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to
The Tax Court found that instead of actually distributing the estate of argue therefrom, as petitioners are doing here, that ergo, in all instances
the deceased among themselves pursuant to the project of partition where an inheritance is not actually divided, there can be no
approved in 1949, "the properties remained under the management of unregistered co-partnership. As already indicated, for tax purposes, the
Lorenzo T. Oña who used said properties in business by leasing or selling co-ownership of inherited properties is automatically converted into an
them and investing the income derived therefrom and the proceed from unregistered partnership the moment the said common properties
the sales thereof in real properties and securities," as a result of which and/or the incomes derived therefrom are used as a common fund with
said properties and investments steadily increased yearly from intent to produce profits for the heirs in proportion to their respective
P87,860.00 in "land account" and P17,590.00 in "building account" in shares in the inheritance as determined in a project partition either duly
1949 to P175,028.68 in "investment account," P135.714.68 in "land executed in an extrajudicial settlement or approved by the court in the
account" and P169,262.52 in "building account" in 1956. And all these corresponding testate or intestate proceeding. The reason for this is
became possible because, admittedly, petitioners never actually simple. From the moment of such partition, the heirs are entitled
received any share of the income or profits from Lorenzo T. Oña and already to their respective definite shares of the estate and the incomes
instead, they allowed him to continue using said shares as part of the thereof, for each of them to manage and dispose of as exclusively his
common fund for their ventures, even as they paid the corresponding own without the intervention of the other heirs, and, accordingly he
income taxes on the basis of their respective shares of the profits of their becomes liable individually for all taxes in connection therewith. If after
common business as reported by the said Lorenzo T. Oña. such partition, he allows his share to be held in common with his co-
heirs under a single management to be used with the intent of making
It is thus incontrovertible that petitioners did not, contrary to their profit thereby in proportion to his share, there can be no doubt that,
contention, merely limit themselves to holding the properties inherited even if no document or instrument were executed for the purpose, for
by them. Indeed, it is admitted that during the material years herein tax purposes, at least, an unregistered partnership is formed. This is
involved, some of the said properties were sold at considerable profit, exactly what happened to petitioners in this case.
and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in
the purchase and sale of corporate securities. It is likewise admitted that In this connection, petitioners' reliance on Article 1769, paragraph (3),
all the profits from these ventures were divided among petitioners of the Civil Code, providing that: "The sharing of gross returns does not
proportionately in accordance with their respective shares in the of itself establish a partnership, whether or not the persons sharing
inheritance. In these circumstances, it is Our considered view that from them have a joint or common right or interest in any property from
the moment petitioners allowed not only the incomes from their which the returns are derived," and, for that matter, on any other
respective shares of the inheritance but even the inherited properties provision of said code on partnerships is unavailing.
themselves to be used by Lorenzo T. Oña as a common fund in In Evangelista, supra, this Court clearly differentiated the concept of
undertaking several transactions or in business, with the intention of partnerships under the Civil Code from that of unregistered partnerships
deriving profit to be shared by them proportionally, such act was which are considered as "corporations" under Sections 24 and 84(b) of
tantamonut to actually contributing such incomes to a common fund the National Internal Revenue Code. Mr. Justice Roberto Concepcion,
and, in effect, they thereby formed an unregistered partnership within now Chief Justice, elucidated on this point thus:
the purview of the above-mentioned provisions of the Tax Code.
To begin with, the tax in question is one imposed upon
It is but logical that in cases of inheritance, there should be a period "corporations", which, strictly speaking, are distinct and different
when the heirs can be considered as co-owners rather than unregistered from "partnerships". When our Internal Revenue Code includes
co-partners within the contemplation of our corporate tax laws "partnerships" among the entities subject to the tax on
aforementioned. Before the partition and distribution of the estate of "corporations", said Code must allude, therefore, to organizations
the deceased, all the income thereof does belong commonly to all the which are not necessarily "partnerships", in the technical sense of
heirs, obviously, without them becoming thereby unregistered co- the term. Thus, for instance, section 24 of said Code exempts from
partners, but it does not necessarily follow that such status as co-owners the aforementioned tax "duly registered general partnerships,"
continues until the inheritance is actually and physically distributed which constitute precisely one of the most typical forms of
among the heirs, for it is easily conceivable that after knowing their partnerships in this jurisdiction. Likewise, as defined in section 84(b)
respective shares in the partition, they might decide to continue holding of said Code, "the term corporation includes partnerships, no
said shares under the common management of the administrator or matter how created or organized." This qualifying expression clearly
executor or of anyone chosen by them and engage in business on that indicates that a joint venture need not be undertaken in any of the
standard forms, or in confirmity with the usual requirements of the sale of real properties and corporate securities and should not
law on partnerships, in order that one could be deemed constituted include the income derived from the inherited properties. It is
for purposes of the tax on corporation. Again, pursuant to said admitted that the inherited properties and the income derived
section 84(b),the term "corporation" includes, among others, "joint therefrom were used in the business of buying and selling other real
accounts,(cuentas en participacion)" and "associations", none of properties and corporate securities. Accordingly, the partnership
which has a legal personality of its own, independent of that of its income must include not only the income derived from the purchase
members. Accordingly, the lawmaker could not have regarded that and sale of other properties but also the income of the inherited
personality as a condition essential to the existence of the properties.
partnerships therein referred to. In fact, as above stated, "duly
registered general co-partnerships" — which are possessed of the Besides, as already observed earlier, the income derived from inherited
aforementioned personality — have been expressly excluded by law properties may be considered as individual income of the respective
(sections 24 and 84[b]) from the connotation of the term heirs only so long as the inheritance or estate is not distributed or, at
"corporation." .... least, partitioned, but the moment their respective known shares are
used as part of the common assets of the heirs to be used in making
xxx xxx xxx profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered
Similarly, the American Law partnership. This, We hold, is the clear intent of the law.

... provides its own concept of a partnership. Under the term Likewise, the third question of petitioners appears to have been
"partnership" it includes not only a partnership as known in adequately resolved by the Tax Court in the aforementioned resolution
common law but, as well, a syndicate, group, pool, joint venture, denying petitioners' motion for reconsideration of the decision of said
or other unincorporated organization which carries on any court. Pertinently, the court ruled this wise:
business, financial operation, or venture, and which is not, within
the meaning of the Code, a trust, estate, or a corporation. ... . In support of the third ground, counsel for petitioners alleges:
(7A Merten's Law of Federal Income Taxation, p. 789; emphasis
ours.) Even if we were to yield to the decision of this Honorable Court
that the herein petitioners have formed an unregistered
The term "partnership" includes a syndicate, group, pool, joint partnership and, therefore, have to be taxed as such, it might be
venture or other unincorporated organization, through or by recalled that the petitioners in their individual income tax
means of which any business, financial operation, or venture is returns reported their shares of the profits of the unregistered
carried on. ... . (8 Merten's Law of Federal Income Taxation, p. partnership. We think it only fair and equitable that the various
562 Note 63; emphasis ours.) amounts paid by the individual petitioners as income tax on their
respective shares of the unregistered partnership should be
For purposes of the tax on corporations, our National Internal deducted from the deficiency income tax found by this
Revenue Code includes these partnerships — with the exception only Honorable Court against the unregistered partnership. (page 7,
of duly registered general copartnerships — within the purview of Memorandum for the Petitioner in Support of Their Motion for
the term "corporation." It is, therefore, clear to our mind that Reconsideration, Oct. 28, 1961.)
petitioners herein constitute a partnership, insofar as said Code is
concerned, and are subject to the income tax for corporations. In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. income tax paid by each petitioner on his share of partnership
Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, profits. This is not correct; rather, it should be the other way around.
24 SCRA 198, wherein the Court ruled against a theory of co-ownership The partnership profits distributable to the partners (petitioners
pursued by appellants therein. herein) should be reduced by the amounts of income tax assessed
against the partnership. Consequently, each of the petitioners in his
As regards the second question raised by petitioners about the individual capacity overpaid his income tax for the years in question,
segregation, for the purposes of the corporate taxes in question, of their but the income tax due from the partnership has been correctly
inherited properties from those acquired by them subsequently, We assessed. Since the individual income tax liabilities of petitioners are
consider as justified the following ratiocination of the Tax Court in not in issue in this proceeding, it is not proper for the Court to pass
denying their motion for reconsideration: upon the same.

In connection with the second ground, it is alleged that, if there was Petitioners insist that it was error for the Tax Court to so rule that
an unregistered partnership, the holding should be limited to the whatever excess they might have paid as individual income tax cannot
business engaged in apart from the properties inherited by be credited as part payment of the taxes herein in question. It is argued
petitioners. In other words, the taxable income of the partnership that to sanction the view of the Tax Court is to oblige petitioners to pay
should be limited to the income derived from the acquisition and double income tax on the same income, and, worse, considering the
time that has lapsed since they paid their individual income taxes, they defendants J.M. Menzi and P. C. Schlobohm, managing the business and
may already be barred by prescription from recovering their opening an account entitled "FERTILIZERS" on the books of the
overpayments in a separate action. We do not agree. As We see it, the defendant Menzi & Co., Inc., where all the accounts of the partnership
case of petitioners as regards the point under discussion is simply that business were supposed to be kept; the plaintiff had no participation in
of a taxpayer who has paid the wrong tax, assuming that the failure to the making of these entries, which were wholly in the defendants'
pay the corporate taxes in question was not deliberate. Of course, such charge, under whose orders every entry was made;
taxpayer has the right to be reimbursed what he has erroneously paid,
but the law is very clear that the claim and action for such IV That according to paragraph 7 of the contract Exhibit A, the defendant
reimbursement are subject to the bar of prescription. And since the Menzi & Co., Inc., was obliged to render annual balance sheets to be
period for the recovery of the excess income taxes in the case of herein plaintiff upon the 30th day of June of each year; that the plaintiff had no
petitioners has already lapsed, it would not seem right to virtually intervention in the preparation of these yearly balances, nor was he
disregard prescription merely upon the ground that the reason for the permitted to have any access to the books of account; and when the
delay is precisely because the taxpayers failed to make the proper return balance sheets were shown him, he, believing in good faith that they
and payment of the corporate taxes legally due from them. In principle, contained the true statement of the partnership business, and relying
it is but proper not to allow any relaxation of the tax laws in favor of upon the good faith of the defendants, Menzi & Co., Inc., J.M. Menzi,
persons who are not exactly above suspicion in their conduct vis-a-vis and P.C. Schlobohm, accepted and signed them, the last balance sheet
their tax obligation to the State. having been rendered in the year 1926;

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax V That by reason of the foregoing facts and especially those set forth in
Appeals appealed from is affirm with costs against petitioners. the preceding paragraph, the plaintiff was kept in ignorance of the
defendants' acts relating to the management of the partnership funds,
FRANCISCO BASTIDA, plaintiff-appellee, and the keeping of accounts, until he was informed and so believes and
vs. alleges, that the defendants had conspired to conceal from him the true
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants. status of the business, and to his damage and prejudice made false
MENZI & CO., appellant. entries in the books of account and in the yearly balance sheets, the
exact nature and amount of which it is impossible to ascertain, even
G.R. No. L-35840 March 31, 1933 after the examination of the books of the business, due to the
defendants' refusal to furnish all the books and data required for the
This is an appeal by Menzi & Co., Inc., one of the defendants, from a purpose, and the constant obstacles they have placed in the way of the
decision of the Court of First Instance of Manila. The case was tried on examination of the books of account and vouchers;
the amended complaint dated May 26, 1928 and defendants' amended
answer thereto of September 1, 1928. For the sake of clearness, we shall VI That when the plaintiff received the information mentioned in the
incorporate herein the principal allegations of the parties. preceding paragraph, he demanded that the defendants permit him to
examine the books and vouchers of the business, which were in their
FIRST CAUSE OF ACTION possession, in order to ascertain the truth of the alleged false entries in
the books and balance sheets submitted for his approval, but the
Plaintiff alleged: defendants refused, and did not consent to the examination until after
the original complaint was filed in this case; but up to this time they have
I That the defendant J.M. Menzi, together with his wife and daughter, refused to furnish all the books, data, and vouchers necessary for a
owns ninety-nine per cent (99%) of the capital stock of the defendant complete and accurate examination of all the partnership's accounts;
and
Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter, together
with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the VII That as a result of the partial examination of the books of account of
board of directors of the defendant, Menzi & Co., Inc.; the business, the plaintiff has, through his accountants, discovered that
the defendants, conspiring and confederating together, presented to
the plaintiff during the period covered by the partnership contract false
II That on April 27, 1922, the defendant Menzi & Co., Inc. through its
and incorrect accounts,
president and general manager, J.M. Menzi, under the authority of the
board of directors, entered into a contract with the plaintiff to engage
in the business of exploiting prepared fertilizers, as evidenced by the (a) For having included therein undue interest;
contract marked Exhibit A, attached to the original complaint as a part
thereof, and likewise made a part of the amended complaint, as if it (b) For having entered, as a charge to fertilizers, salaries and wages
were here copied verbatim; which should have been paid and were in fact paid by the defendant
Menzi & Co., Inc.;
III That in pursuance of said contract, plaintiff and defendant Menzi &
Co., Inc., began to manufacture prepared fertilizers, the former (c) For having collected from the partnership the income tax which
superintending the work of actual preparation, and the latter, through should have been paid for its own account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, 2.ª La duracion de este contrato sera de cinco años, a contrar desde
commissions on the purchase of materials for the manufacture of la fecha de su firma;
fertilizers;
3.ª La Primera Parte se compromete a facilitar la ayuda financiera
(e) For having appropriated, to the damage and prejudice of the necesaria para el negocio;
plaintiff, the profits obtained from the sale of fertilizers belonging to
the partnership and bought with its own funds; and 4.ª La Segunda Parte se compromete a poner su entero tiempo y
toda su experiencia a la disposicion del negocio;
(f) For having appropriated to themselves all rebates for freight
insurance, taxes, etc., upon materials for fertilizer bought abroad, 5.ª La Segunda Parte no podra, directa o indirectamente, dedicarse
no entries of said rebates having been made on the books to the por si sola ni en sociedad con otras personas, o de manera alguna
credit of the partnership. que no sea con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique comunmente a la
Upon the strength of the facts set out in this first cause of action, the fertilizacion de suelos y plantas, durante la vigencia de este
plaintiff prays the court: contrato, a menos que obtenga autorizacion expresa de la Primera
Parte para ello;
1. To prohibit the defendants, each and every one of them, from
destroying and concealing the books and papers of the partnership 6.ª La Primera Parte no podra dedicarse, por si sola ni en sociedad o
constituted between the defendant Menzi & Co., Inc., and the combinacion con otras personas o entidades, ni de otro modo que
plaintiff; en sociedad con la Segunda Parte, al negocio de Abonos o
Fertilizantes preparados, ya sean ellos importados, ya preparados
2. To summon each and every defendant to appear and give a true en las Islas Fllipinas; tampoco podra dedicarse a la venta o negocio
account of all facts relating to the partnership between the plaintiff de materias o productos que tengan aplicacion como fertilizantes, o
and the defendant Menzi & Co., Inc., and of each and every act and que se usen en la composicion de fertilizantes o abonos, si ellos son
transaction connected with the business of said partnership from productos de suelo de la manufactura filipinos, pudiendo sin
the beginning to April 27, 1927, and a true statement of all embargo vender o negociar en materim fertilizantes simples
merchandise of whatever description, purchased for said importados de los Estados Unidos o del Extranjero;
partnership, and of all the expenditures and sale of every kind,
together with the true amount thereof, besides the sums received 7.ª La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda
by the partnership from every source together with their exact Parte el 35 por ciento (treinta y cinco por ciento) de las utilidades
nature, and a true and complete account of the vouchers for all netas del negocio de abonos, liquidables el 30 de junio de cada año;
sums paid by the partnership, and of the salaries paid to its
employees; 8.ª La Primera Parte facilitara la Segunda, mensualmente, la
cantidad de P300 (trescientos pesos), a cuenta de su parte de
3. To declare null and void the yearly balances submitted by the beneficios.
defendants to the plaintiff from 1922 to 1926, both inclusive;
9.ª Durante el año 1923 la Parte concedera a la Segunda permiso
4. To order the defendants to give a true statement of all receipts para que este se ausente de Filipinas por un periodo de tiempo que
and disbursements of the partnership during the period of its no exceda de un año, sin menoscabo para derechos de la Segunda
existence, besides granting the plaintiff any other remedy that the Parte con arreglo a este contrato.
court may deem just and equitable.
En testimonio de lo cual firmamos el presente en la Ciudad de
EXHIBIT A Manila, I. F., a veintisiete de abril de 1922.

CONTRATO MENZI & CO., INC.


Por (Fdo.) J. MENZI
que se celebra entre los Sres. Menzi y Compañia, de Manila, como General Manager
Primera Parte, y D. Francisco Bastada, tambien de Manila, como Primera Parte
Segunda Parte, bajo las siguientes
(Fdo.) F. BASTIDA
CONDICIONES Segunda Parte

1.ª El objeto de este contrato es la explotacion del negocio de MENZI & CO., INC.
Abonos o Fertilizantes Preparados, para diversas aplicaciones (Fdo.) MAX KAEGI
agricolas; Acting Secretary
Defendants denied all the allegations of the amended complaint, except of the business of its said fertilizer department, as recorded in its said
the formal allegations as to the parties, and as a special defense to the books, and the vouchers and records supporting the same, for each
first cause of action alleged: year of said business have been duly audited by Messrs. White, Page
& Co., certified public accountants, of Manila, who, shortly after the
1. That the defendant corporation, Menzi & Co., Inc., has been close of business at the end of each year up to and including the year
engaged in the general merchandise business in the Philippine Islands 1926, have prepared therefrom a manufacturing and profit and loss
since its organization in October, 1921, including the importation and account and balance sheet, showing the status of said business and
sale of all kinds of goods, wares, and merchandise, and especially the share of the net profits pertaining to the plaintiff as his
simple fertilizer and fertilizer ingredients, and as a part of that compensation under said agreement; that after the said
business, it has been engaged since its organization in the manufacturing and profit and the loss account and balance sheet for
manufacture and sale of prepared fertilizers for agricultural purposes, each year of the business of its said fertilizer department up to and
and has used for that purpose trade-marks belonging to it; including the year 1926, had been prepared by the said auditors and
certified by them, they were shown to and examined by the plaintiff,
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., and duly accepted, and approved by him, with full knowledge of their
made and entered into an employment agreement with the plaintiff, contents, and as evidence of such approval, he signed his name on
who represented that he had had much experience in the mixing of each of them, as shown on the copies of said manufacturing and profit
fertilizers, to superintend the mixing of the ingredients in the and loss account and balance sheet for each year up to and including
manufacture of prepared fertilizers in its fertilizer department and to the year 1926, which are attached to the record of this case, and which
obtain orders for such prepared fertilizers subject to its approval, for are hereby referred to and made a part of this amended answer, and
a compensation of 50 per cent of the net profits which it might derive in accordance therewith, the said plaintiff has actually received the
from the sale of the fertilizers prepared by him, and that said Francisco portion of the net profits of its said business for those years pertaining
Bastida worked under said agreement until April 27, 1922, and to him for his services under said agreement; that at no time during
received the compensation agreed upon for his services; that on the the course of said fertilizer business and the liquidation thereof has
said 27th of April, 1922, the said Menzi & Co., Inc., and the said the plaintiff been in any way denied access to the books and records
Francisco Bastida made and entered into the written agreement, pertaining thereto, but on the contrary, said books and records have
which is marked Exhibit A, and made a part of the amended complaint been subject to his inspection and examination at any time during
in this case, whereby they mutually agreed that the employment of business hours, and even since the commencement of this action, the
the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have
stated, should be for a definite period of five years from that date and been going over and examining said books and records for months and
under the other terms and conditions stated therein, but with the the defendant, Menzi & Co. Inc., through its officers, have turned over
understanding and agreement that the said Francisco Bastida should to said plaintiff and his accountant the books and records of said
receive as compensation for his said services only 35 per cent of the business and even furnished them suitable accommodations in its own
net profits derived from the sale of the fertilizers prepared by him office to examine the same;
during the period of the contract instead of 50 per cent of such profits,
as provided in his former agreement; that the said Francisco Bastida 4. That prior to the termination of the said agreement, Exhibit A, the
was found to be incompetent to do anything in relation to its said defendant, Menzi & Co., Inc., duly notified the plaintiff that it would
fertilizer business with the exception of over-seeing the mixing of the not under any conditions renew his said agreement or continue his
ingredients in the manufacture of the same, and on or about the said employment with it after its expiration, and after the termination
month of December, 1922, the defendant, Menzi & Inc., in order to of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the
make said business successful, was obliged to and actually did assume certified public accountants, White, Page & Co., audit the accounts of
the full management and direction of said business; the business of its said fertilizer department for the four months of
1927 covered by plaintiff's agreement and prepare a manufacturing
3. That the accounts of the business of the said fertilizer department and profit and loss account and balance sheet of said business
of Menzi & Co., Inc., were duly kept in the regular books of its general showing the status of said business at the termination of said
business, in the ordinary course thereof, up to June 30, 1923, and that agreement, a copy of which was shown to and explained to the
after that time and during the remainder of the period of said plaintiff; that at that time there were accounts receivable to be
agreement, for the purpose of convenience in determining the collected for business covered by said agreement of over P100,000,
amount of compensation due to the plaintiff under his agreement, and there was guano, ashes, fine tobacco and other fertilizer
separate books of account for its said fertilizer business were duly, ingredients on hand of over P75,000, which had to be disposed of by
kept in the name of 'Menzi & Co., Inc., Fertilizer', and used exclusively Menzi & Co., Inc., or valued by the parties, before the net profits of
for that purpose and it was mutually agreed between the said said business for the period of the agreement could be determined;
Francisco Bastida and the said Menzi & Co., Inc., that the yearly that Menzi & Co., Inc., offered to take the face value of said accounts
balances for the determination of the net profits of said business due and the cost value of the other properties for the purpose of
to the said plaintiff as compensation for his services under said determining the profits of said business for that period, and to pay to
agreement would be made as of December 31st, instead of June 30th, the plaintiff at that time his proportion of such profits on that basis,
of each year, during the period of said agreement; that the accounts which the plaintiff refused to accept, and being disgruntled because
the said Menzi & Co., Inc., would not continue him in its service, the
said plaintiff commenced this action, including therein not only Menzi said fertilizer business, as it had been doing before the plaintiff was
& Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm, employed under the said agreement; that the said defendant, Menzi
wherein he knowingly make various false and malicious allegations & Co., Inc., in the course of the said business of its fertilizer
against the defendants; that since that time the said Menzi & Co., Inc., department, opened letters of credit through the banks of Manila,
has been collecting the accounts receivable and disposing of the accepted and paid drafts drawn upon it under said letters of credit,
stocks on hand, and there is still on hand old stock of approximately and obtained loans and advances of moneys for the purchase of
P25,000, which it has been unable to dispose of up to this time; that materials to be used in mixing and manufacturing its fertilizers and
as soon as possible a final liquidation and amounting of the net profits in paying the expenses of said business; that such drafts and loans
of the business covered by said agreement for the last four months naturally provided for interest at the banking rate from the dates
thereof will be made and the share thereof appertaining to the thereof until paid, as is the case in all, such business enterprises, and
plaintiff will be paid to him; that the plaintiff has been informed from that such payments of interest as were actually made on such drafts,
time to time as to the status of the disposition of such properties, and loans and advances during the period of the said employment
he and his auditors have fully examined the books and records of said agreement constituted legitimate expenses of said business under
business in relation thereto. said agreement.

SECOND CAUSE OF ACTION THIRD CAUSE OF ACTION

As a second cause of action plaintiff alleged: As third cause of action, plaintiff alleged:

I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
of the first cause of action. cause of action.

II. That the examination made by the plaintiff's auditors of some of II. That under the terms of the contract Exhibit A, neither the
the books of the partnership that were furnished by the defendants defendants J.M. Menzi and P.C. Schlobohm, nor the defendant
disclosed the fact that said defendants had charged to "purchases" Menzi & Co., Inc., had a right to collect for itself or themselves any
of the business, undue interest, the amount of which the plaintiff is amount whatsoever by way of salary for services rendered to the
unable to determine, as he has never had at his disposal the books partnership between the plaintiff and the defendant, inasmuch as
and vouchers necessary for that purpose, and especially, owning to such services were compensated with the 65% of the net profits of
the fact that the partnership constituted between the plaintiff and the business constituting their share.
the defendant Menzi & Co., Inc., never kept its own cash book, but
that its funds were maliciously included in the private funds of the III. That the plaintiff has, on his on account and with his own money,
defendant entity, neither was there a separate BANK ACCOUNT of paid all the employees he has placed in the service of the
the partnership, such account being included in the defendant's partnership, having expended for their account, during the period
bank account. of the contract, over P88,000, without ever having made any claim
upon the defendants for this sum because it was included in the
III. That from the examination of the partnership books as aforesaid, compensation of 35 per cent which he was to receive in accordance
the plaintiff estimates that the partnership between himself and the with the contract Exhibit A.
defendant Menzi & Co., Inc., has been defrauded by the defendants
by way of interest in an amount of approximately P184,432.51, of IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied
which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively. with collecting undue and excessive salaries for themselves, have
made the partnership, or the fertilizer business, pay the salaries of a
Wherefore, the plaintiff prays the court to render judgment ordering the number of the employees of the defendant Menzi & Co., Inc.
defendants jointly and severally to pay him the sum of P64,551.38, or
any amount which may finally appear to be due and owing from the V. That under this item of undue salaries the defendants have
defendants to the plaintiff upon this ground, with legal interest from the appropriated P43,920 of the partnership funds, of which 35 per
filing of the original complaint until payment. cent, or P15,372 belongs exclusively to the plaintiff.

Defendants alleged: Wherefore, the plaintiff prays the court to render judgment ordering the
defendants to pay jointly and severally to the plaintiff the amount of
1. That they repeat and make a part of this special defense P15,372, with legal interest from the date of the filing of the original
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of complaint until the date of payment.
action in this amended answer;
Defendants alleged:
2. That under the contract of employment, Exhibit A, of the
amended complaint, the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate financial aid in carrying on the
1. That they repeat and make a part of this special defense Wherefore, the plaintiff prays the court to order the defendants jointly
paragraphs 1, 2, 3 and 4 of the special defense the first cause of and severally to pay the plaintiff the sum of P3,362.60, with legal
action in this amended answer; interest from the date of the filing of the original complaint until its
payment.
2. That the defendant, Menzi & Co., Inc., through its manager,
exclusively managed and conducted its said fertilizer business, in Defendants alleged:
which the plaintiff was to receive 35 percent of the net profits as
compensation for this services, as hereinbefore alleged, from on or 1. That they repeat and make a part of this special defense
about January 1, 1923, when its other departments had special paragraphs 1, 2, 3 and 4, of the special defense to the first
experienced Europeans in charge thereof, who received not only cause of action in this amended answer;
salaries but also a percentage of the net profits of such
departments; that its said fertilizer business, after its manager took 2. That under the Income Tax Law Menzi & Co., Inc., was
charge of it, became very successful, and owing to the large volume obliged to and did make return to the Government of the
of business transacted, said business required great deal of time and Philippine Islands each year during the period of the
attention, and actually consumed at least one-half of the time of the agreement, Exhibit A, of the income of its whole business,
manager and certain employees of Menzi & Co., Inc., in carrying it including its fertilizer department; that the proportional share
on; that the said Menzi & Co., furnished office space, stationery and of such income taxes found to be due on the business of the
other incidentals, for said business, and had its employees perform fertilizer department was charged as a proper and legitimate
the duties of cashiers, accountants, clerks, messengers, etc., for the expense of that department, in the same manner as was done
same, and for that reason the said Menzi & Co., Inc., charged each in the other departments of its business; that inasmuch as the
year, from and after 1922, as expenses of said business, which agreement with the plaintiff was an employment agreement,
pertained to the fertilizer department, as certain amount as salaries he was required to make his own return under the Income Tax
and wages to cover the proportional part of the overhead expenses Law and to pay his own income taxes, instead of having them
of Menzi & Co., Inc.; that the same method is followed in each of the paid at the source, as might be done under the law, so that he
several departments of the business of Menzi & Co., Inc., that each would be entitled to the personal exemptions allowed by the
and every year from and after 1922, a just proportion of said law; that the income taxes paid by the said Menzi & Co., Inc.,
overhead expenses were charged to said fertilizer departments and pertaining to the business, were duly entered on the books of
entered on the books thereof, with the knowledge and consent of that department, and included in the auditors' reports
the plaintiff, and included in the auditors' reports, which were hereinbefore referred to, which reports were examined,
examined, accepted and approved by him, and he is now estopped accepted and approved by the plaintiff, with full knowledge of
from saying that such expenses were not legitimate and just their contents, and he is now estopped from saying that such
expenses of said business. taxes are not a legitimate expense of said business.

FOURTH CAUSE OF ACTION FIFTH CAUSE OF ACTION

As fourth cause of action, the plaintiff alleged: As fifth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first I. That hereby reproduces paragraphs I, II, III, IV, and V of the
cause of action. first cause of action.

II. That the defendant Menzi & Co., Inc., through the defendant J. M. II. That the plaintiff has discovered that the defendants Menzi
Menzi and P. C. Schlobohm, has paid, with the funds of the & Co., Inc., had been receiving, during the period of the
partnership between the defendant entity and the plaintiff, the contract Exhibit A, from foreign firms selling fertilizing
income tax due from said defendant entity for the fertilizer business, material, a secret commission equivalent to 5 per cent of the
thereby defrauding the partnership in the amount of P10,361.72 of total value of the purchases of fertilizing material made by the
which 35 per cent belongs exclusively to the plaintiff, amounting to partnership constituted between the plaintiff and the
P3,626.60. defendant Menzi Co., Inc., and that said 5 per cent
commission was not entered by the defendants in the books
III. That the plaintiff has, during the period of the contract, paid with of the business, to the credit and benefit of the partnership
his own money the income tax corresponding to his share which constituted between the plaintiff and the defendant, but to
consists in 35 per cent of the profits of the fertilizer business, the credit of the defendant Menzi Co., Inc., which
expending about P5,000 without ever having made any claim for appropriated it to itself.
reimbursement against the partnership, inasmuch as it has always
been understood among the partners that each of them would pay III. That the exact amount, or even the approximate amount
his own income tax. of the fraud thus suffered by the plaintiff cannot be
determined, because the entries referring to these items do
not appear in the partnership books, although the plaintiff I. That hereby reproduces paragraphs I, II, III, IV and V, of the
believes and alleges that they do appear in the private books first cause of action.
of the defendant Menzi & Co., Inc., which the latter has
refused to furnish, notwithstanding the demands made II. That the defendant Menzi Co., Inc., in collusion with and
therefore by the auditors and the lawyers of the plaintiff. through the defendants J.M. Menzi and P.C. Schlobohm and
their assistants, has tampered with the books of the business
IV. That taking as basis the amount of the purchases of some making fictitious transfers in favor of the defendant Menzi &
fertilizing material made by the partnership during the first Co., Inc., of merchandise belonging to the partnership,
four years of the contract Exhibit A, the plaintiff estimates that purchased with the latter's money, and deposited in its
this 5 per cent commission collected by the defendant Menzi warehouses, and then sold by Menzi & Co., Inc., to third
Co., Inc., to the damage and prejudice of the plaintiff, amounts persons, thereby appropriating to itself the profits obtained
to P127,375.77 of which 35 per cent belongs exclusively to the from such resale.
plaintiff.
III. That it is impossible to ascertain the amount of the fraud
Wherefore, the plaintiff prays the court to order the defendants to pay suffered by the plaintiff in this respect as the real amount
jointly and severally to the plaintiff the amount of P44,581.52, or the obtained from such sales can only be ascertained from the
exact amount owed upon this ground, after both parties have adduced examination of the private books of the defendant entity,
their evidence upon the point. which the latter has refused to permit notwithstanding the
demand made for the purpose by the auditors and the lawyers
Defendants alleged: of the plaintiff, and no basis of computation can be
established, even approximately, to ascertain the extent of
1. That they repeat and make a part of this special defense the fraud sustained by the plaintiff in this respect, by merely
paragraph 1, 2, 3 and 4, of the special defense to the first examining the partnership books.
cause of action in this amended answer;
Wherefore, the plaintiff prays the court to order the defendants J.M.
2. That the defendant, Menzi & Co., Inc., did have during the Menzi and P.C. Schlobohm, to make a sworn statement as to all the
period of said agreement, Exhibit A, and has now what is profits received from the sale to third persons of the fertilizers
called a "Propaganda Agency Agreement" which the pertaining to the partnership, and the profits they have appropriated,
Deutsches Kalesyndikat, G.M.B., of Berlin, which is a ordering them jointly and severally to pay 35 per cent of the net amount,
manufacturer of potash, by virtue of which said Menzi & Co., with legal interest from the filing of the original complaint until the
Inc., was to receive for its propaganda work in advertising and payment thereof.
bringing about sales of its potash a commission of 5 per cent
on all orders of potash received by it from the Philippine Defendant alleged:
Islands; that during the period of said agreement, Exhibit A,
orders were sent to said concern for potash, through C. Andre 1. That they repeat and make a part of this special defense
& Co., of Hamburg, as the agent of the said Menzi & Co., Inc., paragraphs 1, 2, 3 and 4, of the special defense to the first
upon which the said Menzi & Co., Inc., received a 5 per cent cause of action in this amended answer:
commission, amounting in all to P2,222.32 for the propaganda
work which it did for said firm in the Philippine Islands; that 2. That under the express terms of the employment
said commissioners were not in any sense discounts on the agreement, Exhibit A, the defendant, Menzi & Co., Inc., had
purchase price of said potash, and have no relation to the the right to import into the Philippine Islands in the course of
fertilizer business of which the plaintiff was to receive a share its fertilizer business and sell fro its exclusive account and
of the net profits for his services, and consequently were not benefit simple fertilizer ingredients; that the only materials
credited to that department; imported by it and sold during the period of said agreement
were simple fertilizer ingredients, which had nothing
3. That in going over the books of Menzi Co., Inc., it has been whatever to do with the business of mixed fertilizers, of which
found that there are only two items of commissions, which the plaintiff was to receive a share of the net profits as a part
were received from the United Supply Co., of San Francisco, in of his compensation.
the total of sum $66.51, which through oversight, were not
credited on the books of the fertilizer department of Menzi & SEVENTH CAUSE OF ACTION
Co., Inc., but due allowance has now been given to the
department for such item. As seventh cause of action, plaintiff alleged:

SIXTH CAUSE OF ACTION I. That he hereby reproduces paragraphs I, II, III, IV, and V of
the first cause of action.
As sixth cause of action, plaintiff alleged:
II. That during the existence of the contract Exhibit A, the I. That he hereby reproduces paragraphs I, II, III, IV and V of
defendant Menzi & Co., Inc., for the account of the the first cause of action.
partnership constituted between itself and the plaintiff, and
with the latter's money, purchased from a several foreign II. That on or about April 21, 1927, that is, before the
firms various simple fertilizing material for the use of the expiration of the contract Exhibit A of the complaint, the
partnership. defendant Menzi & Co., Inc., acting as manager of the fertilizer
business constituted between said defendant and the
III. That in the paid invoices for such purchases there are plaintiff, entered into a contract with the Compañia General
charged, besides the cost price of the merchandise, other de Tabacos de Filipinas for the sale of said entity of three
amounts for freight, insurance, duty, etc., some of which were thousand tons of fertilizers of the trade mark "Corona No. 1",
not entirely thus spent and were later credited by the selling at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be
firms to the defendant Menzi & Co., Inc. delivered, as they were delivered, according to information
received by the plaintiff, during the months of November and
IV. That said defendant Menzi & Co., Inc., through and in December, 1927, and January, February, March, and April,
collusion with the defendants J.M. Menzi and P.C. Schlobohm 1928.
upon receipt of the credit notes remitted by the selling firms
of fertilizing material, for rebates upon freight, insurance, III. That both the contract mentioned above and the benefits
duty, etc., charged in the invoice but not all expended, did not derived therefrom, which the plaintiff estimates at P90,000,
enter them upon the books to the credit of the partnership Philippine currency, belongs to the fertilizer business
constituted between the defendant and the plaintiff, but constituted between the plaintiff and the defendant, of which
entered or had them entered to the credit on Menzi & Co., 35 per cent, or P31,500, belongs to said plaintiff.
Inc., thereby defrauding the plaintiff of 35 per cent of the
value of such reductions. IV. That notwithstanding the expiration of the partnership
contract Exhibit A, on April 27, 1927, the defendants have not
V. That the total amount, or even the approximate amount of rendered a true accounting of the profits obtained by the
this fraud cannot be ascertained without an examination of business during the last four months thereof, as the purposed
the private books of Menzi & Co., Inc., which the latter has balance submitted to the plaintiff was incorrect with regard to
refused to permit notwithstanding the demand to this effect the inventory of merchandise, transportation equipment, and
made upon them by the auditors and the lawyers of the the value of the trade marks, for which reason such proposed
plaintiff. balance did not represent the true status of the business of
the partnership on April 30, 1927.
Wherefore, the plaintiff prays the court to order the defendants J.M.
Menzi and P.C. Schlobohm, to make a sworn statement as to the total V. That the proposed balance submitted to the plaintiff with
amount of such rebates, and to sentence the defendants to pay the reference to the partnership operations during the last four
plaintiff jointly and severally 35 per cent of the net amount. months of its existence, was likewise incorrect, inasmuch as it
did not include the profit realized or to be realized from the
Defendants alleged: contract entered into with the Compañia General de Tabacos
de Filipinas, notwithstanding the fact that this contract was
1. That they repeat and make a part of this special defense negotiated during the existence of the partnership, and while
paragraphs 1, 2, 3 and 4, of the special defense to the first the defendant Menzi & Co., Inc., was the manager thereof.
cause of action in this amended answer:
VI. That the defendant entity now contends that the contract
2. That during the period of said employment agreement, entered into with the Compañia General de Tabacos de
Exhibit A, the defendant, Menzi & Co., Inc., received from its Filipinas belongs to it exclusively, and refuses to give the
agent, C. Andre & Co., of Hamburg, certain credits pertaining plaintiff his share consisting in 35 per cent of the profits
to the fertilizer business in the profits of which the plaintiff produced thereby.
was interested, by way of refunds of German Export Taxes, in
the total sum of P1,402.54; that all of department as received, Wherefore, the plaintiff prays the honorable court to order the
but it has just recently been discovered that through error an defendants to render a true and detailed account of the business during
additional sum of P216.22 was credited to said department, the last four months of the existence of the partnership, i. e., from
which does not pertain to said business in the profits of which January 1, 1927 to April 27, 1927, and to sentence them likewise to pay
the plaintiff is interested. the plaintiff 35 per cent of the net profits.

EIGHT CAUSE OF ACTION Defendants alleged:

A eighth cause of action, plaintiff alleged:


1. That they repeat and make a part of this special defense VII. That after the contract Exhibit A had expired, the
paragraphs 1, 2, 3 and 4, of the special defense to the first defendant continued to use for its own benefit the good-will
cause of action in this amended answer; and trade marks belonging to the partnership, as well as its
transportation equipment and other machinery, thereby
2. That the said order for 3,000 tons of mixed fertilizer, indicating its intention to retain such good-will, trade marks,
received by Menzi & Co., Inc., from the Compañia General de transportation equipment and machinery, for the
Tabacos Filipinas on April 21, 1927, was taken by it in the manufacture of fertilizers, by virtue of which the defendant is
regular course of its fertilizer business, and was to be bound to pay the plaintiff 35 per cent of the value of said
manufactured and delivered in December, 1927, and up to property.
April, 1928; that the employment agreement of the plaintiff
expired by its own terms on April 27, 1927, and he has not VIII. That the true value of the transportation equipment and
been in any way in the service of the defendant, Menzi & Co., machinery employed in the preparation of the fertilizers
Inc., since that time, and he cannot possibly have any interest amounts of P20,000, 35 per cent of which amount to P7,000.
in the fertilizers manufactured and delivered by the said
Menzi & Co., Inc., after the expiration of his contract for any IX. That the plaintiff has repeatedly demanded that the
service rendered to it. defendant entity render a true and detailed account of the
state of the liquidation of the partnership business, but said
NINTH CAUSE OF ACTION defendants has ignored such demands, so that the plaintiff
does not, and this date, know whether the liquidation of the
As ninth cause of action, plaintiff alleged: business has been finished, or what the status of it is at
present.
I. That he hereby reproduces paragraphs I, II, III, IV, and V of
the first cause of action. Wherefore, the plaintiff prays the Honorable Court:

II. That during the period of the contract Exhibit A, the 1. To order the defendants J.M. Menzi and P.C. Schlobohm to
partnership constituted thereby registered in the Bureau of render a true and detailed account of the status of business in
Commerce and Industry the trade marks "CORONA NO. 1", liquidation, that is, from April 28, 1927, until it is finished,
CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the ordering all the defendants to pay the plaintiff jointly and
defendant having by their efforts succeeded in making them severally 35 per cent of the net amount.
favorably known in the market.
2. To order the defendants to pay the plaintiff jointly and
III. That the plaintiff and the defendant, laboring jointly, have severally the amount of P350,000, which is 35 per cent of the
succeeded in making the fertilizing business a prosperous value of the goodwill and the trade marks of the fertilizer
concern to such an extent that the profits obtained from the business;
business during the five years it has existed, amount to
approximately P1,000,000, Philippine currency. 3. To order the defendants to pay the plaintiff jointly and
severally the amount of P7,000 which is 35 per cent of the
IV. That the value of the good will and the trade marks of a value of the transportation equipment and machinery of the
business of this nature amounts to at least P1,000,000, of business; and
which sum 35 per cent belongs to the plaintiff, or, P350,000.
4. To order the defendants to pay the costs of this trial, and
V. That at the time of the expiration of the contract Exhibit A, further, to grant any other remedy that this Honorable Court
the defendant entity, notwithstanding and in spite of the may deem just and equitable.
plaintiff's insistent opposition, has assumed the charge of
liquidating the fertilizing business, without having rendered a Defendants alleged:
monthly account of the state of the liquidation, as required by
law, thereby causing the plaintiff damages. 1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first
VI. That the damages sustained by the plaintiff, as well as the cause of action in this amended answer;
amount of his share in the remaining property of the plaintiff,
and may only be truly and correctly ascertained by compelling 2. That the good-will, if any, of said fertilizer business of the
the defendants J. M. Menzi and P. C. Schlobohm to declare defendant, Menzi & Co., Inc., pertains exclusively to it, and the
under oath and explain to the court in detail the sums plaintiff can have no interest therein of any nature under his
obtained from the sale of the remaining merchandise, after said employment agreement; that the trade-marks
the expiration of the partnership contract. mentioned by the plaintiff in his amended complaint, as a part
of such good-will, belonged to and have been used by the said
Menzi & Co., Inc., in its fertilizer business from and since its (j ) Ordering Menzi & Co., Inc., upon the ninth cause of action
organization, and the plaintiff can have no rights to or interest to pay the plaintiff the sum of P196,709.20 with legal interest
therein under his said employment agreement; that the from the date of the filing of the original complaint until paid;
transportation equipment pertains to the fertilizer
department of Menzi & Co., Inc., and whenever it has been (k) Ordering the said defendant corporation, in view of the
used by the said Menzi & Co., Inc., in its own business, due and plaintiff's share of the profits of the business accruing from
reasonable compensation for its use has been allowed to said January 1, 1927 to December 31, 1928, to pay the plaintiff 35
business; that the machinery pertaining to the said fertilizer per cent of the net balance shown in Exhibits 51 and 51-A,
business was destroyed by fire in October, 1926, and the value after deducting the item of P2,410 for income tax, and any
thereof in the sum of P20,000 was collected from the other sum charged for interest under the entry "Purchases";
Insurance Company, and the plaintiff has been given credit for
35 per cent of that amount; that the present machinery used (l) Ordering the defendant corporation, in connection with the
by Menzi & Co., Inc., was constructed by it, and the costs final liquidation set in Exhibit 52 and 52-A, to pay the plaintiff
thereof was not charged to the fertilizer department, and the the sum of P17,463.54 with legal interest from January 1,
plaintiff has no right to have it taken into consideration in 1929, until fully paid;
arriving at the net profits due to him under his said
employment agreement. (m) Dismissing the case with reference to the other
defendants, J. M. Menzi and P. C. Schlobohm; and
The dispositive part of the decision of the trial court is as follows:
(n) Menzi & Co., Inc., shall pay the costs of the trial.
Wherefore, let judgment be entered:
The appellant makes the following assignment of error:
(a) Holding that the contract entered into by the parties,
evidenced by Exhibit A, as a contract of general regular I. The trial court erred in finding and holding that the contract
commercial partnership, wherein Menzi & Co., Inc., was the Exhibit A constitutes a regular collective commercial
capitalist, and the plaintiff, the industrial partner; copartnership between the defendant corporation, Menzi &
Co., Inc., and the plaintiff, Francisco Bastida, and not a
(b) Holding the plaintiff, by the mere fact of having signed and contract of employment.
approved the balance sheets, Exhibits C to C-8, is not
estopped from questioning the statements of the accounts II. The trial court erred in finding and holding that the
therein contained; defendant, Menzi & Co., Inc., had wrongfully charged to the
fertilizer business in question the sum of P10,918.33 as
(c) Ordering Menzi & Co., Inc., upon the second ground of income taxes partners' balances, foreign drafts, local drafts,
action, to pay the plaintiff the sum of P 60,385.67 with legal and on other credit balances in the sum of P172,530.49, and
interest from the date of the filing of the original complaint that 35 per cent thereof, or the sum of P60,358.67, with legal
until paid; interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
(d) Dismissing the third cause of action;
III. The trial court erred finding and holding that the
(e) Ordering Menzi & Co., Inc., upon the fourth cause of defendant, Menzi & Co., Inc., had wrongfully charged to the
action, to pay the plaintiff the sum of P3,821.41, with legal fertilizer business in question the sum of P10,918.33 as
interest from the date of the filing of the original until paid; income taxes for the years 1923, 1924, 1925 and 1926, and
that the plaintiff is entitled to 35 per cent thereof, or the sum
(f ) Dismissing the fifth cause of action; of P3,821.41, with legal interest thereon from the date of filing
his complaint, and in disallowing the item of P2,410 charged
(g) Dismissing the sixth cause of action; as income tax in the liquidation in Exhibits 51 and 51 A for the
period from January 1 to April 27, 1927.
(h) Dismissing the seventh cause of action;
IV. The trial court erred in refusing to find and hold under the
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth evidence in this case that the contract, Exhibit A was daring
cause of action, to pay the plaintiff the sum of P6,578.38 with the whole period thereof considered by the parties and
legal interest from January 1, 1929, the date of the liquidation performed by them as a contract of employment in relation to
of the fertilizer business, until paid; the fertilizer business of the defendant, and that the accounts
of said business were kept by the defendant, Menzi & Co., Inc.,
on that theory with the knowledge and consent of the
plaintiff, and that at the end of each year for five years a
balance sheet and profit and loss statement of said business "CORONA". They were registered in the Bureau of Commerce and
were prepared from the books of account of said business on Industry in the name of Menzi & Co. The trade marks "ARADO" and
the same theory and submitted to the plaintiff, and that each "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed
year said balance sheet and profit and loss statement were fertilizers, and the trade mark "CORONA" had been used in its other
examined, approved and signed by said contract in business. The "HOZ" trade-mark was used by John Bordman and the
accordance therewith with full knowledge of the manner in Menzi-Bordman Co. in the continuation of the fertilizer business that
which said business was conducted and the charges for had belonged to Behn, Meyer & Co., Ltd.
interest and income taxes made against the same and that by
reason of such facts, the plaintiff is now estopped from raising The business of Menzi & Co., Inc., was divided into several different
any question as to the nature of said contract or the propriety departments, each of which was in charge of a manager, who received
of such charges. a fixed salary and a percentage of the profits. The corporation had to
borrow money or obtain credits from time to time and to pay interest
V. The trial court erred in finding and holding that the plaintiff, thereon. The amount paid for interest was charged against the
Francisco Bastida, is entitled to 35 per cent of the net profits department concerned, and the interest charges were taken into
in the sum of P18,795.38 received by the defendant, Menzi & account in determining the net profits of each department. The practice
Co., Inc., from its contract with the Compañia General de of the corporation was to debit or credit each department with interest
Tabacos de Filipinas, or the sum of P6.578.38, with legal at the bank rate on its daily balance. The fertilizer business of Menzi &
interest thereon from January 1, 1929, the date upon which Co., Inc., was carried on in accordance with this practice under the
the liquidation of said business was terminated. "Sundries Department" until July, 1923, and after that as a separate
department.
VI. The trial court erred in finding and holding that the value
of the good-will of the fertilizer business in question was In November, 1921, the plaintiff, who had had some experience in
P562,312, and that the plaintiff, Francisco Bastida, was mixing and selling fertilizer, went to see Toehl, the manager of the
entitled to 35 per cent of such valuation, or the sum of sundries department of Menzi & Co., Inc., and told him that he had a
P196,709.20, with legal interest thereon from the date of written contract with the Philippine Sugar Centrals Agency for 1,250
filing his complaint. tons of mixed fertilizers, and that he could obtain other contracts,
including one from the Calamba Sugar Estates for 450 tons, but the he
VII. The trial court erred in rendering judgment in favor of the did not have the money to buy the ingredients to fill the order and carry
plaintiff and against defendant, Menzi & Co., Inc., (a) on the on the on the business. He offered to assign to Menzi & Co., Inc., his
second cause of action, for the sum of P60,385.67, with legal contract with the Philippine Sugar Centrals Agency and to supervise the
interest thereon from the date of filing the complaint; (b) on mixing of the fertilizer and to obtain other orders for fifty per cent of the
the fourth cause of action, for the sum of P3,821.41, with legal net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the
interest thereon from the date of filing the complaint; (c) on general manager of Menzi & Co., accepted plaintiff's offer. Plaintiff
the eight cause of action, for the sum of P6,578.38, with legal assigned to Menzi & Co., Inc., his contract with the Sugar Centrals
interest thereon from January 1, 1929; and (d) on the ninth Agency, and the defendant corporation proceeded to fill the order.
cause of action, for the sum of P196,709.20, with legal interest Plaintiff supervised the mixing of the fertilizer.
thereon from the date of filing the original complaint; and (e)
for the costs of the action, and in not approving the final On January 10, 1922 the defendant corporation at plaintiff's request
liquidation of said business, Exhibits 51 and 51-A and 52 and gave him the following letter, Exhibit B:
52-A, as true and correct, and entering judgment against said
defendant only for the amounts admitted therein as due the MANILA, 10 de enero de 1922
plaintiff with legal interest, with the costs against the plaintiff.
Sr. FRANCISCO BASTIDA
VIII. The trial court erred in overruling the defendants' motion Manila
for a new trial.
MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio,
It appears from the evidence that the defendants corporation was tenemos convenido para la explotacion del negocio de abono y
organized in 1921 for purpose of importing and selling general fertilizantes, por la presente venimos en confirmar su derecho de 50 por
merchandise, including fertilizers and fertilizer ingredients. It appears ciento de las untilidades que se deriven del contrato obtenido por Vd.
through John Bordman and the Menzi-Bordman Co. the good-will, de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la
trade-marks, business, and other assets of the old German firm of Behn, Calamba Sugar Estates, asi como de cuantos contratos se cierren con
Meyer & Co., Ltd., including its fertilizer business with its stocks and definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de
trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this nuestro contrato mutuo, lo que hacemos para garantia y seguridad de
fertilizer business from 1910 until that firm was taken over the Alien Vd.
Property Custodian in 1917. Among the trade-marks thus acquired by
the appellant were those known as the "ARADO", "HOZ", and
MENZI & CO., Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the
Por (Fdo.) W. TOEHL net profits of the fertilizer business the following amounts:

Menzi & Co., Inc., continued to carry on its fertilizer business under this
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
arrangement with the plaintiff. It ordered ingredients from the United
States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of the 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
cost of the materials. The mixed fertilizers were sold by Menzi & Co.,
Inc., between January 19 and April 1, 1922 under its "CORONA" brand.
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
Menzi & Co., Inc., had only one bank account for its whole business. The
fertilizer business had no separate capital. A fertilizer account was
opened in the general ledger, and interest at the rate charged by the 1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
Bank of the Philippine Islands was debited or credited to that account
on the daily balances of the fertilizer business. This was in accordance
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
with appellant's established practice, to which the plaintiff assented.

On or about April 24, 1922 the net profits of the business carried on
under the oral agreement were determined by Menzi & Co., Inc., after
Total . . . . . . . . . . . . . . . . . . . . P196,483.92
deducting interest charges, proportional part of warehouse rent and
salaries and wages, and the other expenses of said business, and the
plaintiff was paid some twenty thousand pesos in full satisfaction of his
share of the profits. To this amount must be added plaintiff's share of the net profits from
January 1 to April 27, 1927, amounting to P34,766.87, making a total of
Pursuant to the aforementioned verbal agreement, confirmed by the P231,250.79.
letter, Exhibit B, the defendant corporation April 27, 1922 entered a
written contract with the plaintiff, marked Exhibit A, which is the basis Prior to the expiration of the contract, Exhibit A, the manager of Menzi
of the present action. & Co. Inc., notified the plaintiff that the contract for his services would
not be renewed.
The fertilizer business was carried on by Menzi & Co., Inc., after the
execution of Exhibit A in practically the same manner as it was prior When plaintiff's contract expired on April 27, 1927, the fertilizer
thereto. The intervention of the plaintiff was limited to supervising the department of Menzi & Co., Inc., had on hand materials and ingredients
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas. and two Ford trucks of the book value of approximately P75,000, and
accounts receivable amounting to P103,000. There were claims
The trade-marks used in the sale of the fertilizer were registered in the outstanding and bills to pay. Before the net profits could be finally
Bureau of Commerce & Industry in the name of Menzi & Co., Inc., and determined, it was necessary to dispose of the materials and
the fees were paid by that company. They were not changed to the equipment, collect the outstanding accounts for Menzi & Co., Inc.,
fertilizer business, in which the plaintiff was interested. Only the fees for prepared a balance sheet and a profit and loss statement for the period
registering the formulas in the Bureau of Science were charged to the from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff
fertilizer business, and the total amount thereof was credited to this refused to accept it, and filed the present action.
business in the final liquidation on April 27, 1927.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to question. In October, 1927 it proposed to the plaintiff that the old and
furnish it all the stems and scraps to tobacco that it might need for its damaged stocks on hand having a book value of P40,000, which the
fertilizer business either in the Philippine Islands or for export to other defendant corporation had been unable to dispose of, be sold at public
countries. This contract is rendered to in the record as the "Vastago or private sale, or divided between the parties. The plaintiff refused to
Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries agree to this. The defendant corporation then applied to the trial court
of his employees, and other expenses in performing his contract. for an order for the sale of the remaining property at public auction, but
apparently the court did not act on the petition.
White, Page & Co., certified public accountants, audited the books of
Menzi & Co., Inc., every month, and at the end of each year they The old stocks were taken over by Menzi & Co., Inc., and the final
prepared a balance sheet and a profit and loss statement of the fertilizer liquidation of the fertilizer business was completed in December, 1928
business. These statements were delivered to the plaintiff for and a final balance sheet and a profit and loss statement were submitted
examination, and after he had had an opportunity of verifying them he to the plaintiff during the trial. During the liquidation the books of Menzi
approved them without objection and returned them to Menzi & Co., & Co., Inc., for the whole period of the contract in question were
Inc. reaudited by White, Page & Co.., certain errors of bookkeeping were
discovered by them. After making the corrections they found the defendant corporation not engage in the business of prepared fertilizers
balance due the plaintiff to be P21,633.20. except in association with the plaintiff (en sociedad con). The fact is
that en sociedad con as there used merely means en reunion con or in
Plaintiff employed a certified public accountant, Vernon Thompson, to association with, and does not carry the meaning of "in partnership
examine the books and vouchers of Menzi & Co. Thompson assumed with".
the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co.,
Inc., was obliged to furnish free of charge all the capital the partnership The trial judge found that the defendant corporation had not always
should need. He naturally reached very different conclusions from those regarded the contract in question as an employment agreement,
of the auditors of Menzi Co., Inc. because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not
We come now to a consideration of appellant's assignment of error. continue associated with him in said business. The trial judge concluded
After considering the evidence and the arguments of counsel, we are that the phrase "associated with", used by the defendant corporation,
unanimously of the opinion that under the facts of this case the indicated that it regarded the contract, Exhibit A, as an agreement of
relationship established between Menzi & Co. and by the plaintiff was copartnership.
to receive 35 per cent of the net profits of the fertilizer business of Menzi
& Co., Inc., in compensation for his services of supervising the mixing of In the first place, the complaint and answer having been superseded by
the fertilizers. Neither the provisions of the contract nor the conduct of the amended complaint and the answer thereto, and the answer to the
the parties prior or subsequent to its execution justified the finding that original complaint not having been presented in evidence as an exhibit,
it was a contract of copartnership. Exhibit A, as appears from the the trial court was not authorized to take it into account. "Where
statement of facts, was in effect a continuation of the verbal agreement amended pleadings have been filed, allegations in the original pleadings
between the parties, whereby the plaintiff worked for the defendant are held admissible, but in such case the original pleadings can have no
corporation for one-half of the net profits derived by the corporation effect, unless formally offered in evidence." (Jones on Evidence, sec.
from certain fertilizer contracts. Plaintiff was paid his share of the profits 273; Lucido vs. Calupitan, 27 Phil., 148.)
from those transactions after Menzi & Co., Inc., had deducted the same
items of expense which he now protests. Plaintiff never made any In the second place, although the word "associated" may be related
objection to defendant's manner of keeping the accounts or to the etymologically to the Spanish word "socio", meaning partner, it does not
charges. The business was continued in the same manner under the in its common acceptation imply any partnership relation.
written agreement, Exhibit A, and for four years the plaintiff never made
any objection. On the contrary he approved and signed every year the The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant
balance sheet and the profit and loss statement. It was only when corporation obligated itself to pay to the plaintiff 35 per cent of the net
plaintiff's contract was about to expire and the defendant corporation profits of the fertilizer business, to advance to him P300 a month on
had notified him that it would not renew it that the plaintiff began to account of his share of the profits, and to grant him permission during
make objections. 1923 to absent himself from the Philippines for not more than one year
are utterly incompatible with the claim that it was the intention of the
The trial court relied on article 116 of the Code of Commerce, which parties to form a copartnership. Various other reasons for holding that
provides that articles of association by which two or more persons the parties were not partners are advanced in appellant's brief. We do
obligate themselves to place in a common fund any property, industry, not deem it necessary to discuss them here. We merely wish to add that
or any of these things, in order to obtain profit, shall be commercial, no in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi
matter what its class may be, provided it has been established in & Co., Inc., as the owners of the fertilizer business in question.
accordance with the provisions of this Code; but in the case at bar there
was no common fund, that is, a fund belonging to the parties as joint As to the various items of the expense rejected by the trial judge, they
owners or partners. The business belonged to Menzi & Co., Inc. The were in our opinion proper charges and erroneously disallowed, and this
plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed would true even if the parties had been partners. Although Menzi & Co.,
salary or a fixed salary and a small percentage of the net profits, he was Inc., agreed to furnish the necessary financial aid for the fertilizer
to receive 35 per cent of the net profits as compensation for his services. business, it did not obligate itself to contribute any fixed sum as capital
Menzi & Co., Inc., was to advanced him P300 a month on account of his or to defray at its own expense the cost of securing the necessary credit.
participation in the profits. It will be noted that no provision was made Some of the contentions of the plaintiff and his expert witness
for reimbursing Menzi & Co., Inc., in case there should be no net profits Thompson are so obviously without merit as not to merit serious
at the end of the year. It is now well settled that the old rule that sharing consideration. For instance, they objected to the interest charges on
profits as profits made one a partner is overthrown. (Mechem, second draft for materials purchased abroad. Their contention is that the
edition, p. 89.) corporation should have furnished the money to purchase these
materials for cash, overlooking the fact that the interest was added to
It is nowhere stated in Exhibit A that the parties were establishing a the cost price, and that the plaintiff was not prejudiced by the practice
partnership or intended to become partners. Great stress in laid by the complained of. It was also urged, and this seems to us the height of
trial judge and plaintiff's attorneys on the fact that in the sixth paragraph absurdity, that the defendant corporation should have furnished free of
of Exhibit A the phrase "en sociedad con" is used in providing that charge such financial assistance as would have made it unnecessary to
discount customers' notes, thereby enabling the business to reap the be P562,312, and that the plaintiff was entitled to 35 per cent thereof
interest. In other words, the defendant corporation should have or P196,709.20. In reaching this conclusion the trial court unfortunately
enabled the fertilizer department to do business on a credit instead of a relied on the opinion of the accountant, Vernon Thompson, who
cash basis. assumed, erroneously as we have seen, that the plaintiff and Menzi &
Co., Inc., were partners; but even if they had been partners there would
The charges now complained of, as we have already stated, are the same have been no good-will to dispose of. The defendant corporation had a
as those made under the verbal agreement, upon the termination of fertilizer business before it entered into any agreement with the
which the parties made a settlement; the charges in question were plaintiff; plaintiff's agreement was for a fixed period, five years, and
acquiesced in by the plaintiff for years, and it is now too late for him to during that time the business was carried on in the name of Menzi &
contest them. The decision of this court in the case of Kriedt vs. E.C. Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of
McCullough & Co. (37 Phil., 474), is in point. A portion of the syllabus of plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as
that case reads as follows: it had a perfect right to do. There was really nothing to which any good-
will could attach. Plaintiff maintains, however, that the trade-marks
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF used in the fertilizer business during the time that he was connected
PARTIES. — Acts done by the parties to a contract in the course of with it acquired great value, and that they have been appropriated by
its performance are admissible in evidence upon the question of its the appellant to its own use. That seems to be the only basis of the
meaning, as being their own contemporaneous interpretation of its alleged good-will, to which a fabulous valuation was given. As we have
terms. seen, the trade- marks were not new. They had been used by Behn,
Meyer & Co. in its business for other goods and one of them for fertilizer.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an They belonged to Menzi & Co., Inc., and were registered in its name;
action upon a contract containing a provision a doubtful application only the expense of registering the formulas in the Bureau of Science
it appeared that under a similar prior contract the parties had, upon was charged to the business in which the plaintiff was interested. These
the termination of said contract, adjusted their rights and made a trade-marks remained the exclusive property of Menzi & Co., and the
settlement in which the doubtful clause had been given effect in plaintiff had no interest therein on the expiration of his contract.
conformity with the interpretation placed thereon by one of the
parties. Held: That this action of the parties under the prior contract The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20.
could properly be considered upon the question of the We are satisfied by the evidence that said balance is correct.
interpretation of the same clause in the later contract.
For the foregoing reasons, the decision appealed from is modified and
3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract the defendant corporation is sentenced to pay the plaintiff twenty-one
acquiesces in the interpretation placed by the other upon a thousand, six hundred and thirty-three pesos and twenty centavos
provision of doubtful application, the party so acquiescing is bound (P21,633.20), with legal interest thereon from the date of the filing of
by such interpretation. the complaint on June 17, 1927, without a special finding as to costs.

4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being HEIRS OF TAN ENG KEE, petitioners,
aware at the time of the execution thereof that the other placed a vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by
certain interpretation upon a provision of doubtful application,
its President TAN ENG LAY, respondents.
nevertheless proceeded, without raising any question upon the
G.R. No. 126881 October 3, 2000
point, to perform the services which he was bound to render under
the contract. Upon the termination of the contract by mutual
In this petition for review on certiorari, petitioners pray for the reversal
consent a question was raised as to the proper interpretation of the of the Decision1 dated March 13, 1996 of the former Fifth Division2 of
doubtful provision. Held: That the party raising such question had the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of
acquiesced in the interpretation placed upon the contract by the which states:
other party and was bound thereby.
THE FOREGOING CONSIDERED, the appealed decision is hereby set
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per aside, and the complaint dismissed.
cent of the net profits derived by Menzi & Co., Inc., from its contract for
fertilizers with the Tabacalera. This finding in our opinion is not justified The facts are:
by the evidence. This contract was obtained by Menzi & Co., Inc., shortly
before plaintiff's contract with the defendant corporation expired. Following the death of Tan Eng Kee on September 13, 1984, Matilde
Plaintiff tried to get the Tabacalera contract for himself. When this Abubo, the common-law spouse of the decedent, joined by their
children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively
contract was filled, plaintiff had ceased to work for Menzi & Co., Inc.,
known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against
and he has no right to participate in the profits derived therefrom. the decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3docketed as Civil Case No. 1983-R in the Regional Trial Court
Appellant's sixth assignment of error is that the trial court erred in of Baguio City was for accounting, liquidation and winding up of the
finding the value of the good-will of the fertilizer business in question to alleged partnership formed after World War II between Tan Eng Kee and
Tan Eng Lay. On March 18, 1991, the petitioners filed an amended Private respondent sought relief before the Court of Appeals which, on
complaint4 impleading private respondent herein BENGUET LUMBER March 13, 1996, rendered the assailed decision reversing the judgment
COMPANY, as represented by Tan Eng Lay. The amended complaint was of the trial court. Petitioners' motion for reconsideration7 was denied by
admitted by the trial court in its Order dated May 3, 1991.5 the Court of Appeals in a Resolution8 dated October 11, 1996.

The amended complaint principally alleged that after the second World Hence, the present petition.
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling As a side-bar to the proceedings, petitioners filed Criminal Case No.
lumber and hardware and construction supplies. They named their 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly
enterprise "Benguet Lumber" which they jointly managed until Tan Eng falsified documents in a judicial proceeding. Petitioners complained that
Kee's death. Petitioners herein averred that the business prospered due Exhibits "4" to "4-U" offered by the defendants before the trial court,
to the hard work and thrift of the alleged partners. However, they consisting of payrolls indicating that Tan Eng Kee was a mere employee
claimed that in 1981, Tan Eng Lay and his children caused the conversion of Benguet Lumber, were fake, based on the discrepancy in the
of the partnership "Benguet Lumber" into a corporation called "Benguet signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-
Lumber Company." The incorporation was purportedly a ruse to deprive 78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and
Tan Eng Kee and his heirs of their rightful participation in the profits of Willy, all surnamed Tan, for alleged falsification of commercial
the business. Petitioners prayed for accounting of the partnership documents by a private individual. On March 20, 1999, the Municipal
assets, and the dissolution, winding up and liquidation thereof, and the Trial Court of Baguio City, Branch 1, wherein the charges were filed,
equal division of the net assets of Benguet Lumber. rendered judgment9 dismissing the cases for insufficiency of evidence.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered In their assignment of errors, petitioners claim that:
judgment6 on April 12, 1995, to wit:
I THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
WHEREFORE, in view of all the foregoing, judgment is hereby THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE
rendered: AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM
ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS
a) Declaring that Benguet Lumber is a joint venture which is akin to EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
a particular partnership; THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E)
THERE WAS NO TIME FIXED FOR THE DURATION OF THE
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint PARTNERSHIP (PAGE 13, DECISION).
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the II THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY
profits and/or losses of the business venture or particular ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY
partnership; THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT
TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
c) Declaring that the assets of Benguet Lumber are the same assets
turned over to Benguet Lumber Co. Inc. and as such the heirs or legal III THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
representatives of the deceased Tan Eng Kee have a legal right to THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY
share in said assets; EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF
A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF
d) Declaring that all the rights and obligations of Tan Eng Kee as joint PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
adventurer and/or as partner in a particular partnership have EXCHANGE COMMISSION:
descended to the plaintiffs who are his legal heirs.
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN
e) Ordering the defendant Tan Eng Lay and/or the President and/or ENG LAY WERE ALL LIVING AT THE BENGUET
General Manager of Benguet Lumber Company Inc. to render an LUMBER COMPOUND;
accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business; b. THAT BOTH TAN ENG LAY AND TAN ENG KEE
WERE COMMANDING THE EMPLOYEES OF
f) Ordering the appointment of a receiver to preserve and/or BENGUET LUMBER;
administer the assets of Benguet Lumber Company, Inc. until such
time that said corporation is finally liquidated are directed to submit c. THAT BOTH TAN ENG KEE AND TAN ENG LAY
the name of any person they want to be appointed as receiver failing WERE SUPERVISING THE EMPLOYEES THEREIN;
in which this Court will appoint the Branch Clerk of Court or another
one who is qualified to act as such. d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO BE
g) Denying the award of damages to the plaintiffs for lack of proof SOLD TO THE PUBLIC; AND
except the expenses in filing the instant case.
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
h) Dismissing the counter-claim of the defendant for lack of merit. ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
SO ORDERED.
IV THE HONORABLE COURT OF APPEALS ERRED IN HOLDING (9) when the findings of fact are conclusions without citation of the
THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE specific evidence on which they are based; and
CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ (10) when the findings of fact of the Court of Appeals are premised
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE on the absence of evidence but such findings are contradicted by
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET the evidence on record.12
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
In reversing the trial court, the Court of Appeals ruled, to wit:

V THE HONORABLE COURT OF APPEALS ERRED IN HOLDING


We note that the Court a quo over extended the issue because while
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
the plaintiffs mentioned only the existence of a partnership, the
ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE
Court in turn went beyond that by justifying the existence of a joint
PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
venture.
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH When mention is made of a joint venture, it would presuppose
PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE parity of standing between the parties, equal proprietary interest
17, DECISION). and the exercise by the parties equally of the conduct of the
business, thus:
As a premise, we reiterate the oft-repeated rule that findings of facts of
the Court of Appeals will not be disturbed on appeal if such are xxx xxx xxx
supported by the evidence.10 Our jurisdiction, it must be emphasized,
does not include review of factual issues. Thus: We have the admission that the father of the plaintiffs was not a
partner of the Benguet Lumber before the war. The appellees
Filing of petition with Supreme Court. — A party desiring to appeal however argued that (Rollo, p. 104; Brief, p. 6) this is because during
by certiorari from a judgment or final order or resolution of the the war, the entire stocks of the pre-war Benguet Lumber were
Court of Appeals, the Sandiganbayan, the Regional Trial Court or confiscated if not burned by the Japanese. After the war, because of
other courts whenever authorized by law, may file with the Supreme the absence of capital to start a lumber and hardware business, Lay
Court a verified petition for review on certiorari. The petition shall and Kee pooled the proceeds of their individual businesses earned
raise only questions of law which must be distinctly set from buying and selling military supplies, so that the common fund
forth.11 [emphasis supplied] would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses.
Admitted exceptions have been recognized, though, and when present,
Because of the pooling of resources, the post-war Benguet Lumber
may compel us to analyze the evidentiary basis on which the lower court
was eventually established. That the father of the plaintiffs and Lay
rendered judgment. Review of factual issues is therefore warranted:
were partners, is obvious from the fact that: (1) they conducted the
affairs of the business during Kee's lifetime, jointly, (2) they were the
(1) when the factual findings of the Court of Appeals and the trial ones giving orders to the employees, (3) they were the ones
court are contradictory; preparing orders from the suppliers, (4) their families stayed
together at the Benguet Lumber compound, and (5) all their children
(2) when the findings are grounded entirely on speculation, were employed in the business in different capacities.
surmises, or conjectures;
xxx xxx xxx
(3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; It is obvious that there was no partnership whatsoever. Except for a
firm name, there was no firm account, no firm letterheads
(4) when there is grave abuse of discretion in the appreciation of submitted as evidence, no certificate of partnership, no agreement
facts; as to profits and losses, and no time fixed for the duration of the
partnership. There was even no attempt to submit an accounting
(5) when the appellate court, in making its findings, goes beyond the corresponding to the period after the war until Kee's death in 1984.
issues of the case, and such findings are contrary to the admissions It had no business book, no written account nor any memorandum
of both appellant and appellee; for that matter and no license mentioning the existence of a
partnership [citation omitted].
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; Also, the exhibits support the establishment of only a
proprietorship. The certification dated March 4, 1971, Exhibit "2",
mentioned co-defendant Lay as the only registered owner of the
(7) when the Court of Appeals fails to notice certain relevant facts
Benguet Lumber and Hardware. His application for registration,
which, if properly considered, will justify a different conclusion;
effective 1954, in fact mentioned that his business started in 1945
until 1985 (thereafter, the incorporation). The deceased, Kee, on the
(8) when the findings of fact are themselves conflicting; other hand, was merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982
to 1983, Kee was similarly listed only as an employee; precisely, he
was on the payroll listing. In the Termination Notice, Exhibit "5", Lay . . . two or more persons bind themselves to contribute money,
was mentioned also as the proprietor. property, or industry to a common fund, with the intention of dividing
the profits among themselves.
xxx xxx xxx
Two or more persons may also form a partnership for the exercise
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] of a profession.14
may be constituted in any form, but when an immovable is
constituted, the execution of a public instrument becomes Thus, in order to constitute a partnership, it must be established that
necessary. This is equally true if the capitalization exceeds (1) two or more persons bound themselves to contribute money,
P3,000.00, in which case a public instrument is also necessary, and property, or industry to a common fund, and (2) they intend to
which is to be recorded with the Securities and Exchange divide the profits among themselves.15 The agreement need not be
Commission. In this case at bar, we can easily assume that the formally reduced into writing, since statute allows the oral
business establishment, which from the language of the appellees, constitution of a partnership, save in two instances: (1) when
prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, immovable property or real rights are contributed,16 and (2) when
in addition to the accumulation of real properties and to the fact the partnership has a capital of three thousand pesos or more. 17 In
that it is now a compound. The execution of a public instrument, on both cases, a public instrument is required.18 An inventory to be
the other hand, was never established by the appellees. signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever
And then in 1981, the business was incorporated and the immovable property is contributed to the partnership.19
incorporators were only Lay and the members of his family. There is
no proof either that the capital assets of the partnership, assuming The trial court determined that Tan Eng Kee and Tan Eng Lay had
them to be in existence, were maliciously assigned or transferred by entered into a joint venture, which it said is akin to a particular
Lay, supposedly to the corporation and since then have been treated partnership.20 A particular partnership is distinguished from a joint
as a part of the latter's capital assets, contrary to the allegations in adventure, to wit:
pars. 6, 7 and 8 of the complaint.
(a) A joint adventure (an American concept similar to our joint
These are not evidences supporting the existence of a partnership: accounts) is a sort of informal partnership, with no firm name and
no legal personality. In a joint account, the participating merchants
1) That Kee was living in a bunk house just across the lumber store, can transact business under their own name, and can be individually
and then in a room in the bunk house in Trinidad, but within the liable therefor.
compound of the lumber establishment, as testified to by Tandoc;
2) that both Lay and Kee were seated on a table and were (b) Usually, but not necessarily a joint adventure is limited to a
"commanding people" as testified to by the son, Elpidio Tan; 3) that SINGLE TRANSACTION, although the business of pursuing to a
both were supervising the laborers, as testified to by Victoria Choi; successful termination may continue for a number of years; a
and 4) that Dionisio Peralta was supposedly being told by Kee that partnership generally relates to a continuing business of various
the proceeds of the 80 pieces of the G.I. sheets were added to the transactions of a certain kind.21
business.
A joint venture "presupposes generally a parity of standing between the
Partnership presupposes the following elements [citation omitted]: joint co-ventures or partners, in which each party has an equal
1) a contract, either oral or written. However, if it involves real proprietary interest in the capital or property contributed, and where
property or where the capital is P3,000.00 or more, the execution of each party exercises equal rights in the conduct of the
a contract is necessary; 2) the capacity of the parties to execute the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
contract; 3) money property or industry contribution; 4) community Manufacturing Corporation, et. al.,23 we expressed the view that a joint
of funds and interest, mentioning equality of the partners or one venture may be likened to a particular partnership, thus:
having a proportionate share in the benefits; and 5) intention to
divide the profits, being the true test of the partnership. The The legal concept of a joint venture is of common law origin.
intention to join in the business venture for the purpose of obtaining It has no precise legal definition, but it has been generally
profits thereafter to be divided, must be established. We cannot see understood to mean an organization formed for some
these elements from the testimonial evidence of the appellees. temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920])
It is hardly distinguishable from the partnership, since their
As can be seen, the appellate court disputed and differed from the trial elements are similar — community of interest in the business,
court which had adjudged that TAN ENG KEE and TAN ENG LAY had sharing of profits and losses, and a mutual right of control.
allegedly entered into a joint venture. In this connection, we have held (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
that whether a partnership exists is a factual matter; consequently, since Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal.
the appeal is brought to us under Rule 45, we cannot entertain inquiries 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
relative to the correctness of the assessment of the evidence by the distinction cited by most opinions in common law jurisdiction
court a quo.13 Inasmuch as the Court of Appeals and the trial court had is that the partnership contemplates a general business with
reached conflicting conclusions, perforce we must examine the record some degree of continuity, while the joint venture is formed
to determine if the reversal was justified. for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
partners in Benguet Lumber. A contract of partnership is defined by law [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
as one where: observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or the third place, it does not appear that she has even
universal, and a particular partnership may have for its object demanded from defendant any accounting of the expenses
a specific undertaking. (Art. 1783, Civil Code). It would seem and earnings of the business. Were she really a partner, her
therefore that under Philippine law, a joint venture is a form first concern should have been to find out how the business
of partnership and should thus be governed by the law of was progressing, whether the expenses were legitimate,
partnerships. The Supreme Court has however recognized a whether the earnings were correct, etc. She was absolutely
distinction between these two business forms, and has held silent with respect to any of the acts that a partner should have
that although a corporation cannot enter into a partnership done; all that she did was to receive her share of P3,000.00 a
contract, it may however engage in a joint venture with month, which cannot be interpreted in any manner than a
others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) payment for the use of the premises which she had leased
(Campos and Lopez-Campos Comments, Notes and Selected from the owners. Clearly, plaintiff had always acted in
Cases, Corporation Code 1981). accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this
Undoubtedly, the best evidence would have been the contract of offer as the real contract between them.33[emphasis supplied]
partnership itself, or the articles of partnership but there is none. The
alleged partnership, though, was never formally organized. In addition, A demand for periodic accounting is evidence of a partnership.34 During
petitioners point out that the New Civil Code was not yet in effect when his lifetime, Tan Eng Kee appeared never to have made any such
the partnership was allegedly formed sometime in 1945, although the demand for accounting from his brother, Tang Eng Lay.
contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect This brings us to the matter of Exhibits "4" to "4-U" for private
on August 30, 1950. But all that is in the past. The net effect, however, respondents, consisting of payrolls purporting to show that Tan Eng Kee
is that we are asked to determine whether a partnership existed based was an ordinary employee of Benguet Lumber, as it was then called. The
purely on circumstantial evidence. A review of the record persuades us authenticity of these documents was questioned by petitioners, to the
that the Court of Appeals correctly reversed the decision of the trial extent that they filed criminal charges against Tan Eng Lay and his wife
court. The evidence presented by petitioners falls short of the quantum and children. As aforesaid, the criminal cases were dismissed for
of proof required to establish a partnership. insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng
Kee received sums as wages of an employee. In connection therewith,
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, Article 1769 of the Civil Code provides:
aside from Tan Eng Lay, could have expounded on the precise nature of
the business relationship between them. In the absence of evidence, we In determining whether a partnership exists, these rules shall apply:
cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of
(1) Except as provided by Article 1825, persons who are not partners
establishing a partnership. The testimonies to that effect of petitioners'
as to each other are not partners as to third persons;
witnesses is directly controverted by Tan Eng Lay. It should be noted that
it is not with the number of witnesses wherein preponderance lies;24 the
quality of their testimonies is to be considered. None of petitioners' (2) Co-ownership or co-possession does not of itself establish a
witnesses could suitably account for the beginnings of Benguet Lumber partnership, whether such co-owners or co-possessors do or do not
Company, except perhaps for Dionisio Peralta whose deceased wife was share any profits made by the use of the property;
related to Matilde Abubo.25 He stated that when he met Tan Eng Kee
after the liberation, the latter asked the former to accompany him to get (3) The sharing of gross returns does not of itself establish a
80 pieces of G.I. sheets supposedly owned by both brothers.26 Tan Eng partnership, whether or not the persons sharing them have a joint
Lay, however, denied knowledge of this meeting or of the conversation or common right or interest in any property which the returns are
between Peralta and his brother.27 Tan Eng Lay consistently testified derived;
that he had his business and his brother had his, that it was only later on
that his said brother, Tan Eng Kee, came to work for him. Be that as it (4) The receipt by a person of a share of the profits of a business is
may, co-ownership or co-possession (specifically here, of the G.I. sheets) a prima facie evidence that he is a partner in the business, but no
is not an indicium of the existence of a partnership.28 such inference shall be drawn if such profits were received in
payment:
Besides, it is indeed odd, if not unnatural, that despite the forty years
the partnership was allegedly in existence, Tan Eng Kee never asked for (a) As a debt by installment or otherwise;
an accounting. The essence of a partnership is that the partners share in
the profits and losses.29 Each has the right to demand an accounting as
long as the partnership exists.30 We have allowed a scenario wherein (b) As wages of an employee or rent to a landlord;
"[i]f excellent relations exist among the partners at the start of the
business and all the partners are more interested in seeing the firm grow (c) As an annuity to a widow or representative of a deceased
rather than get immediate returns, a deferment of sharing in the profits partner;
is perfectly plausible."31 But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. A person is (d) As interest on a loan, though the amount of payment vary
presumed to take ordinary care of his concerns.32 As we explained in with the profits of the business;
another case:
(e) As the consideration for the sale of a goodwill of a business
In the first place, plaintiff did not furnish the supposed or other property by installments or otherwise.
P20,000.00 capital. In the second place, she did not furnish
any help or intervention in the management of the theatre. In
In the light of the aforequoted legal provision, we conclude that Tan Eng cannot discount the likelihood that as a member of the family, he
Kee was only an employee, not a partner. Even if the payrolls as occupied a niche above the rank-and-file employees. He would have
evidence were discarded, petitioners would still be back to square one, enjoyed liberties otherwise unavailable were he not kin, such as his
so to speak, since they did not present and offer evidence that would residence in the Benguet Lumber Company compound. He would have
show that Tan Eng Kee received amounts of money allegedly moral, if not actual, superiority over his fellow employees, thereby
representing his share in the profits of the enterprise. Petitioners failed entitling him to exercise powers of supervision. It may even be that
to show how much their father, Tan Eng Kee, received, if any, as his among his duties is to place orders with suppliers. Again, the
share in the profits of Benguet Lumber Company for any particular circumstances proffered by petitioners do not provide a logical nexus to
period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay the conclusion desired; these are not inconsistent with the powers and
intended to divide the profits of the business between themselves, duties of a manager, even in a business organized and run as informally
which is one of the essential features of a partnership. as Benguet Lumber Company.

Nevertheless, petitioners would still want us to infer or believe the There being no partnership, it follows that there is no dissolution,
alleged existence of a partnership from this set of circumstances: that winding up or liquidation to speak of. Hence, the petition must fail.
Tan Eng Lay and Tan Eng Kee were commanding the employees; that
both were supervising the employees; that both were the ones who WHEREFORE, the petition is hereby denied, and the appealed decision
determined the price at which the stocks were to be sold; and that both of the Court of Appeals is hereby AFFIRMED in toto. No pronouncement
placed orders to the suppliers of the Benguet Lumber Company. They as to costs.
also point out that the families of the brothers Tan Eng Kee and Tan Eng
Lay lived at the Benguet Lumber Company compound, a privilege not
SO ORDERED.
extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the


above enumerated powers and privileges granted in favor of Tan
Eng Kee, were indicative of his being a partner in Benguet Lumber
for the following reasons:

(i) even a mere supervisor in a company, factory or store gives


orders and directions to his subordinates. So long, therefore, that an
employee's position is higher in rank, it is not unusual that he orders
around those lower in rank.

(ii) even a messenger or other trusted employee, over whom


confidence is reposed by the owner, can order materials from
suppliers for and in behalf of Benguet Lumber. Furthermore, even a
partner does not necessarily have to perform this particular task. It
is, thus, not an indication that Tan Eng Kee was a partner.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
(iii) although Tan Eng Kee, together with his family, lived in the APPEALS and NENITA A. ANAY, respondents.
lumber compound and this privilege was not accorded to other [G.R. No. 127405. September 20, 2001]
employees, the undisputed fact remains that Tan Eng Kee is the
The inherent powers of a Court to amend and control its processes
brother of Tan Eng Lay. Naturally, close personal relations existed
and orders so as to make them conformable to law and justice includes
between them. Whatever privileges Tan Eng Lay gave his brother,
the right to reverse itself, especially when in its honest opinion it has
and which were not given the other employees, only proves the
committed an error or mistake in judgment, and that to adhere to its
kindness and generosity of Tan Eng Lay towards a blood relative.
decision will cause injustice to a party litigant.[1]

(iv) and even if it is assumed that Tan Eng Kee was quarreling with On November 14, 2001, petitioners Marjorie Tocao and William T.
Tan Eng Lay in connection with the pricing of stocks, this does not Belo filed a Motion for Reconsideration of our Decision dated October
adequately prove the existence of a partnership relation between 4, 2000. They maintain that there was no partnership bettween
them. Even highly confidential employees and the owners of a petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the
company sometimes argue with respect to certain matters which, in other hand; and that the latter being merely an employee of petitioner
no way indicates that they are partners as to each other.35 Tocao.

After a careful review of the evidence presented, we are


In the instant case, we find private respondent's arguments to be well- convinced that, indeed, petitioner Belo acted merely as guarantor of
taken. Where circumstances taken singly may be inadequate to prove Geminesse Enterprise. This was categorically affirmed by respondents
the intent to form a partnership, nevertheless, the collective effect of own witness, Elizabeth Bantilan, during her cross-
these circumstances may be such as to support a finding of the existence examination. Furthermore, Bantilan testified that it was Peter Lo who
of the parties' intent.36 Yet, in the case at bench, even the aforesaid was the companys financier. Thus:
circumstances when taken together are not persuasive indicia of a
partnership. They only tend to show that Tan Eng Kee was involved in Q You mentioned a while ago the name William Belo. Now, what is
the operations of Benguet Lumber, but in what capacity is unclear. We the role of William Belo with Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the docketed as Civil Case No. 88-509, as against petitioner William T. Belo
guarantor of the company. only. The sum of P208,250.00 shall be deducted from whatever amount
petitioner Marjorie Tocao shall be held liable to pay respondent after
Q What do you mean by guarantor? the formal accounting of the partnership affairs.
A He guarantees the stocks that she owes somebody who is Peter SO ORDERED.
Lo and he acts as guarantor for us. We can borrow money
from him.

Q You mentioned a certain Peter Lo. Who is this Peter Lo?

A Peter Lo is based in Singapore.

Q What is the role of Peter Lo in the Geminesse Enterprise? ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-
A He is the one fixing our orders that open the L/C. appellants,
vs.
Q You mean Peter Lo is the financier? YANG CHIAO SENG, defendant-appellee.
G.R. No. L-12541 August 28, 1959
A Yes, he is the financier.

Q And the defendant William Belo is merely the guarantor of Appeal from the judgment of the Court of First Instance of Manila, Hon.
Geminesse Enterprise, am I correct? Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
defendant's counterclaim. The appeal is prosecuted by plaintiff.
A Yes, sir.[2]

The foregoing was neither refuted nor contradicted by The record discloses that on June 17, 1945, defendant Yang Chiao Seng
respondents evidence. It should be recalled that the business wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the
relationship created between petitioner Tocao and respondent Anay formation of a partnership between them to run and operate a theatre
was an informal partnership, which was not even recorded with the on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila.
Securities and Exchange Commission. As such, it was understandable The principal conditions of the offer are (1) that Yang Chiao Seng
that Belo, who was after all petitioner Tocaos good friend and guarantees Mrs. Yulo a monthly participation of P3,000 payable
confidante, would occasionally participate in the affairs of the business, quarterly in advance within the first 15 days of each quarter, (2) that the
although never in a formal or official capacity.[3] Again, respondents partnership shall be for a period of two years and six months, starting
witness, Elizabeth Bantilan, confirmed that petitioner Belos presence in from July 1, 1945 to December 31, 1947, with the condition that if the
Geminesse Enterprises meetings was merely as guarantor of the land is expropriated or rendered impracticable for the business, or if the
company and to help petitioner Tocao.[4] owner constructs a permanent building thereon, or Mrs. Yulo's right of
lease is terminated by the owner, then the partnership shall be
Furthermore, no evidence was presented to show that petitioner
terminated even if the period for which the partnership was agreed to
Belo participated in the profits of the business enterprise. Respondent
be established has not yet expired; (3) that Mrs. Yulo is authorized
herself professed lack of knowledge that petitioner Belo received any
personally to conduct such business in the lobby of the building as is
share in the net income of the partnership.[5] On the other hand,
ordinarily carried on in lobbies of theatres in operation, provided the
petitioner Tocao declared that petitioner Belo was not entitled to any
said business may not obstruct the free ingress and agrees of patrons of
share in the profits of Geminesse Enterprise.[6] With no participation in
the theatre; (4) that after December 31, 1947, all improvements placed
the profits, petitioner Belo cannot be deemed a partner since the
by the partnership shall belong to Mrs. Yulo, but if the partnership
essence of a partnership is that the partners share in the profits and
agreement is terminated before the lapse of one and a half years period
losses.[7]
under any of the causes mentioned in paragraph (2), then Yang Chiao
Consequently, inasmuch as petitioner Belo was not a partner in Seng shall have the right to remove and take away all improvements that
Geminesse Enterprise, respondent had no cause of action against him the partnership may place in the premises.
and her complaint against him should accordingly be dismissed.
Pursuant to the above offer, which plaintiff evidently accepted, the
As regards the award of damages, petitioners argue that parties executed a partnership agreement establishing the "Yang &
respondent should be deemed in bad faith for failing to account for Company, Limited," which was to exist from July 1, 1945 to December
stocks of Geminesse Enterprise amounting to P208,250.00 and that, 31, 1947. It states that it will conduct and carry on the business of
accordingly, her claim for damages should be barred to that extent. We operating a theatre for the exhibition of motion and talking pictures. The
do not agree. Given the circumstances surrounding private respondents capital is fixed at P100,000, P80,000 of which is to be furnished by Yang
sudden ouster from the partnership by petitioner Tocao, her act of Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be
withholding whatever stocks were in her possession and control was distributed among the partners in the same proportion as their capital
justified, if only to serve as security for her claims against the contribution and the liability of Mrs. Yulo, in case of loss, shall be limited
partnership. However, while we do not agree that the same renders to her capital contribution (Exh. "B").
private respondent in bad faith and should bar her claim for damages,
we find that the said sum of P208,250.00 should be deducted from
whatever amount is finally adjudged in her favor on the basis of the In June , 1946, they executed a supplementary agreement, extending
formal account of the partnership affairs to be submitted to the Regional the partnership for a period of three years beginning January 1, 1948 to
Trial Court. December 31, 1950. The benefits are to be divided between them at the
rate of 50-50 and after December 31, 1950, the showhouse building
WHEREFORE, based on the foregoing, the Motion for shall belong exclusively to the second party, Mrs. Yulo.
Reconsideration of petitioners is PARTIALLY GRANTED. The Regional
Trial Court of Makati is hereby ordered to DISMISS the complaint,
The land on which the theatre was constructed was leased by plaintiff from July 1, 1945 until defendant vacates the property. This decision,
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa however, was set aside on a motion for reconsideration. In said motion
Marina. In the contract of lease it was stipulated that the lease shall it is claimed that defendant failed to appear at the hearing because of
continue for an indefinite period of time, but that after one year the his honest belief that a joint petition for postponement filed by both
lease may be cancelled by either party by written notice to the other parties, in view of a possible amicable settlement, would be granted;
party at least 90 days before the date of cancellation. The last contract that in view of the decision of the Court of Appeals in two previous cases
was executed between the owners and Mrs. Yulo on April 5, 1948. But between the owners of the land and the plaintiff Rosario Yulo, the
on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the plaintiff has no right to claim the alleged participation in the profit of the
owner's desire to cancel the contract of lease on July 31, 1949. In view business, etc. The court, finding the above motion, well-founded, set
of the above notice, Mrs. Yulo and her husband brought a civil action to aside its decision and a new trial was held. After trial the court rendered
the Court of First Instance of Manila on July 3, 1949 to declare the lease the decision making the following findings: that it is not true that a
of the premises. On February 9, 1950, the Municipal Court of Manila partnership was created between the plaintiff and the defendant
rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. because defendant has not actually contributed the sum mentioned in
The judgment was appealed. In the Court of First Instance, the two cases the Articles of Partnership, or any other amount; that the real
were afterwards heard jointly, and judgment was rendered dismissing agreement between the plaintiff and the defendant is not of the
the complaint of Mrs. Yulo and her husband, and declaring the contract partnership but one of the lease for the reason that under the
of lease of the premises terminated as of July 31, 1949, and fixing the agreement the plaintiff did not share either in the profits or in the losses
reasonable monthly rentals of said premises at P100. Both parties of the business as required by Article 1769 of the Civil Code; and that
appealed from said decision and the Court of Appeals, on April 30, 1955, the fact that plaintiff was granted a "guaranteed participation" in the
affirmed the judgment. profits also belies the supposed existence of a partnership between
them. It. therefore, denied plaintiff's claim for damages or supposed
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her participation in the profits.
share in the profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the payment (of the As to her claim for damages for the refusal of the defendant to allow the
rentals) because of the pendency of the ejectment suit by the owners of use of the supposed lobby of the theatre, the court after ocular
the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as inspection found that the said lobby was very narrow space leading to
he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the balcony of the theatre which could not be used for business
the rentals from August, 1949, he was retaining the rentals to make purposes under existing ordinances of the City of Manila because it
good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. would constitute a hazard and danger to the patrons of the theatre. The
"E"). court, therefore, dismissed the complaint; so did it dismiss the
defendant's counterclaim, on the ground that the defendant failed to
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. present sufficient evidence to sustain the same. It is against this decision
Yulo instituted this action on May 26, 1954, alleging the existence of a that the appeal has been prosecuted by plaintiff to this Court.
partnership between them and that the defendant Yang Chiao Seng has
refused to pay her share from December, 1949 to December, 1950; that The first assignment of error imputed to the trial court is its order setting
after December 31, 1950 the partnership between Mrs. Yulo and Yang aside its former decision and allowing a new trial. This assignment of
terminated, as a result of which, plaintiff became the absolute owner of error is without merit. As that parties agreed to postpone the trial
the building occupied by the Cine Astor; that the reasonable rental that because of a probable amicable settlement, the plaintiff could not take
the defendant should pay therefor from January, 1951 is P5,000; that advantage of defendant's absence at the time fixed for the hearing. The
the defendant has acted maliciously and refuses to pay the participation lower court, therefore, did not err in setting aside its former judgment.
of the plaintiff in the profits of the business amounting to P35,000 from The final result of the hearing shown by the decision indicates that the
November, 1949 to October, 1950, and that as a result of such bad faith setting aside of the previous decision was in the interest of justice.
and malice on the part of the defendant, Mrs. Yulo has suffered
damages in the amount of P160,000 and exemplary damages to the In the second assignment of error plaintiff-appellant claims that the
extent of P5,000. The prayer includes a demand for the payment of the lower court erred in not striking out the evidence offered by the
above sums plus the sum of P10,000 for the attorney's fees. defendant-appellee to prove that the relation between him and the
plaintiff is one of the sublease and not of partnership. The action of the
In answer to the complaint, defendant alleges that the real agreement lower court in admitting evidence is justified by the express allegation in
between the plaintiff and the defendant was one of lease and not of the defendant's answer that the agreement set forth in the complaint
partnership; that the partnership was adopted as a subterfuge to get was one of lease and not of partnership, and that the partnership
around the prohibition contained in the contract of lease between the formed was adopted in view of a prohibition contained in plaintiff's lease
owners and the plaintiff against the sublease of the said property. As to against a sublease of the property.
the other claims, he denies the same and alleges that the fair rental
value of the land is only P1,100. By way of counterclaim he alleges that The most important issue raised in the appeal is that contained in the
by reason of an attachment issued against the properties of the fourth assignment of error, to the effect that the lower court erred in
defendant the latter has suffered damages amounting to P100,000. holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We
The first hearing was had on April 19, 1955, at which time only the have gone over the evidence and we fully agree with the conclusion of
plaintiff appeared. The court heard evidence of the plaintiff in the the trial court that the agreement was a sublease, not a partnership. The
absence of the defendant and thereafter rendered judgment ordering following are the requisites of partnership: (1) two or more persons who
the defendant to pay to the plaintiff P41,000 for her participation in the bind themselves to contribute money, property, or industry to a
business up to December, 1950; P5,000 as monthly rental for the use common fund; (2) intention on the part of the partners to divide the
and occupation of the building from January 1, 1951 until defendant profits among themselves. (Art. 1767, Civil Code.).
vacates the same, and P3,000 for the use and occupation of the lobby
In the first place, plaintiff did not furnish the supposed P20,000 capital. improvements thereon for P130,000.00; this property has an
In the second place, she did not furnish any help or intervention in the assessed value of P82,255.00 as of 1948;
management of the theatre. In the third place, it does not appear that
she has ever demanded from defendant any accounting of the expenses
4. That on April 28, 1944 they purchased from the Insular
and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, Investments Inc., a lot of 4,353 sq. m. including improvements
whether the expenses were legitimate, whether the earnings were thereon for P108,825.00. This property has an assessed value of
correct, etc. She was absolutely silent with respect to any of the acts P4,983.00 as of 1948;
that a partner should have done; all that she did was to receive her share
of P3,000 a month, which can not be interpreted in any manner than a
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a
payment for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance with the lot of 8,371 sq. m. including improvements thereon for P237,234.34.
original letter of defendant of June 17, 1945 (Exh. "A"), which shows that This property has an assessed value of P59,140.00 as of 1948;
both parties considered this offer as the real contract between them.
6. That in a document dated August 16, 1945, they appointed their
Plaintiff claims the sum of P41,000 as representing her share or brother Simeon Evangelista to 'manage their properties with full
participation in the business from December, 1949. But the original power to lease; to collect and receive rents; to issue receipts
letter of the defendant, Exh. "A", expressly states that the agreement therefor; in default of such payment, to bring suits against the
between the plaintiff and the defendant was to end upon the
defaulting tenants; to sign all letters, contracts, etc., for and in their
termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the behalf, and to endorse and deposit all notes and checks for them;
partnership agreement or the agreement for her to receive a
participation of P3,000 automatically ceased as of said date. 7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
We find no error in the judgment of the court below and we affirm it in
toto, with costs against plaintiff-appellant. 8. That from the month of March, 1945 up to an including
December, 1945, the total amount collected as rents on their real
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA properties was P9,599.00 while the expenses amounted to
EVANGELISTA, petitioners, P3,650.00 thereby leaving them a net rental income of P5,948.33;
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX 9. That on 1946, they realized a gross rental income of in the sum of
APPEALS, respondents. P24,786.30, out of which amount was deducted in the sum of
G.R. No. L-9996 October 15, 1957 P16,288.27 for expenses thereby leaving them a net rental income
of P7,498.13;
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and
Francisca Evangelista, for review of a decision of the Court of Tax 10. That in 1948, they realized a gross rental income of P17,453.00
Appeals, the dispositive part of which reads: out of the which amount was deducted the sum of P4,837.65 as
expenses, thereby leaving them a net rental income of P12,615.35.
FOR ALL THE FOREGOING, we hold that the petitioners are liable for
the income tax, real estate dealer's tax and the residence tax for the It further appears that on September 24, 1954 respondent Collector of
years 1945 to 1949, inclusive, in accordance with the respondent's Internal Revenue demanded the payment of income tax on
assessment for the same in the total amount of P6,878.34, which is corporations, real estate dealer's fixed tax and corporation residence tax
hereby affirmed and the petition for review filed by petitioner is for the years 1945-1949, computed, according to assessment made by
hereby dismissed with costs against petitioners. said officer, as follows:

It appears from the stipulation submitted by the parties:


INCOME TAXES
1. That the petitioners borrowed from their father the sum of
1945 14.84
P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,.
1946 1,144.71

2. That on February 2, 1943, they bought from Mrs. Josefina 1947 10.34
Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property 1948 1,912.30
has an assessed value of P57,517.00 as of 1948;
1949 1,575.90
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21
parcels of land with an aggregate area of 3,718.40 sq. m. including Total including surcharge and compromise P6,157.09
SEC. 84 (b). The term 'corporation' includes partnerships, no matter
REAL ESTATE DEALER'S FIXED TAX
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but
1946 P37.50
does not include duly registered general copartnerships.
1947 150.00 (compañias colectivas).

1948 150.00 Article 1767 of the Civil Code of the Philippines provides:

1949 150.00 By the contract of partnership two or more persons bind themselves
to contribute money, properly, or industry to a common fund, with
Total including penalty P527.00 the intention of dividing the profits among themselves.

RESIDENCE TAXES OF CORPORATION Pursuant to the article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to
1945 P38.75
a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case
1946 38.75
at bar, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down
1947 38.75
to their intent in acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are fully satisfied that their
1948 38.75
purpose was to engage in real estate transactions for monetary gain and
1949 38.75 then divide the same among themselves, because:

Total including surcharge P193.75 1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
TOTAL TAXES DUE P6,878.34. created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

Said letter of demand and corresponding assessments were delivered to


2. They invested the same, not merely not merely in one transaction,
petitioners on December 3, 1954, whereupon they instituted the
but in a series of transactions. On February 2, 1943, they bought a
present case in the Court of Tax Appeals, with a prayer that "the decision
lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
of the respondent contained in his letter of demand dated September
P18,000.00. This was soon followed on April 23, 1944, by the
24, 1954" be reversed, and that they be absolved from the payment of
acquisition of another real estate for P108,825.00. Five (5) days later
the taxes in question, with costs against the respondent.
(April 28, 1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transactions undertaken, as well as the
After appropriate proceedings, the Court of Tax Appeals the above-
brief interregnum between each, particularly the last three
mentioned decision for the respondent, and a petition for
purchases, is strongly indicative of a pattern or common design that
reconsideration and new trial having been subsequently denied, the
was not limited to the conservation and preservation of the
case is now before Us for review at the instance of the petitioners.
aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but
The issue in this case whether petitioners are subject to the tax on perceive a character of habitually peculiar to business transactions
corporations provided for in section 24 of Commonwealth Act. No. 466, engaged in the purpose of gain.
otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.
3. The aforesaid lots were not devoted to residential purposes, or to
With respect to the tax on corporations, the issue hinges on the meaning
other personal uses, of petitioners herein. The properties were
of the terms "corporation" and "partnership," as used in section 24 and
leased separately to several persons, who, from 1945 to 1948
84 of said Code, the pertinent parts of which read:
inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even
SEC. 24. Rate of tax on corporations.—There shall be levied, suggest that there has been any change in the utilization thereof.
assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
4. Since August, 1945, the properties have been under the
corporation organized in, or existing under the laws of the
management of one person, namely Simeon Evangelista, with full
Philippines, no matter how created or organized but not including
power to lease, to collect rents, to issue receipts, to bring suits, to
duly registered general co-partnerships (compañias colectivas), a tax
sign letters and contracts, and to indorse and deposit notes and
upon such income equal to the sum of the following: . . .
checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and and is, therefore, an additional argument in favor of the imposition of
enterprise operated for profit. said tax on corporations.

5. The foregoing conditions have existed for more than ten (10) Under the Internal Revenue Laws of the United States, "corporations"
years, or, to be exact, over fifteen (15) years, since the first property are taxed differently from "partnerships". By specific provisions of said
was acquired, and over twelve (12) years, since Simeon Evangelista laws, such "corporations" include "associations, joint-stock companies
became the manager. and insurance companies." However, the term "association" is not used
in the aforementioned laws.
6. Petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on . . . in any narrow or technical sense. It includes any
the causes for its continued existence. They did not even try to offer organization, created for the transaction of designed affairs,
an explanation therefor. or the attainment of some object, which like a corporation,
continues notwithstanding that its members or participants
Although, taken singly, they might not suffice to establish the intent change, and the affairs of which, like corporate affairs, are
necessary to constitute a partnership, the collective effect of these conducted by a single individual, a committee, a board, or
circumstances is such as to leave no room for doubt on the existence of some other group, acting in a representative capacity. It is
said intent in petitioners herein. Only one or two of the aforementioned immaterial whether such organization is created by an
circumstances were present in the cases cited by petitioners herein, agreement, a declaration of trust, a statute, or otherwise. It
and, hence, those cases are not in point. includes a voluntary association, a joint-stock corporation or
company, a 'business' trusts a 'Massachusetts' trust, a
Petitioners insist, however, that they are mere co-owners, not 'common law' trust, and 'investment' trust (whether of the
copartners, for, in consequence of the acts performed by them, a legal fixed or the management type), an interinsuarance exchange
entity, with a personality independent of that of its members, did not operating through an attorney in fact, a partnership
come into existence, and some of the characteristics of partnerships are association, and any other type of organization (by whatever
lacking in the case at bar. This pretense was correctly rejected by the name known) which is not, within the meaning of the Code, a
Court of Tax Appeals. trust or an estate, or a partnership. (7A Mertens Law of
Federal Income Taxation, p. 788; emphasis supplied.).
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships". Similarly, the American Law.
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, . . . provides its own concept of a partnership, under the term
therefore, to organizations which are not necessarily "partnerships", in 'partnership 'it includes not only a partnership as known at
the technical sense of the term. Thus, for instance, section 24 of said common law but, as well, a syndicate, group, pool, joint
Code exempts from the aforementioned tax "duly registered general venture or other unincorporated organizations which carries
partnerships which constitute precisely one of the most typical forms of on any business financial operation, or venture, and which is
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of not, within the meaning of the Code, a trust, estate, or a
said Code, "the term corporation includes partnerships, no matter how corporation. . . (7A Merten's Law of Federal Income taxation,
created or organized." This qualifying expression clearly indicates that a p. 789; emphasis supplied.)
joint venture need not be undertaken in any of the standard forms, or
in conformity with the usual requirements of the law on partnerships, in The term 'partnership' includes a syndicate, group, pool, joint
order that one could be deemed constituted for purposes of the tax on venture or other unincorporated organization, through or by
corporations. Again, pursuant to said section 84(b), the term means of which any business, financial operation, or venture is
"corporation" includes, among other, joint accounts, (cuentas en carried on, . . .. ( 8 Merten's Law of Federal Income Taxation,
participation)" and "associations," none of which has a legal personality p. 562 Note 63; emphasis supplied.) .
of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition For purposes of the tax on corporations, our National Internal Revenue
essential to the existence of the partnerships therein referred to. In fact, Code, includes these partnerships — with the exception only of duly
as above stated, "duly registered general copartnerships" — which are registered general copartnerships — within the purview of the term
possessed of the aforementioned personality — have been expressly "corporation." It is, therefore, clear to our mind that petitioners herein
excluded by law (sections 24 and 84 [b] from the connotation of the constitute a partnership, insofar as said Code is concerned and are
term "corporation" It may not be amiss to add that petitioners' subject to the income tax for corporations.
allegation to the effect that their liability in connection with the leasing
of the lots above referred to, under the management of one person — As regards the residence of tax for corporations, section 2 of
even if true, on which we express no opinion — tends to increase the Commonwealth Act No. 465 provides in part:
similarity between the nature of their venture and that corporations,
Entities liable to residence tax.-Every corporation, no matter how the resolution of said court denying petitioners' motion for
created or organized, whether domestic or resident foreign, reconsideration of said decision.
engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which in no The facts are stated in the decision of the Tax Court as follows:
case, shall exceed one thousand pesos, in accordance with the
following schedule: . . . Julia Buñales died on March 23, 1944, leaving as heirs her surviving
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case No.
The term 'corporation' as used in this Act includes joint-stock 4519 was instituted in the Court of First Instance of Manila for the
company, partnership, joint account (cuentas en participacion), settlement of her estate. Later, Lorenzo T. Oña the surviving spouse
association or insurance company, no matter how created or was appointed administrator of the estate of said deceased (Exhibit
organized. (emphasis supplied.) 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by the Court
Considering that the pertinent part of this provision is analogous to that on May 16, 1949 (See Exhibit K). Because three of the heirs, namely
of section 24 and 84 (b) of our National Internal Revenue Code Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors
(commonwealth Act No. 466), and that the latter was approved on June when the project of partition was approved, Lorenzo T. Oña, their
15, 1939, the day immediately after the approval of said Commonwealth father and administrator of the estate, filed a petition in Civil Case
Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" No. 9637 of the Court of First Instance of Manila for appointment as
and "partnership" are used in both statutes with substantially the same guardian of said minors. On November 14, 1949, the Court
meaning. Consequently, petitioners are subject, also, to the residence appointed him guardian of the persons and property of the
tax for corporations. aforenamed minors (See p. 3, BIR rec.).

Lastly, the records show that petitioners have habitually engaged in The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
leasing the properties above mentioned for a period of over twelve that the heirs have undivided one-half (1/2) interest in ten parcels
years, and that the yearly gross rentals of said properties from June 1945 of land with a total assessed value of P87,860.00, six houses with a
to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the total assessed value of P17,590.00 and an undetermined amount to
tax provided in section 193 (q) of our National Internal Revenue Code, be collected from the War Damage Commission. Later, they
for "real estate dealers," inasmuch as, pursuant to section 194 (s) received from said Commission the amount of P50,000.00, more or
thereof: less. This amount was not divided among them but was used in the
rehabilitation of properties owned by them in common (t.s.n., p. 46).
'Real estate dealer' includes any person engaged in the Of the ten parcels of land aforementioned, two were acquired after
business of buying, selling, exchanging, leasing, or renting the death of the decedent with money borrowed from the Philippine
property or his own account as principal and holding himself Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3,
out as a full or part time dealer in real estate or as an owner pp. 31-34 BIR rec.).
of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a year. The project of partition also shows that the estate shares equally
. . (emphasis supplied.) with Lorenzo T. Oña, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the
Wherefore, the appealed decision of the Court of Tax appeals is hereby approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
affirmed with costs against the petitioners herein. It is so ordered.
Although the project of partition was approved by the Court on May
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. 16, 1949, no attempt was made to divide the properties therein
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. listed. Instead, the properties remained under the management of
OÑA, JR., petitioners, Lorenzo T. Oña who used said properties in business by leasing or
vs. selling them and investing the income derived therefrom and the
THE COMMISSIONER OF INTERNAL REVENUE, respondent. proceeds from the sales thereof in real properties and securities. As
G.R. No. L-19342 May 25, 1972 a result, petitioners' properties and investments gradually increased
from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned
from the following year-end balances:
Petition for review of the decision of the Court of Tax Appeals in CTA
Case No. 617, similarly entitled as above, holding that petitioners have
constituted an unregistered partnership and are, therefore, subject to 1949 — P87,860.00 P17,590.00
the payment of the deficiency corporate income taxes assessed against
them by respondent Commissioner of Internal Revenue for the years 1950 P24,657.65 128,566.72 96,076.26
1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and
1% monthly interest from December 15, 1958, subject to the provisions 1951 51,301.31 120,349.28 110,605.11
of Section 51 (e) (2) of the Internal Revenue Code, as amended by
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as
Income tax due thereon ............................... 13,849.00
1952 67,927.52 87,065.28 152,674.39
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
1953 61,258.27 84,925.68 161,463.83
Total ............................................................... P17,361.25
1954 63,623.37 99,001.20 167,962.04
(See Exhibit 13, page 50, BIR records)
1955 100,786.00 120,249.78 169,262.52
Upon further consideration of the case, the 25% surcharge was
1956 175,028.68 135,714.68 169,262.52 eliminated in line with the ruling of the Supreme Court in Collector
v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that
the questioned assessment refers solely to the income tax proper
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
for the years 1955 and 1956 and the "Compromise for non-filing,"
the latter item obviously referring to the compromise in lieu of the
From said investments and properties petitioners derived such
criminal liability for failure of petitioners to file the corporate income
incomes as profits from installment sales of subdivided lots, profits
tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-
from sales of stocks, dividends, rentals and interests (see p. 3 of
3, Annex C to Petition)
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
recorded in the books of account kept by Lorenzo T. Oña where the
Petitioners have assigned the following as alleged errors of the Tax
corresponding shares of the petitioners in the net income for the
Court:
year are also known. Every year, petitioners returned for income tax
purposes their shares in the net income derived from said properties
I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
and securities and/or from transactions involving them (Exhibit
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually
receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
100). The income was always left in the hands of Lorenzo T. Oña II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
who, as heretofore pointed out, invested them in real properties PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED
and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104). AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM
(sic);

On the basis of the foregoing facts, respondent (Commissioner of


Internal Revenue) decided that petitioners formed an unregistered III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
partnership and therefore, subject to the corporate income tax, PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
86, BIR rec.). Petitioners protested against the assessment and IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
asked for reconsideration of the ruling of respondent that they have PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE
formed an unregistered partnership. Finding no merit in petitioners' PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See LOANS RECEIVED USING THE INHERITED PROPERTIES AS
pp. 1-4, Memorandum for Respondent, June 12, 1961). COLLATERALS;

The original assessment was as follows: V . ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
1955 DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON,
Net income as per investigation ................ P40,209.89
FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

Income tax due thereon ............................... 8,042.00


25% surcharge .............................................. 2,010.50 In other words, petitioners pose for our resolution the following
Compromise for non-filing .......................... 50.00 questions: (1) Under the facts found by the Court of Tax Appeals, should
Total ............................................................... P10,102.50 petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buñales and the profits derived from
transactions involving the same, or, must they be deemed to have
1956
formed an unregistered partnership subject to tax under Sections 24
and 84(b) of the National Internal Revenue Code? (2) Assuming they
Net income as per investigation ................ P69,245.23
have formed an unregistered partnership, should this not be only in the
sense that they invested as a common fund the profits earned by the
properties owned by them in common and the loans granted to them proportionately in accordance with their respective shares in the
upon the security of the said properties, with the result that as far as inheritance. In these circumstances, it is Our considered view that from
their respective shares in the inheritance are concerned, the total the moment petitioners allowed not only the incomes from their
income thereof should be considered as that of co-owners and not of respective shares of the inheritance but even the inherited properties
the unregistered partnership? And (3) assuming again that they are themselves to be used by Lorenzo T. Oña as a common fund in
taxable as an unregistered partnership, should not the various amounts undertaking several transactions or in business, with the intention of
already paid by them for the same years 1955 and 1956 as individual deriving profit to be shared by them proportionally, such act was
income taxes on their respective shares of the profits accruing from the tantamonut to actually contributing such incomes to a common fund
properties they owned in common be deducted from the deficiency and, in effect, they thereby formed an unregistered partnership within
corporate taxes, herein involved, assessed against such unregistered the purview of the above-mentioned provisions of the Tax Code.
partnership by the respondent Commissioner?
It is but logical that in cases of inheritance, there should be a period
Pondering on these questions, the first thing that has struck the Court is when the heirs can be considered as co-owners rather than unregistered
that whereas petitioners' predecessor in interest died way back on co-partners within the contemplation of our corporate tax laws
March 23, 1944 and the project of partition of her estate was judicially aforementioned. Before the partition and distribution of the estate of
approved as early as May 16, 1949, and presumably petitioners have the deceased, all the income thereof does belong commonly to all the
been holding their respective shares in their inheritance since those heirs, obviously, without them becoming thereby unregistered co-
dates admittedly under the administration or management of the head partners, but it does not necessarily follow that such status as co-owners
of the family, the widower and father Lorenzo T. Oña, the assessment in continues until the inheritance is actually and physically distributed
question refers to the later years 1955 and 1956. We believe this point among the heirs, for it is easily conceivable that after knowing their
to be important because, apparently, at the start, or in the years 1944 respective shares in the partition, they might decide to continue holding
to 1954, the respondent Commissioner of Internal Revenue did treat said shares under the common management of the administrator or
petitioners as co-owners, not liable to corporate tax, and it was only executor or of anyone chosen by them and engage in business on that
from 1955 that he considered them as having formed an unregistered basis. Withal, if this were to be allowed, it would be the easiest thing for
partnership. At least, there is nothing in the record indicating that an heirs in any inheritance to circumvent and render meaningless Sections
earlier assessment had already been made. Such being the case, and We 24 and 84(b) of the National Internal Revenue Code.
see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co- It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
partners, for the purposes of the impugned assessment, cannot be among the reasons for holding the appellants therein to be unregistered
upheld. Truth to tell, petitioners should find comfort in the fact that they co-partners for tax purposes, that their common fund "was not
were not similarly assessed earlier by the Bureau of Internal Revenue. something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to
The Tax Court found that instead of actually distributing the estate of argue therefrom, as petitioners are doing here, that ergo, in all instances
the deceased among themselves pursuant to the project of partition where an inheritance is not actually divided, there can be no
approved in 1949, "the properties remained under the management of unregistered co-partnership. As already indicated, for tax purposes, the
Lorenzo T. Oña who used said properties in business by leasing or selling co-ownership of inherited properties is automatically converted into an
them and investing the income derived therefrom and the proceed from unregistered partnership the moment the said common properties
the sales thereof in real properties and securities," as a result of which and/or the incomes derived therefrom are used as a common fund with
said properties and investments steadily increased yearly from intent to produce profits for the heirs in proportion to their respective
P87,860.00 in "land account" and P17,590.00 in "building account" in shares in the inheritance as determined in a project partition either duly
1949 to P175,028.68 in "investment account," P135.714.68 in "land executed in an extrajudicial settlement or approved by the court in the
account" and P169,262.52 in "building account" in 1956. And all these corresponding testate or intestate proceeding. The reason for this is
became possible because, admittedly, petitioners never actually simple. From the moment of such partition, the heirs are entitled
received any share of the income or profits from Lorenzo T. Oña and already to their respective definite shares of the estate and the incomes
instead, they allowed him to continue using said shares as part of the thereof, for each of them to manage and dispose of as exclusively his
common fund for their ventures, even as they paid the corresponding own without the intervention of the other heirs, and, accordingly he
income taxes on the basis of their respective shares of the profits of their becomes liable individually for all taxes in connection therewith. If after
common business as reported by the said Lorenzo T. Oña. such partition, he allows his share to be held in common with his co-
heirs under a single management to be used with the intent of making
It is thus incontrovertible that petitioners did not, contrary to their profit thereby in proportion to his share, there can be no doubt that,
contention, merely limit themselves to holding the properties inherited even if no document or instrument were executed for the purpose, for
by them. Indeed, it is admitted that during the material years herein tax purposes, at least, an unregistered partnership is formed. This is
involved, some of the said properties were sold at considerable profit, exactly what happened to petitioners in this case.
and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in
the purchase and sale of corporate securities. It is likewise admitted that In this connection, petitioners' reliance on Article 1769, paragraph (3),
all the profits from these ventures were divided among petitioners of the Civil Code, providing that: "The sharing of gross returns does not
of itself establish a partnership, whether or not the persons sharing For purposes of the tax on corporations, our National Internal Revenue
them have a joint or common right or interest in any property from Code includes these partnerships — with the exception only of duly
which the returns are derived," and, for that matter, on any other registered general copartnerships — within the purview of the term
provision of said code on partnerships is unavailing. "corporation." It is, therefore, clear to our mind that petitioners herein
In Evangelista, supra, this Court clearly differentiated the concept of constitute a partnership, insofar as said Code is concerned, and are
partnerships under the Civil Code from that of unregistered partnerships subject to the income tax for corporations.
which are considered as "corporations" under Sections 24 and 84(b) of
the National Internal Revenue Code. Mr. Justice Roberto Concepcion, We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
now Chief Justice, elucidated on this point thus: Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968,
24 SCRA 198, wherein the Court ruled against a theory of co-ownership
To begin with, the tax in question is one imposed upon "corporations", pursued by appellants therein.
which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the As regards the second question raised by petitioners about the
entities subject to the tax on "corporations", said Code must allude, segregation, for the purposes of the corporate taxes in question, of their
therefore, to organizations which are not necessarily "partnerships", inherited properties from those acquired by them subsequently, We
in the technical sense of the term. Thus, for instance, section 24 of consider as justified the following ratiocination of the Tax Court in
said Code exempts from the aforementioned tax "duly registered denying their motion for reconsideration:
general partnerships," which constitute precisely one of the most
typical forms of partnerships in this jurisdiction. Likewise, as defined In connection with the second ground, it is alleged that, if there was
in section 84(b) of said Code, "the term corporation includes an unregistered partnership, the holding should be limited to the
partnerships, no matter how created or organized." This qualifying business engaged in apart from the properties inherited by
expression clearly indicates that a joint venture need not be petitioners. In other words, the taxable income of the partnership
undertaken in any of the standard forms, or in confirmity with the should be limited to the income derived from the acquisition and
usual requirements of the law on partnerships, in order that one could sale of real properties and corporate securities and should not
be deemed constituted for purposes of the tax on corporation. Again, include the income derived from the inherited properties. It is
pursuant to said section 84(b),the term "corporation" includes, among admitted that the inherited properties and the income derived
others, "joint accounts,(cuentas en participacion)" and "associations", therefrom were used in the business of buying and selling other real
none of which has a legal personality of its own, independent of that properties and corporate securities. Accordingly, the partnership
of its members. Accordingly, the lawmaker could not have regarded income must include not only the income derived from the purchase
that personality as a condition essential to the existence of the and sale of other properties but also the income of the inherited
partnerships therein referred to. In fact, as above stated, "duly properties.
registered general co-partnerships" — which are possessed of the
aforementioned personality — have been expressly excluded by law Besides, as already observed earlier, the income derived from inherited
(sections 24 and 84[b]) from the connotation of the term properties may be considered as individual income of the respective
"corporation." .... heirs only so long as the inheritance or estate is not distributed or, at
least, partitioned, but the moment their respective known shares are
xxx xxx xxx used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be
Similarly, the American Law considered as the part of the taxable income of an unregistered
partnership. This, We hold, is the clear intent of the law.
... provides its own concept of a partnership. Under the term
"partnership" it includes not only a partnership as known in Likewise, the third question of petitioners appears to have been
common law but, as well, a syndicate, group, pool, joint venture, adequately resolved by the Tax Court in the aforementioned resolution
or other unincorporated organization which carries on any denying petitioners' motion for reconsideration of the decision of said
business, financial operation, or venture, and which is not, within court. Pertinently, the court ruled this wise:
the meaning of the Code, a trust, estate, or a corporation. ... .
(7A Merten's Law of Federal Income Taxation, p. 789; emphasis In support of the third ground, counsel for petitioners alleges:
ours.)
Even if we were to yield to the decision of this Honorable Court
The term "partnership" includes a syndicate, group, pool, joint that the herein petitioners have formed an unregistered
venture or other unincorporated organization, through or by partnership and, therefore, have to be taxed as such, it might be
means of which any business, financial operation, or venture is recalled that the petitioners in their individual income tax
carried on. ... . (8 Merten's Law of Federal Income Taxation, p. returns reported their shares of the profits of the unregistered
562 Note 63; emphasis ours.) partnership. We think it only fair and equitable that the various
amounts paid by the individual petitioners as income tax on their
respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this
Honorable Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion for The facts of the case are as follows:
Reconsideration, Oct. 28, 1961.)
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
In other words, it is the position of petitioners that the taxable Edelyna and Edison, all surnamed Lim (petitioners), represented by
income of the partnership must be reduced by the amounts of Elenito Lim (Elenito). They filed a Complaint[4] for Partition, Accounting
income tax paid by each petitioner on his share of partnership and Damages against respondent Juliet Villa Lim (respondent), widow of
profits. This is not correct; rather, it should be the other way around. the late Elfledo Lim (Elfledo), who was the eldest son of Jose and
Cresencia.
The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed Petitioners alleged that Jose was the liaison officer of Interwood Sawmill
against the partnership. Consequently, each of the petitioners in his in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his
individual capacity overpaid his income tax for the years in question, friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a
but the income tax due from the partnership has been correctly partnership to engage in the trucking business. Initially, with a
assessed. Since the individual income tax liabilities of petitioners are contribution of P50,000.00 each, they purchased a truck to be used in
not in issue in this proceeding, it is not proper for the Court to pass the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15,
upon the same.
1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in
Petitioners insist that it was error for the Tax Court to so rule that the partnership profits and income that formed part of the estate of Jose
whatever excess they might have paid as individual income tax cannot were held in trust by Elfledo, with petitioners' authority for Elfledo to
be credited as part payment of the taxes herein in question. It is argued use, purchase or acquire properties using said funds.
that to sanction the view of the Tax Court is to oblige petitioners to pay
Petitioners also alleged that, at that time, Elfledo was a fresh commerce
double income tax on the same income, and, worse, considering the
graduate serving as his fathers driver in the trucking business. He was
time that has lapsed since they paid their individual income taxes, they never a partner or an investor in the business and merely supervised the
may already be barred by prescription from recovering their purchase of additional trucks using the income from the trucking
overpayments in a separate action. We do not agree. As We see it, the business of the partners. By the time the partnership ceased, it had nine
case of petitioners as regards the point under discussion is simply that trucks, which were all registered in Elfledo's name. Petitioners
of a taxpayer who has paid the wrong tax, assuming that the failure to asseverated that it was also through Elfledos management of the
partnership that he was able to purchase numerous real properties by
pay the corporate taxes in question was not deliberate. Of course, such
using the profits derived therefrom, all of which were registered in his
taxpayer has the right to be reimbursed what he has erroneously paid, name and that of respondent. In addition to the nine trucks, Elfledo also
but the law is very clear that the claim and action for such acquired five other motor vehicles.
reimbursement are subject to the bar of prescription. And since the
period for the recovery of the excess income taxes in the case of herein On May 18, 1995, Elfledo died, leaving respondent as his sole surviving
petitioners has already lapsed, it would not seem right to virtually heir. Petitioners claimed that respondent took over the administration
disregard prescription merely upon the ground that the reason for the of the aforementioned properties, which belonged to the estate of Jose,
without their consent and approval. Claiming that they are co-owners of
delay is precisely because the taxpayers failed to make the proper return
the properties, petitioners required respondent to submit an accounting
and payment of the corporate taxes legally due from them. In principle, of all income, profits and rentals received from the estate of Elfledo, and
it is but proper not to allow any relaxation of the tax laws in favor of to surrender the administration thereof. Respondent refused; thus, the
persons who are not exactly above suspicion in their conduct vis-a-vis filing of this case.
their tax obligation to the State.
Respondent traversed petitioners' allegations and claimed that Elfledo
was himself a partner of Norberto and Jimmy. Respondent also claimed
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax
that per testimony of Cresencia, sometime in 1980, Jose gave
Appeals appealed from is affirm with costs against petitioners.
Elfledo P50,000.00 as the latter's capital in an informal partnership with
Jimmy and Norberto. When Elfledo and respondent got married in 1981,
the partnership only had one truck; but through the efforts of Elfledo,
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, the business flourished. Other than this trucking business, Elfledo,
- versus - together with respondent, engaged in other business ventures. Thus,
JULIET VILLA LIM, Respondent. they were able to buy real properties and to put up their own car
assembly and repair business. When Norberto was ambushed and killed
GR NO. 172690 March 03, 2010 on July 16, 1993, the trucking business started to falter. When Elfledo
died on May 18, 1995 due to a heart attack, respondent talked to Jimmy
and to the heirs of Norberto, as she could no longer run the business.
Jimmy suggested that three out of the nine trucks be given to him as his
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 share, while the other three trucks be given to the heirs of Norberto.
of the Rules of Civil Procedure, assailing the Court of Appeals (CA) However, Norberto's wife, Paquita Uy, was not interested in the
Decision[2] dated June 29, 2005, which reversed and set aside the vehicles. Thus, she sold the same to respondent, who paid for them in
decision[3] of the Regional Trial Court (RTC) of LucenaCity, dated April installments.
12, 2004.
Respondent also alleged that when Jose died in 1981, he left no known to analyze again and weigh the evidence introduced in and considered
assets, and the partnership with Jimmy and Norberto ceased upon his by the tribunals below.[10] When supported by substantial evidence, the
demise. Respondent also stressed that Jose left no properties that findings of fact of the CA are conclusive and binding on the parties and
Elfledo could have held in trust. Respondent maintained that all the are not reviewable by this Court, unless the case falls under any of the
properties involved in this case were purchased and acquired through following recognized exceptions:
her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent (1) When the conclusion is a finding grounded entirely on
submitted that these are conjugal partnership properties; and thus, she speculation, surmises and conjectures;
had the right to refuse to render an accounting for the income or profits
of their own business. (2) When the inference made is manifestly mistaken, absurd or
impossible;
Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus: (3) Where there is a grave abuse of discretion;
WHEREFORE, premises considered, judgment is hereby
rendered: (4) When the judgment is based on a misapprehension of facts;

1) Ordering the partition of the above-mentioned properties (5) When the findings of fact are conflicting;
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and (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
2) Ordering the defendant to submit an accounting of all both appellant and appellee;
incomes, profits and rentals received by her from said
properties. (7) When the findings are contrary to those of the trial court;

SO ORDERED. (8) When the findings of fact are conclusions without citation of
specific evidence on which they are based;
Aggrieved, respondent appealed to the CA.
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
On June 29, 2005, the CA reversed and set aside the RTC's decision, respondents; and
dismissing petitioners' complaint for lack of merit. Undaunted,
petitioners filed their Motion for Reconsideration,[5] which the CA, (10) When the findings of fact of the Court of Appeals are premised
however, denied in its Resolution[6] dated May 8, 2006. on the supposed absence of evidence and contradicted by the
evidence on record.[11]

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


We note, however, that the findings of fact of the RTC are contrary to
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED those of the CA. Thus, our review of such findings is warranted.
BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS
BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON
THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE On the merits of the case, we find that the instant Petition is bereft of
PARTNERSHIP?[7] merit.

A partnership exists when two or more persons agree to place their


In essence, petitioners argue that according to the testimony of Jimmy, money, effects, labor, and skill in lawful commerce or business, with the
the sole surviving partner, Elfledo was not a partner; and that he and understanding that there shall be a proportionate sharing of the profits
Norberto entered into a partnership with Jose. Thus, the CA erred in not and losses among them. A contract of partnership is defined by the Civil
giving that testimony greater weight than that of Cresencia, who was Code as one where two or more persons bind themselves to contribute
merely the spouse of Jose and not a party to the partnership.[8] money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.[12]
Respondent counters that the issue raised by petitioners is not proper
in a petition for review on certiorari under Rule 45 of the Rules of Civil Undoubtedly, the best evidence would have been the contract of
Procedure, as it would entail the review, evaluation, calibration, and re- partnership or the articles of partnership. Unfortunately, there is none
weighing of the factual findings of the CA. Moreover, respondent in this case, because the alleged partnership was never formally
invokes the rationale of the CA decision that, in light of the admissions organized. Nonetheless, we are asked to determine who between Jose
of Cresencia and Edison and the testimony of respondent, the testimony and Elfledo was the partner in the trucking business.
of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.[9] A careful review of the records persuades us to affirm the CA
We resolve first the procedural matter regarding the propriety of the decision. The evidence presented by petitioners falls short of the
instant Petition. quantum of proof required to establish that: (1) Jose was the partner
Verily, the evaluation and calibration of the evidence necessarily and not Elfledo; and (2) all the properties acquired by Elfledo and
involves consideration of factual issues an exercise that is not respondent form part of the estate of Jose, having been derived from
appropriate for a petition for review on certiorariunder Rule 45. This rule the alleged partnership.
provides that the parties may raise only questions of law, because the Petitioners heavily rely on Jimmy's testimony. But that testimony is just
Supreme Court is not a trier of facts. Generally, we are not duty-bound one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis--vis respondent's Jimmy and Norberto: 1) Cresencia testified that Jose gave
contrary evidence. In civil cases, the party having the burden of proof Elfledo P50,000.00, as share in the partnership, on a date that coincided
must establish his case by a preponderance of evidence. with the payment of the initial capital in the partnership; [15] (2) Elfledo
"Preponderance of evidence" is the weight, credit, and value of the ran the affairs of the partnership, wielding absolute control, power and
aggregate evidence on either side and is usually considered synonymous authority, without any intervention or opposition whatsoever from any
with the term "greater weight of the evidence" or "greater weight of the of petitioners herein;[16] (3) all of the properties, particularly the nine
credible evidence." "Preponderance of evidence" is a phrase that, in the trucks of the partnership, were registered in the name of Elfledo; (4)
last analysis, means probability of the truth. It is evidence that is more Jimmy testified that Elfledo did not receive wages or salaries from the
convincing to the court as worthy of belief than that which is offered in partnership, indicating that what he actually received were shares of the
opposition thereto.[13] Rule 133, Section 1 of the Rules of Court provides profits of the business;[17] and (5) none of the petitioners, as heirs of
the guidelines in determining preponderance of evidence, thus: Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a
SECTION I. Preponderance of evidence, how determined. In civil demand for periodic accounting is evidence of a partnership.
cases, the party having burden of proof must establish his case by a Furthermore, petitioners failed to adduce any evidence to show that the
preponderance of evidence. In determining where the real and personal properties acquired and registered in the names of
preponderance or superior weight of evidence on the issues Elfledo and respondent formed part of the estate of Jose, having been
involved lies, the court may consider all the facts and circumstances derived from Jose's alleged partnership with Jimmy and Norberto. They
of the case, the witnesses' manner of testifying, their intelligence, failed to refute respondent's claim that Elfledo and respondent engaged
their means and opportunity of knowing the facts to which they are in other businesses. Edison even admitted that Elfledo also sold
testifying, the nature of the facts to which they testify, the Interwood lumber as a sideline.[19] Petitioners could not offer any
probability or improbability of their testimony, their interest or want credible evidence other than their bare assertions. Thus, we apply the
of interest, and also their personal credibility so far as the same may basic rule of evidence that between documentary and oral evidence, the
legitimately appear upon the trial. The court may also consider the former carries more weight.[20]
number of witnesses, though the preponderance is not necessarily
with the greater number. Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of help but one of the partners in the trucking business, active
Appeals[14] is enlightening. Therein, we cited Article 1769 of the Civil and visible in the running of its affairs from day one until this
Code, which provides: ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its
Art. 1769. In determining whether a partnership exists, these business, the fact that its properties were placed in his name,
rules shall apply: and that he was not paid salary or other compensation by the
partners, are indicative of the fact that Elfledo was a partner
(1) Except as provided by Article 1825, persons who are not and a controlling one at that. It is apparent that the other
partners as to each other are not partners as to third persons; partners only contributed in the initial capital but had no say
thereafter on how the business was ran.Evidently it was
(2) Co-ownership or co-possession does not of itself establish through Elfredos efforts and hard work that the partnership
a partnership, whether such co-owners or co-possessors do or was able to acquire more trucks and otherwise prosper. Even
do not share any profits made by the use of the property; the appellant participated in the affairs of the partnership by
acting as the bookkeeper sans salary.
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a It is notable too that Jose Lim died when the partnership was
joint or common right or interest in any property from which barely a year old, and the partnership and its business not only
the returns are derived; continued but also flourished. If it were true that it was Jose
Lim and not Elfledo who was the partner, then upon his
death the partnership should have been dissolved and its
(4) The receipt by a person of a share of the profits of a assets liquidated. On the contrary, these were not done but
business is a prima facie evidence that he is a partner in the instead its operation continued under the helm of Elfledo and
business, but no such inference shall be drawn if such profits without any participation from the heirs of Jose Lim.
were received in payment:
Whatever properties appellant and her husband had acquired,
(a) As a debt by installments or otherwise; this was through their own concerted efforts and hard
(b) As wages of an employee or rent to a landlord; work. Elfledo did not limit himself to the business of their
(c) As an annuity to a widow or representative of a partnership but engaged in other lines of businesses as well.
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business; In sum, we find no cogent reason to disturb the findings and the ruling
(e) As the consideration for the sale of a goodwill of of the CA as they are amply supported by the law and by the evidence
a business or other property by installments or on record.
otherwise.

WHEREFORE, the instant Petition is DENIED. The assailed Court of


Applying the legal provision to the facts of this case, the following Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
circumstances tend to prove that Elfledo was himself the partner of petitioners.
SO ORDERED.
had not been attached thereto. A reconsideration of this order having
been denied, Agad brought the matter to us for review by record on
appeal.

Articles 1771 and 1773 of said Code provide:

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


except where immovable property or real rights are
contributed thereto, in which case a public instrument shall
be necessary.

Art. 1773. A contract of partnership is void, whenever


immovable property is contributed thereto, if inventory of
said property is not made, signed by the parties; and attached
to the public instrument.
Article 1773
The issue before us hinges on whether or not "immovable property or
MAURICIO AGAD, plaintiff-appellant, real rights" have been contributed to the partnership under
vs. consideration. Mabato alleged and the lower court held that the answer
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants- should be in the affirmative, because "it is really inconceivable how a
appellees. partnership engaged in the fishpond business could exist without said
G.R. No. L-24193 June 28, 1968 fishpond property (being) contributed to the partnership." It should be
noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond
In this appeal, taken by plaintiff Mauricio Agad, from an order of business". Moreover, none of the partners contributed either a fishpond
dismissal of the Court of First Instance of Davao, we are called upon to or a real right to any fishpond. Their contributions were limited to the
determine the applicability of Article 1773 of our Civil Code to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
contract of partnership on which the complaint herein is based.
That the capital of the said partnership is Two Thousand
Alleging that he and defendant Severino Mabato are — pursuant to a (P2,000.00) Pesos Philippine Currency, of which One
public instrument dated August 29, 1952, copy of which is attached to Thousand (P1,000.00) pesos has been contributed by Severino
the complaint as Annex "A" — partners in a fishpond business, to the Mabato and One Thousand (P1,000.00) Pesos has been
capital of which Agad contributed P1,000, with the right to receive 50% contributed by Mauricio Agad.
of the profits; that from 1952 up to and including 1956, Mabato who
handled the partnership funds, had yearly rendered accounts of the
operations of the partnership; and that, despite repeated demands, xxx xxx xxx
Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad The operation of the fishpond mentioned in Annex "A" was the purpose
Company, filed on June 9, 1964, that judgment be rendered sentencing of the partnership. Neither said fishpond nor a real right thereto was
Mabato to pay him (Agad) the sum of P14,000, as his share in the profits contributed to the partnership or became part of the capital thereof,
of the partnership for the period from 1957 to 1963, in addition to even if a fishpond or a real right thereto could become part of its assets.
P1,000 as attorney's fees, and ordering the dissolution of the
partnership, as well as the winding up of its affairs by a receiver to be WHEREFORE, we find that said Article 1773 of the Civil Code is not in
appointed therefor. point and that, the order appealed from should be, as it is hereby set
aside and the case remanded to the lower court for further proceedings,
In his answer, Mabato admitted the formal allegations of the complaint with the costs of this instance against defendant-appellee, Severino
and denied the existence of said partnership, upon the ground that the Mabato. It is so ordered.
contract therefor had not been perfected, despite the execution of
Annex "A", because Agad had allegedly failed to give his P1,000
contribution to the partnership capital. Mabato prayed, therefore, that
the complaint be dismissed; that Annex "A" be declared void ab initio;
and that Agad be sentenced to pay actual, moral and exemplary ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
damages, as well as attorney's fees. EMETERIA BARING, petitioners,
vs.
Subsequently, Mabato filed a motion to dismiss, upon the ground that COURT OF APPEALS and MANUEL TORRES, respondents.
the complaint states no cause of action and that the lower court had no [G.R. No. 134559. December 9, 1999]
jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due Courts may not extricate parties from the necessary consequences of
hearing, the court issued the order appealed from, granting the motion their acts. That the terms of a contract turn out to be financially
to dismiss the complaint for failure to state a cause of action. This disadvantageous to them will not relieve them of their obligations
conclusion was predicated upon the theory that the contract of therein.The lack of an inventory of real property will not ipso
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil facto release the contracting partners from their respective
Code, because an inventory of the fishpond referred in said instrument obligations to each other arising from acts executed in accordance with
their agreement.
The Case stipulated in the contract. Disagreeing with the trial courts
pronouncement that losses as well as profits in a joint venture should
The Petition for Review on Certiorari before us assails the March be distributed equally,[7] the CA invoked Article 1797 of the Civil Code
5, 1998 Decision[1] Second Division of the Court of Appeals[2] (CA) in CA- which provides:
GR CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the
Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which Article 1797 - The losses and profits shall be distributed in conformity
disposed as follows: with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same
proportion.
WHEREFORE, for all the foregoing considerations, the Court, finding for
the defendant and against the plaintiffs, orders the dismissal of the
plaintiffs complaint. The counterclaims of the defendant are likewise The CA elucidated further:
ordered dismissed. No pronouncement as to costs.[3]
In the absence of stipulation, the share of each partner in the profits and
The Facts 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
Sisters Antonia Torres and Emeteria Baring, herein petitioners, industrial partner shall receive such share as may be just and equitable
entered into a "joint venture agreement" with Respondent Manuel under the circumstances. If besides his services he has contributed
Torres for the development of a parcel of land into a capital, he shall also receive a share in the profits in proportion to his
subdivision. Pursuant to the contract, they executed a Deed of Sale capital.
covering the said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the development of the The Issue
subdivision.[4]All three of them also agreed to share the proceeds from
the sale of the subdivided lots. Petitioners impute to the Court of Appeals the following error:

The project did not push through, and the land was subsequently
x x x [The] Court of Appeals erred in concluding that the transaction x x
foreclosed by the bank.
x between the petitioners and respondent was that of a joint
According to petitioners, the project failed because of venture/partnership, ignoring outright the provision of Article 1769, and
respondents lack of funds or means and skills. They add that respondent other related provisions of the Civil Code of the Philippines.[8]
used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company. The Courts Ruling
On the other hand, respondent alleged that he used the loan to The Petition is bereft of merit.
implement the Agreement. With the said amount, he was able to effect
the survey and the subdivision of the lots. He secured the Lapu Lapu City Main Issue: Existence of a Partnership
Councils approval of the subdivision project which he advertised in a
Petitioners deny having formed a partnership with
local newspaper. He also caused the construction of roads, curbs and
respondent. They contend that the Joint Venture Agreement and the
gutters. Likewise, he entered into a contract with an engineering firm
earlier Deed of Sale, both of which were the bases of the appellate
for the building of sixty low-cost housing units and actually even set up
courts finding of a partnership, were void.
a model house on one of the subdivision lots.He did all of these for a
total expense of P85,000. In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement the
Respondent claimed that the subdivision project failed, however,
project. Because the agreement entitled them to receive 60 percent of
because petitioners and their relatives had separately caused the
the proceeds from the sale of the subdivision lots, they pray that
annotations of adverse claims on the title to the land, which eventually
respondent pay them damages equivalent to 60 percent of the value of
scared away prospective buyers. Despite his requests, petitioners
the property.[9]
refused to cause the clearing of the claims, thereby forcing him to give
up on the project.[5] The pertinent portions of the Joint Venture Agreement read as
follows:
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter, they
filed the present civil case which, upon respondent's motion, was later KNOW ALL MEN BY THESE PRESENTS:
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further This AGREEMENT, is made and entered into at Cebu City, Philippines,
proceedings. Thereafter, the RTC issued its assailed Decision, which, as this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
earlier stated, was affirmed by the CA. x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY:
Hence, this Petition.[6]

Ruling of the Court of Appeals W I T N E S S E T H:

In affirming the trial court, the Court of Appeals held that


That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,
petitioners and respondent had formed a partnership for the
this property located at Lapu-Lapu City, Island of Mactan, under Lot No.
development of the subdivision. Thus, they must bear the loss suffered
by the partnership in the same proportion as their share in the profits
1368 covering TCT No. T-0184 with a total area of 17,009 square meters, A reading of the terms embodied in the Agreement indubitably
to be sub-divided by the FIRST PARTY; shows the existence of a partnership pursuant to Article 1767 of the Civil
Code, which provides:
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon ART. 1767. By the contract of partnership two or more persons bind
the execution of this contract for the property entrusted by the SECOND themselves to contribute money, property, or industry to a common
PARTY, for sub-division projects and development purposes; fund, with the intention of dividing the profits among themselves.

NOW THEREFORE, for and in consideration of the above covenants and Under the above-quoted Agreement, petitioners would
promises herein contained the respective parties hereto do hereby contribute property to the partnership in the form of land which was to
stipulate and agree as follows: be developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses and
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x other costs. Furthermore, the income from the said project would be
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE divided according to the stipulated percentage. Clearly, the contract
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for manifested the intention of the parties to form a partnership.[11]
1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine It should be stressed that the parties implemented the
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not contract. Thus, petitioners transferred the title to the land to facilitate
actually receive the payment. its use in the name of the respondent. On the other hand, respondent
caused the subject land to be mortgaged, the proceeds of which were
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, used for the survey and the subdivision of the land. As noted earlier, he
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, developed the roads, the curbs and the gutters of the subdivision and
Philippine currency, for their personal obligations and this particular entered into a contract to construct low-cost housing units on the
amount will serve as an advance payment from the FIRST PARTY for the property.
property mentioned to be sub-divided and to be deducted from the
sales. Respondents actions clearly belie petitioners contention that he
made no contribution to the partnership.Under Article 1767 of the Civil
Code, a partner may contribute not only money or property, but also
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY,
industry.
the interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub- Petitioners Bound by Terms of Contract
division project is terminated and ready for sale to any interested
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Under Article 1315 of the Civil Code, contracts bind the parties not
Philippine currency, will be deducted accordingly. only to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all ART. 1315. Contracts are perfected by mere consent, and from that
the expenses will not be deducted from the sales after the development moment the parties are bound not only to the fulfillment of what has
of the sub-division project. been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and
law.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40%
for the FIRST PARTY, and additional profits or whatever income deriving It is undisputed that petitioners are educated and are thus
from the sales will be divided equally according to the x x x percentage presumed to have understood the terms of the contract they voluntarily
[agreed upon] by both parties. signed. If it was not in consonance with their expectations, they should
have objected to it and insisted on the provisions they wanted.
SIXTH: That the intended sub-division project of the property involved Courts are not authorized to extricate parties from the necessary
will start the work and all improvements upon the adjacent lots will be consequences of their acts, and the fact that the contractual stipulations
negotiated in both parties['] favor and all sales shall [be] decided by both may turn out to be financially disadvantageous will not relieve parties
parties. thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding
SEVENTH: That the SECOND PARTIES, should be given an option to get of its terms.
back the property mentioned provided the amount of TWENTY
Alleged Nullity of the Partnership Agreement
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all Petitioners argue that the Joint Venture Agreement is void under
necessary improvements spent by the FIRST PARTY, and the FIRST PARTY Article 1773 of the Civil Code, which provides:
will be given a grace period to turnover the property mentioned above.
ART. 1773. A contract of partnership is void, whenever immovable
That this AGREEMENT shall be binding and obligatory to the parties who property is contributed thereto, if an inventory of said property is not
executed same freely and voluntarily for the uses and purposes therein made, signed by the parties, and attached to the public instrument.
stated.[10]
They contend that since the parties did not make, sign or attach
to the public instrument an inventory of the real property contributed,
the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect WHEREFORE, the Petition is hereby DENIED and the challenged
third persons. Thus, the eminent Arturo M. Tolentino states that under Decision AFFIRMED. Costs against petitioners.
the aforecited provision which is a complement of Article 1771,[12] the
execution of a public instrument would be useless if there is no SO ORDERED.
inventory of the property contributed, because without its designation
and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief
[in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such
inventory is made. The case at bar does not involve third parties who
may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract


as basis for their claim that respondent should pay them 60 percent of
the value of the property.[13] They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in regard
to a contract and courts will not tolerate, much less approve, such
practice.

In short, the alleged nullity of the partnership will not prevent


courts from considering the Joint Venture Agreement an ordinary
contract from which the parties rights and obligations to each other may
be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract


AURELIO K. LITONJUA, JR., Petitioner,
Petitioners also contend that the Joint Venture Agreement is void
under Article 1422[14] of the Civil Code, because it is the direct result of - versus
an earlier illegal contract, which was for the sale of the land without valid
consideration.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME,
This argument is puerile. The Joint Venture Agreement clearly INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA
states that the consideration for the sale was the expectation of profits SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,
from the subdivision project. Its first stipulation states that petitioners LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA
did not actually receive payment for the parcel of land sold to
THEATER, INC., E & L REALTY, (formerly E & L INTL SHIPPING CORP.), FNP
respondent. Consideration, more properly denominated as cause, can
CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
take different forms, such as the prestation or promise of a thing or
service by another.[15] GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., L DEV. CORP,
LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC.,
In this case, the cause of the contract of sale consisted not in the MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT
stated peso value of the land, but in the expectation of profits from the
THEATER INC. (formerly General Theatrical & Film Exchange, INC.),
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 AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES,
partnership as [petitioners] participation therein. x x x There was INC., (Formerly VF PHILIPPINES),
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would] Respondents.
get sixty percent of the net profits.

Liability of the Parties

Claiming that respondent was solely responsible for the failure of G.R. NOS. 166299-300 December 13, 2005
the subdivision project, petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the value of the property, In this petition for review under Rule 45 of the Rules of Court, petitioner
which was their share in the profits under the Joint Venture Agreement. Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
Court of Appeals (CA) dated March 31, 2004[1] in consolidated cases C.A.
We are not persuaded. True, the Court of Appeals held that G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
petitioners acts were not the cause of the failure of the project.[16] But it December 07, 2004,[2] denying petitioners motion for reconsideration.
also ruled that neither was respondent responsible therefor.[17] In
imputing the blame solely to him, petitioners failed to give any reason The recourse is cast against the following factual backdrop:
why we should disregard the factual findings of the appellate court
relieving him of fault. Verily, factual issues cannot be resolved in a Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent
petition for review under Rule 45, as in this case. Petitioners have not Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute
alleged, not to say shown, that their Petition constitutes one of the between them started when, on December 4, 2002, in the Regional Trial
exceptions to this doctrine.[18] Accordingly, we find no reversible error Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo
in the CA's ruling that petitioners are not entitled to damages. and herein respondent Robert T. Yang (Yang) and several corporations
for specific performance and accounting. In his complaint,[3]docketed as
Civil Case No. 69235 and eventually raffled to Branch 68 of the For ease of reference, Annex A-1 of the complaint, which petitioner
court,[4] Aurelio alleged that, since June 1973, he and Eduardo are into asserts to have been meant for him by his brother Eduardo, pertinently
a joint venture/partnership arrangement in the Odeon Theater business reads:
which had expanded thru investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II 10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioners and You have now your own life to live after having been married.
Eduardos partner in their Odeon Theater investment.[5] The same .
complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered I am trying my best to mold you the way I work so you can
into a joint venture/partnership for the continuation of their follow the pattern . You will be the only one left with the
family business and common family funds . company, among us brothers and I will ask you to stay as I
want you to run this office every time I am away. I want you
3.01.1 This joint venture/[partnership] agreement was to run it the way I am trying to run it because I will be all alone
contained in a memorandum addressed by Eduardo to his and I will depend entirely to you (sic). My sons will not be
siblings, parents and other relatives. Copy of this ready to help me yet until about maybe 15/20 years from now.
memorandum is attached hereto and made an integral part Whatever is left in the corporation, I will make sure that you
as Annex A and the portion referring to [Aurelio] submarked get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
as Annex A-1. equity, whichever is greater. We two will gamble the whole
thing of what I have and what you are entitled to. . It will be
3.02 It was then agreed upon between [Aurelio] and Eduardo you and me alone on this. If ever I pass away, I want you to
that in consideration of [Aurelios] retaining his share in the take care of all of this. You keep my share for my two sons are
remaining family businesses (mostly, movie theaters, shipping ready take over but give them the chance to run the company
and land development) and contributing his industry to the which I have built.
continued operation of these businesses, [Aurelio] will be
given P1 Million or 10% equity in all these businesses and xxx xxx xxx
those to be subsequently acquired by them whichever is
greater. . . . Because you will need a place to stay, I will arrange to give you
first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in
4.01 from 22 June 1973 to about August 2001, or [in] a span cash or asset, like Lt. Artiaga so you can live better there. The
of 28 years, [Aurelio] and Eduardo had accumulated in their rest I will give you in form of stocks which you can keep. This
joint venture/partnership various assets including but not stock I assure you is good and saleable. I will also gladly give
limited to the corporate defendants and [their] respective you the share of Wack-Wack and Valley Golf because you have
assets. been good. The rest will be in stocks from all the corporations
which I repeat, ten percent (10%) equity. [6]
4.02 In addition . . . the joint venture/partnership had also
acquired [various other assets], but Eduardo caused to be
registered in the names of other parties. On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory
xxx xxx xxx Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner
4.04 The substantial assets of most of the corporate and Eduardo as having entered into a contract of partnership. As
defendants consist of real properties . A list of some of these affirmative defenses, Eduardo, et al., apart from raising a jurisdictional
real properties is attached hereto and made an integral part matter, alleged that the complaint states no cause of action, since no
as Annex B. cause of action may be derived from the actionable document, i.e.,
xxx xxx xxx Annex A-1, being void under the terms of Article 1767 in relation to
Article 1773 of the Civil Code, infra. It is further alleged that whatever
5.02 Sometime in 1992, the relations between [Aurelio] and undertaking Eduardo agreed to do, if any, under Annex A-
Eduardo became sour so that [Aurelio] requested for an 1,are unenforceable under the provisions of the Statute of Frauds.[7]
accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete For his part, Yang - who was served with summons long after the other
accounting and liquidation were not heeded]. defendants submitted their answer moved to dismiss on the
ground, inter alia, that, as to him, petitioner has no cause of action and
xxx xxx xxx the complaint does not state any.[8]Petitioner opposed this motion to
dismiss.
5.05 What is worse, [Aurelio] has reasonable cause to believe
that Eduardo and/or the corporate defendants as well as On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
Bobby [Yang], are transferring . . . various real properties of Affirmative Defenses.[9] To this motion, petitioner interposed
the corporations belonging to the joint venture/partnership to an Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10]
other parties in fraud of [Aurelio]. In consequence, [Aurelio] is
therefore causing at this time the annotation on the titles of Acting on the separate motions immediately adverted to
these real properties a notice of lis pendens . (Emphasis in the above, the trial court, in an Omnibus Order dated March 5, 2003, denied
original; underscoring and words in bracket added.) the affirmative defenses and, except for Yang, set the case for pre-trial
on April 10, 2003.[11]
In another Omnibus Order of April 2, 2003, the same court B. When it ruled that the actionable document did not create
denied the motion of Eduardo, et al., for reconsideration[12] and Yangs a demandable right in favor of petitioner.
motion to dismiss. The following then transpired insofar as Yang is
concerned: C. When it ruled that the complaint stated no cause of action
against [respondent] Robert Yang; and
1. On April 14, 2003, Yang filed his ANSWER, but expressly
reserved the right to seek reconsideration of the April 2, 2003 D. When it ruled that petitioner has changed his theory on
Omnibus Order and to pursue his failed motion to dismiss[13] to its appeal when all that Petitioner had done was to support his
full resolution. pleaded cause of action by another legal
perspective/argument.
2. On April 24, 2003, he moved for reconsideration of the
Omnibus Order of April 2, 2003, but his motion was denied in an
Order of July 4, 2003.[14] The petition lacks merit.

3. On August 26, 2003, Yang went to the Court of Appeals Petitioners demand, as defined in the petitory portion of his
(CA) in a petition for certiorari under Rule 65 of the Rules of Court, complaint in the trial court, is for delivery or payment to him, as
docketed as CA-G.R. SP No. 78774,[15] to nullify the separate orders Eduardos and Yangs partner, of his partnership/joint venture share,
of the trial court, the first denying his motion to dismiss the basic after an accounting has been duly conducted of what he deems to be
complaint and, the second, denying his motion for reconsideration. partnership/joint venture property.[19]

A partnership exists when two or more persons agree to place


Earlier, Eduardo and the corporate defendants, on the their money, effects, labor, and skill in lawful commerce or business,
contention that grave abuse of discretion and injudicious haste with the understanding that there shall be a proportionate sharing of
attended the issuance of the trial courts aforementioned Omnibus the profits and losses between them.[20] A contract of partnership is
Orders dated March 5, and April 2, 2003, sought relief from the defined by the Civil Code as one where two or more persons bound
CA via similar recourse. Their petition for certiorari was docketed as CA themselves to contribute money, property, or industry to a common
G.R. SP No. 76987. fund with the intention of dividing the profits among themselves.[21] A
joint venture, on the other hand, is hardly distinguishable from, and
Per its resolution dated October 2, 2003,[16] the CAs may be likened to, a partnership since their elements are similar, i.e.,
14th Division ordered the consolidation of CA G.R. SP No. 78774 with CA community of interests in the business and sharing of profits and
G.R. SP No. 76987. losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership.[22]
Following the submission by the parties of their respective
Memoranda of Authorities, the appellate court came out with the herein The underlying issue that necessarily comes to mind in this
assailed Decision dated March 31, 2004, finding for Eduardo and Yang, proceedings is whether or not petitioner and respondent Eduardo are
as lead petitioners therein, disposing as follows: partners in the theatre, shipping and realty business, as one claims but
which the other denies. And the issue bearing on the first assigned error
WHEREFORE, judgment is hereby rendered granting relates to the question of what legal provision is applicable under the
the issuance of the writ of certiorari in these consolidated premises, petitioner seeking, as it were, to enforce the actionable
cases annulling, reversing and setting aside the assailed orders document - Annex A-1 - which he depicts in his complaint to be the
of the court a quo dated March 5, 2003, April 2, 2003 and July contract of partnership/joint venture between himself and Eduardo.
4, 2003 and the complaint filed by private respondent [now Clearly, then, a look at the legal provisions determinative of the
petitioner Aurelio] against all the petitioners [now herein existence, or defining the formal requisites, of a partnership is indicated.
respondents Eduardo, et al.] with the court a quo is Foremost of these are the following provisions of the Civil Code:
hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket Art. 1771. A partnership may be constituted in any form,
added.) except where immovable property or real rights are
contributed thereto, in which case a public instrument shall
Explaining its case disposition, the appellate court stated, inter alia, that be necessary.
the alleged partnership, as evidenced by the actionable documents,
Annex A and A-1attached to the complaint, and upon which Art. 1772. Every contract of partnership having a capital of
petitioner solely predicates his right/s allegedly violated by Eduardo, three thousand pesos or more, in money or property, shall
Yang and the corporate defendants a quo is void or legally inexistent. appear in a public instrument, which must be recorded in the
In time, petitioner moved for reconsideration but his motion Office of the Securities and Exchange Commission.
was denied by the CA in its equally assailed Resolution of December 7,
2004.[18] . Failure to comply with the requirement of the preceding
paragraph shall not affect the liability of the partnership and
Hence, petitioners present recourse, on the contention that the CA the members thereof to third persons.
erred:
Art. 1773. A contract of partnership is void, whenever
A. When it ruled that there was no partnership created by the immovable property is contributed thereto, if an inventory of
actionable document because this was not a public said property is not made, signed by the parties, and attached
instrument and immovable properties were contributed to to the public instrument.
the partnership.
Annex A-1, on its face, contains typewritten entries, save when immovable property or real rights are contributed
personal in tone, but is unsigned and undated. As an unsigned thereto or when the partnership has a capital of at least P3,000.00,
document, there can be no quibbling that Annex A-1 does not meet in which case a public instrument shall be necessary.[25] And if only
the public instrumentation requirements exacted under Article to stress what has repeatedly been articulated, an inventory to be
1771 of the Civil Code. Moreover, being unsigned and doubtless signed by the parties and attached to the public instrument is
referring to a partnership involving more than P3,000.00 in money also indispensable to the validity of the partnership whenever
or property, Annex A-1 cannot be presented for notarization, let immovable property is contributed to it.
alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And inasmuch Given the foregoing perspective, what the appellate court
as the inventory requirement under the succeeding Article 1773 wrote in its assailed Decision[26] about the probative value and legal
goes into the matter of validity when immovable property is effect of Annex A-1 commends itself for concurrence:
contributed to the partnership, the next logical point of inquiry turns
on the nature of petitioners contribution, if any, to the supposed Considering that the allegations in the complaint
partnership. showed that [petitioner] contributed immovable properties to
the alleged partnership, the Memorandum (Annex A of the
The CA, addressing the foregoing query, correctly stated that complaint) which purports to establish the said
petitioners contribution consisted of immovables and real rights. Wrote partnership/joint venture is NOT a public instrument and
that court: there was NO inventory of the immovable property duly
signed by the parties. As such, the said Memorandum is null
A further examination of the allegations in the and void for purposes of establishing the existence of a valid
complaint would show that [petitioners] contribution to the contract of partnership. Indeed, because of the failure to
so-called partnership/joint venture was his supposed share in comply with the essential formalities of a valid contract, the
the family business that is consisting of movie theaters, purported partnership/joint venture is legally inexistent and it
shipping and land development under paragraph 3.02 of the produces no effect whatsoever. Necessarily, a void or legally
complaint. In other words, his contribution as a partner in the inexistent contract cannot be the source of any contractual or
alleged partnership/joint venture consisted of immovable legal right. Accordingly, the allegations in the complaint,
properties and real rights. .[23] including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or
Significantly enough, petitioner matter-of-factly legal right which could be violated by the [individual
concurred with the appellate courts observation that, prescinding respondents] herein. As a consequence, [petitioners]
from what he himself alleged in his basic complaint, his contribution complaint does NOT state a valid cause of action because NOT
to the partnership consisted of his share in the Litonjua family all the essential elements of a cause of action are
businesses which owned variable immovable properties. Petitioners present. (Underscoring and words in bracket added.)
assertion in his motion for reconsideration[24] of the CAs decision,
that what was to be contributed to the business [of the partnership]
was [petitioners] industry and his share in the family [theatre and Likewise well-taken are the following complementary excerpts from
land development] business leaves no room for speculation as to the CAs equally assailed Resolution of December 7, 2004[27] denying
what petitioner contributed to the perceived partnership. petitioners motion for reconsideration:

Lest it be overlooked, the contract-validating inventory Further, We conclude that despite glaring defects in the allegations in
requirement under Article 1773 of the Civil Code applies as long real the complaint as well as the actionable document attached
property or real rights are initially brought into the partnership. In short, thereto (Rollo, p. 191), the [trial] court did not appreciate and
it is really of no moment which of the partners, or, in this case, who apply the legal provisions which were brought to its attention
between petitioner and his brother Eduardo, contributed immovables. by herein [respondents] in the their pleadings. In our
In context, the more important consideration is that real property was evaluation of [petitioners] complaint, the latter alleged inter
contributed, in which case an inventory of the contributed property duly alia to have contributed immovable properties to the alleged
signed by the parties should be attached to the public instrument, else partnership but the actionable document is not a public
there is legally no partnership to speak of. document and there was no inventory of immovable
properties signed by the parties. Both the allegations in the
Petitioner, in an obvious bid to evade the application of complaint and the actionable documents considered, it is
Article 1773, argues that the immovables in question were not crystal clear that [petitioner] has no valid or legal right which
contributed, but were acquired after the formation of the supposed could be violated by [respondents]. (Words in bracket added.)
partnership. Needless to stress, the Court cannot accord cogency to
this specious argument. For, as earlier stated, petitioner himself
admitted contributing his share in the supposed shipping, movie Under the second assigned error, it is petitioners posture that Annex A-
theatres and realty development family businesses which already 1, assuming its inefficacy or nullity as a partnership document,
owned immovables even before Annex A-1 was allegedly executed. nevertheless created demandable rights in his favor. As
petitioner succinctly puts it in this petition:
Considering thus the value and nature of petitioners
alleged contribution to the purported partnership, the Court, even 43. Contrariwise, this actionable document, especially its above-quoted
if so disposed, cannot plausibly extend Annex A-1 the legal effects provisions, established an actionable contract even though it
that petitioner so desires and pleads to be given. Annex A-1, in fine, may not be a partnership. This actionable contract is what is
cannot support the existence of the partnership sued upon and known as an innominate contract (Civil Code, Article 1307).
sought to be enforced. The legal and factual milieu of the case calls
for this disposition. A partnership may be constituted in any form,
44. It may not be a contract of loan, or a mortgage or whatever, but of Frauds and ergo unenforceable for non-compliance
surely the contract does create rights and obligations of the therewith.[30] By force of the statute of frauds, an agreement
parties and which rights and obligations may be enforceable that by its terms is not to be performed within a year from the
and demandable. Just because the relationship created by the making thereof shall be unenforceable by action, unless the
agreement cannot be specifically labeled or pigeonholed into same, or some note or memorandum thereof, be in writing
a category of nominate contract does not mean it is void or and subscribed by the party charged. Corollarily, no action can
unenforceable. be proved unless the requirement exacted by the statute of
Petitioner has thus thrusted the notion of an innominate contract on frauds is complied with.[31]
this Court - and earlier on the CA after he experienced a reversal of Lest it be overlooked, petitioner is the intended beneficiary of the P1
fortune thereat - as an afterthought. The appellate court, however, Million or 10% equity of the family businesses supposedly
cannot really be faulted for not yielding to petitioners dubious promised by Eduardo to give in the near future. Any
stratagem of altering his theory of joint venture/partnership to an suggestion that the stated amount or the equity component
innominate contract. For, at bottom, the appellate courts certiorari of the promise was intended to go to a common fund would
jurisdiction was circumscribed by what was alleged to have been the be to read something not written in Annex A-1. Thus, even this
order/s issued by the trial court in grave abuse of discretion. As angle alone argues against the very idea of a partnership,
respondent Yang pointedly observed,[28]since the parties basic position the creation of which requires two or more contracting minds
had been well-defined, that of petitioner being that the actionable mutually agreeing to contribute money, property or
document established a partnership/joint venture, it is on those industry to a common fund with the intention of dividing the
positions that the appellate court exercised its certiorari jurisdiction. profits between or among themselves.[32]
Petitioners act of changing his original theory is an impermissible In sum then, the Court rules, as did the CA, that petitioners
practice and constitutes, as the CA aptly declared, an admission of the complaint for specific performance anchored on an actionable
untenability of such theory in the first place. document of partnership which is legally inexistent or void or, at
best, unenforceable does not state a cause of action as against
[Petitioner] is now humming a different tune . . . . In a sudden twist of respondent Eduardo and the corporate defendants. And if no of
stance, he has now contended that the actionable instrument action can successfully be maintained against respondent Eduardo
may be considered an innominate contract. xxx Verily, this because no valid partnership existed between him and petitioner,
now changes [petitioners] theory of the case which is not only the Court cannot see its way clear on how the same action could
prohibited by the Rules but also is an implied admission that plausibly prosper against Yang. Surely, Yang could not have become
the very theory he himself has adopted, filed and prosecuted a partner in, or could not have had any form of business relationship
before the respondent court is erroneous. with, an inexistent partnership.

Be that as it may . . We hold that this new theory contravenes As may be noted, petitioner has not, in his complaint, provide the
[petitioners] theory of the actionable document being a logical nexus that would tie Yang to him as his partner. In fact,
partnership document. If anything, it is so obvious we do have attendant circumstances would indicate the contrary. Consider:
to test the sufficiency of the cause of action on the basis of
partnership law xxx.[29] (Emphasis in the original; Words in 1. Petitioner asserted in his complaint that his so-called joint
bracket added). venture/partnership with Eduardo was for the continuation of
their family business and common family funds which were
But even assuming in gratia argumenti that Annex A-1 partakes of a theretofore being mainly managed by Eduardo. [33] But Yang
perfected innominate contract, petitioners complaint would still be denies kinship with the Litonjua family and petitioner has not
dismissible as against Eduardo and, more so, against Yang. It cannot be disputed the disclaimer.
over-emphasized that petitioner points to Eduardo as the author of
Annex A-1. Withal, even on this consideration alone, petitioners claim 2. In some detail, petitioner mentioned what he had
against Yang is doomed from the very start. contributed to the joint venture/partnership with Eduardo
and what his share in the businesses will be. No allegation is
As it were, the only portion of Annex A-1 which could perhaps be made whatsoever about what Yang contributed, if any, let
remotely regarded as vesting petitioner with a right to demand from alone his proportional share in the profits. But such allegation
respondent Eduardo the observance of a determinate conduct, reads: cannot, however, be made because, as aptly observed by the
CA, the actionable document did not contain such provision,
xxx You will be the only one left with the company, among us brothers let alone mention the name of Yang. How, indeed, could a
and I will ask you to stay as I want you to run this office person be considered a partner when the document
everytime I am away. I want you to run it the way I am trying purporting to establish the partnership contract did not even
to run it because I will be alone and I will depend entirely to mention his name.
you, My sons will not be ready to help me yet until about
maybe 15/20 years from now. Whatever is left in the 3. Petitioner states in par. 2.01 of the complaint that [he] and
corporation, I will make sure that you get ONE MILLION PESOS Eduardo are business partners in the [respondent]
(P1,000,000.00) or ten percent (10%) equity, whichever is corporations, while Bobby is his and Eduardos partner in their
greater. (Underscoring added) Odeon Theater investment (par. 2.03). This means that the
partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment
It is at once apparent that what respondent Eduardo imposed upon thereafter. Several paragraphs later, however, petitioner
himself under the above passage, if he indeed wrote Annex A- would contradict himself by alleging that his investment and
1, is a promise which is not to be performed within one year that of Eduardo and Yang in the Odeon theater business has
from contract execution on June 22, 1973. Accordingly, the expanded through a reinvestment of profit income and direct
agreement embodied in Annex A-1 is covered by the Statute investments in several corporation including but not limited
to [six] corporate respondents This simply means that the
Odeon Theatre business came before the corporate 8. Whether or not the actionable document creates
respondents. Significantly enough, petitioner refers to the a partnership, joint venture, or whatever, is a legal matter.
corporate respondents as progeny of the Odeon Theatre What is determinative for purposes of sufficiency of the
business.[34] complainants allegations, is whether the actionable document
bears out an actionable contract be it a partnership, a joint
Needless to stress, petitioner has not sufficiently established in his venture or whatever or some innominate contract It may be
complaint the legal vinculum whence he sourced his right to drag noted that one kind of innominate contract is what is known
Yang into the fray. The Court of Appeals, in its assailed decision, as du ut facias (I give that you may do).[37]
captured and formulated the legal situation in the following wise:
43. Contrariwise, this actionable document,
[Respondent] Yang, is impleaded because, as alleged in the especially its above-quoted provisions, established an
complaint, he is a partner of [Eduardo] and the [petitioner] in actionable contract even though it may not be a partnership.
the Odeon Theater Investment which expanded through This actionable contract is what is known as an innominate
reinvestments of profits and direct investments in several contract (Civil Code, Article 1307).[38]
corporations, thus:

xxx xxx xxx Springing surprises on the opposing party is offensive to the sporting
idea of fair play, justice and due process; hence, the proscription
Clearly, [petitioners] claim against Yang arose from his alleged against a party shifting from one theory at the trial court to a new
partnership with petitioner and the respondent. However, and different theory in the appellate court.[39] On the same
there was NO allegation in the complaint which directly rationale, an issue which was neither averred in the complaint
alleged how the supposed contractual relation was created cannot be raised for the first time on appeal.[40] It is not difficult,
between [petitioner] and Yang. More importantly, however, therefore, to agree with the CA when it made short shrift of
the foregoing ruling of this Court that the purported petitioners innominate contract theory on the basis of the foregoing
partnership between [Eduardo] is void and legally inexistent basic reasons.
directly affects said claim against Yang. Since [petitioner] is Petitioners protestation that his act of introducing the concept of
trying to establish his claim against Yang by linking him to the innominate contract was not a case of changing theories but of
legally inexistent partnership . . . such attempt had become supporting his pleaded cause of action that of the existence of a
futile because there was NOTHING that would contractually partnership - by another legal perspective/argument, strikes the
connect [petitioner] and Yang. To establish a valid cause of Court as a strained attempt to rationalize an untenable position.
action, the complaint should have a statement of fact upon Paragraph 12 of his motion for reconsideration of the CAs decision
which to connect [respondent] Yang to the alleged virtually relegates partnership as a fall-back theory. Two paragraphs
partnership between [petitioner] and respondent [Eduardo], later, in the same notion, petitioner faults the appellate court for
including their alleged investment in the Odeon Theater. A reading, with myopic eyes, the actionable document solely as
statement of facts on those matters is pivotal to the complaint establishing a partnership/joint venture. Verily, the cited paragraphs
as they would constitute the ultimate facts necessary to are a study of a party hedging on whether or not to pursue
establish the elements of a cause of action against Yang. [35] the original cause of action or altogether abandoning the same,
thus:

Pressing its point, the CA later stated in its resolution 12. Incidentally, assuming that the actionable document created a
denying petitioners motion for reconsideration the following: partnership between [respondent] Eduardo, Sr. and
[petitioner], no immovables were contributed to this
xxx Whatever the complaint calls it, it is the partnership. xxx
actionable document attached to the complaint that is
controlling. Suffice it to state, We have not ignored the 14. All told, the Decision takes off from a false premise that
actionable document As a matter of fact, We emphasized in the actionable document attached to the complaint does not
our decision that insofar as [Yang] is concerned, he is not even establish a contractual relationship between [petitioner] and
mentioned in the said actionable document. We are therefore Eduardo, Sr. and Roberto T Yang simply because his document
puzzled how a person not mentioned in a document does not create a partnership or a joint venture. This is a
purporting to establish a partnership could be considered a myopic reading of the actionable document.
partner.[36] (Words in bracket ours).
Per the Courts own count, petitioner used in his complaint the mixed
words joint venture/partnership nineteen (19) times and the
The last issue raised by petitioner, referring to whether or term partner four (4) times. He made reference to the law of joint
not he changed his theory of the case, as peremptorily determined venture/partnership [being applicable] to the business relationship
by the CA, has been discussed at length earlier and need not detain between [him], Eduardo and Bobby [Yang] and to his rights in all
us long. Suffice it to say that after the CA has ruled that the alleged specific properties of their joint venture/partnership. Given this
partnership is inexistent, petitioner took a different tack. Thus, from consideration, petitioners right of action against respondents
a joint venture/partnership theory which he adopted and Eduardo and Yang doubtless pivots on the existence of the
consistently pursued in his complaint, petitioner embraced the partnership between the three of them, as purportedly evidenced
innominate contract theory. Illustrative of this shift is petitioners by the undated and unsigned Annex A-1. A void Annex A-1, as an
statement in par. #8 of his motion for reconsideration of the CAs actionable document of partnership, would strip petitioner of a
decision combined with what he said in par. # 43 of this petition, as cause of action under the premises. A complaint for delivery and
follows: accounting of partnership property based on such void or legally
non-existent actionable document is dismissible for failure to state deficiency income tax against respondent Suter in the amount of
of action. So, in gist, said the Court of Appeals. The Court agrees. P2,678.06 for 1954 and P4,567.00 for 1955.
WHEREFORE, the instant petition is DENIED and the impugned
Decision and Resolution of the Court of Appeals AFFIRMED. Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
Cost against the petitioner. request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision,
on 11 November 1965, reversing that of the Commissioner of Internal
Revenue.

The present case is a petition for review, filed by the Commissioner of


Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:

(a) Whether or not the corporate personality of the William J. Suter


"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and

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

The theory of the petitioner, Commissioner of Internal Revenue, is that


the marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality
of the partnership should be disregarded for income tax purposes
Article 1782 because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for
COMMISSIONER OF INTERNAL REVENUE, petitioner, the years in question should have included his and his wife's individual
vs. incomes and that of the limited partnership, in accordance with Section
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents. 45 (d) of the National Internal Revenue Code, which provides as follows:
G.R. No. L-25532 February 28, 1969
(d) Husband and wife. — In the case of married persons,
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was whether citizens, residents or non-residents, only one
formed on 30 September 1947 by herein respondent William J. Suter as consolidated return for the taxable year shall be filed by either
the general partner, and Julia Spirig and Gustav Carlson, as the limited spouse to cover the income of both spouses; ....
partners. The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the In refutation of the foregoing, respondent Suter maintains, as the Court
limited partnership was registered with the Securities and Exchange of Tax Appeals held, that his marriage with limited partner Spirig and
Commission. The firm engaged, among other activities, in the their acquisition of Carlson's interests in the partnership in 1948 is not a
importation, marketing, distribution and operation of automatic ground for dissolution of the partnership, either in the Code of
phonographs, radios, television sets and amusement machines, their Commerce or in the New Civil Code, and that since its juridical
parts and accessories. It had an office and held itself out as a limited personality had not been affected and since, as a limited partnership, as
partnership, handling and carrying merchandise, using invoices, bills and contra distinguished from a duly registered general partnership, it is
letterheads bearing its trade-name, maintaining its own books of taxable on its income similarly with corporations, Suter was not bound
accounts and bank accounts, and had a quota allocation with the Central to include in his individual return the income of the limited partnership.
Bank.
We find the Commissioner's appeal unmeritorious.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
sold his share in the partnership to Suter and his wife. The sale was duly Ltd., has been dissolved by operation of law because of the marriage of
recorded with the Securities and Exchange Commission on 20 December the only general partner, William J. Suter to the originally limited
1948. partner, Julia Spirig one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator Tolentino in
The limited partnership had been filing its income tax returns as a Commentaries and Jurisprudence on Commercial Laws of the
corporation, without objection by the herein petitioner, Commissioner Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
A husband and a wife may not enter into a contract It being a basic tenet of the Spanish and Philippine law that the
of general copartnership, because under the Civil Code, which partnership has a juridical personality of its own, distinct and separate
applies in the absence of express provision in the Code of from that of its partners (unlike American and English law that does not
Commerce, persons prohibited from making donations to recognize such separate juridical personality), the bypassing of the
each other are prohibited from entering existence of the limited partnership as a taxpayer can only be done by
into universal partnerships. (2 Echaverri 196) It follows that ignoring or disregarding clear statutory mandates and basic principles of
the marriage of partners necessarily brings about the our law. The limited partnership's separate individuality makes it
dissolution of a pre-existing partnership. (1 Guy de Montella impossible to equate its income with that of the component members.
58) True, section 24 of the Internal Revenue Code merges registered general
co-partnerships (compañias colectivas) with the personality of the
The petitioner-appellant has evidently failed to observe the fact that individual partners for income tax purposes. But this rule is exceptional
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but in its disregard of a cardinal tenet of our partnership laws, and can not
a particular one. As appears from Articles 1674 and 1675 of the Spanish be extended by mere implication to limited partnerships.
Civil Code, of 1889 (which was the law in force when the subject firm
was organized in 1947), a universal partnership requires either that the The rulings cited by the petitioner (Collector of Internal Revenue vs.
object of the association be all the present property of the partners, as University of the Visayas, L-13554, Resolution of 30 October 1964, and
contributed by them to the common fund, or else "all that the partners Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
may acquire by their industry or work during the existence of the the fiction of legal personality of the corporations involved therein are
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a not applicable to the present case. In the cited cases, the corporations
universal partnership, since the contributions of the partners were fixed were already subject to tax when the fiction of their corporate
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia personality was pierced; in the present case, to do so would exempt the
Spirig and neither one of them was an industrial partner. It follows that limited partnership from income taxation but would throw the tax
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses burden upon the partners-spouses in their individual capacities. The
were forbidden to enter by Article 1677 of the Civil Code of 1889. corporations, in the cases cited, merely served as business conduits
or alter egos of the stockholders, a factor that justified a disregard of
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, their corporate personalities for tax purposes. This is not true in the
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, present case. Here, the limited partnership is not a mere business
says with regard to the prohibition contained in the aforesaid Article conduit of the partner-spouses; it was organized for legitimate business
1677: purposes; it conducted its own dealings with its customers prior to
appellee's marriage, and had been filing its own income tax returns as
such independent entity. The change in its membership, brought about
Los conyuges, segun esto, no pueden celebrar entre si el
by the marriage of the partners and their subsequent acquisition of all
contrato de sociedad universal, pero o podran constituir
interest therein, is no ground for withdrawing the partnership from the
sociedad particular? Aunque el punto ha sido muy debatido,
coverage of Section 24 of the tax code, requiring it to pay income tax. As
nos inclinamos a la tesis permisiva de los contratos de
far as the records show, the partners did not enter into matrimony and
sociedad particular entre esposos, ya que ningun precepto de
thereafter buy the interests of the remaining partner with the
nuestro Codigo los prohibe, y hay que estar a la norma general
premeditated scheme or design to use the partnership as a business
segun la que toda persona es capaz para contratar mientras
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en
su resolution de 3 de febrero de 1936, mas parece cambiar de As the limited partnership under consideration is taxable on its income,
rumbo en la de 9 de marzo de 1943. to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In
fact, it would even conflict with what it specifically provides in its Section
Nor could the subsequent marriage of the partners operate to dissolve
24: for the appellant Commissioner's stand results in equal treatment,
it, such marriage not being one of the causes provided for that purpose
tax wise, of a general copartnership (compañia colectiva) and a limited
either by the Spanish Civil Code or the Code of Commerce.
partnership, when the code plainly differentiates the two. Thus, the
code taxes the latter on its income, but not the former, because it is in
The appellant's view, that by the marriage of both partners the company the case of compañias colectivas that the members, and not the firm,
became a single proprietorship, is equally erroneous. The capital are taxable in their individual capacities for any dividend or share of the
contributions of partners William J. Suter and Julia Spirig were profit derived from the duly registered general partnership (Section 26,
separately owned and contributed by them before their marriage; and N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
after they were joined in wedlock, such contributions remained their 88-89).lawphi1.nêt
respective separate property under the Spanish Civil Code (Article
1396):
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal
The following shall be the exclusive property of each spouse: partnership of gains. This is not wholly correct. As pointed out in Agapito
vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila,
(a) That which is brought to the marriage as his or her own; .... 60 Phil. 167, the fruits of the wife's parapherna become conjugal only
when no longer needed to defray the expenses for the administration
Thus, the individual interest of each consort in William J. Suter and preservation of the paraphernal capital of the wife. Then again, the
"Morcoin" Co., Ltd. did not become common property of both after their appellant's argument erroneously confines itself to the question of the
marriage in 1948. legal personality of the limited partnership, which is not essential to the
income taxability of the partnership since the law taxes the income of
even joint accounts that have no personality of their own. 1 Appellant is,
likewise, mistaken in that it assumes that the conjugal partnership of
gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the joint
income of husband and wife) may be the same for a given taxable year,
their consequences would be different, as their contributions in the
business partnership are not the same.

The difference in tax rates between the income of the limited


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

FOR THE FOREGOING REASONS, the decision under review is hereby


affirmed. No costs.
with costs, and any other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the
final dissolution, with interest, one-half of said amount to be charged to
the plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the result
of the liquidation together with the accounts and vouchers within the
period of thirty days from receipt of notice of said judgment, without
costs.
The plaintiff appealed from said decision making the following
assignments of error:
1. In holding that the plaintiff and appellant is not entitled to
the rescission of the partnership contract, Exhibit A, and that
article 1124 of the Civil Code is not applicable to the present
case.
2. In failing to order the defendant to return the sum of
P50,000 to the plaintiff with interest from October 15, 1920,
until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is
raised purporting to show that this appeal is premature and therefore
will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support
of this contention counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in the case of Natividad vs.
Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved
or disapproved, the litigation involved in this action cannot be
considered as completely decided; and, as it was held in said case of
Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of
partnership, the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
Article 1786
of the Civil Code have been properly applied. Owing to the defendant's
failure to pay to the partnership the whole amount which he bound
MAXIMILIANO SANCHO, plaintiff-appellant, himself to pay, he became indebted to it for the remainder, with interest
vs. and any damages occasioned thereby, but the plaintiff did not thereby
SEVERIANO LIZARRAGA, defendant-appellee. acquire the right to demand rescission of the partnership contract
according to article 1124 of the Code. This article cannot be applied to
the case in question, because it refers to the resolution of obligations in
The plaintiff brought an action for the rescission of a partnership general, whereas article 1681 and 1682 specifically refer to the contract
contract between himself and the defendant, entered into on October of partnership in particular. And it is a well known principle that special
15, 1920, the reimbursement by the latter of his 50,000 peso investment provisions prevail over general provisions.
therein, with interest at 12 per cent per annum form October 15, 1920,
By virtue of the foregoing, this appeal is hereby dismissed, leaving the same building for P50,000.00 and the contents thereof for
decision appealed from in full force, without special pronouncement of P70,000.00.
costs. So ordered.
On July 31, 1975, the building and the contents were totally razed
by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:

Pol Compa Risk Ins Pays


icy ny ure
No s
..

MI Zenith Buil P50 P17,6


RO ding ,00 10.93
0

F- Insuran
02 ce
50
0

Corp.

F- Phil. Hou 70, 24,65


84 seh 000 5.31
Article 1800 59 old
0
TAI TONG CHUACHE & CO., petitioner,
vs. British
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.
Assco.
This petition for review on certiorari seeks the reversal of the decision Co.
of the Insurance Commission in IC Case #367 1dismissing the
complaint 2 for recovery of the alleged unpaid balance of the proceeds
Inc. FFF 50, 39,18
of the Fire Insurance Policies issued by herein respondent insurance
& F5 000 6.10
company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are
Pol Compa Risk Ins Pays
as follows:
icy ny ure
Complainants acquired from a certain Rolando Gonzales a parcel of No s
land and a building located at San Rafael Village, Davao City. .
Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S. Accredited
FIC SSSAcc
Group of Insurers for P25,000.00.
- re
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong 15
Chuache Inc. in the amount of P100,000.00. To secure the payment 38
of the loan, a mortgage was executed over the land and the building 1
in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April
25, 1975, Arsenio Chua, representative of Thai Tong Chuache &
Co. insured the latter's interest with Travellers Multi-Indemnity dited
Corporation for P100,000.00 (P70,000.00 for the building and Group
P30,000.00 for the contents thereof) (Exhibit "A-a," contents
thereof) (Exhibit "A-a"). of Buil P25 P8,80
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. Insurer ding ,00 5.47
F- 02500 (Exhibit "A"), covering the building for P50,000.00 with s 0
respondent Zenith Insurance Corporation. On July 16, 1975, another
Fire Insurance Policy No. 8459 (Exhibit "B") was procured from
respondent Philippine British Assurance Company, covering the
Tota P19 P90,2 Mult II- 70,000 16,62
ls 5,0 57.81 i Buildi 8.00
00 ng

We are showing hereunder another apportionment of the loss


Total P295.0 P90,2
which includes the Travellers Multi-Indemnity policy for reference
s 00 57.81
purposes.
Based on the computation of the loss, including the Travellers Multi-
Poli Com Risk Injures Pays
Indemnity, respondents, Zenith Insurance, Phil. British Assurance
cy pany
and S.S.S. Accredited Group of Insurers, paid their corresponding
No.
shares of the loss. Complainants were paid the following:
P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith
MIR Zenit Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited
O/ h Insurers (Par. 6. Amended Complaint). Demand was made from
respondent Travellers Multi-Indemnity for its share in the loss but
the same was refused. Hence, complainants demanded from the
F- Insur
other three (3) respondents the balance of each share in the loss
025 ance
based on the computation of the Adjustment Standards Report
00
excluding Travellers Multi-Indemnity in the amount of P30,894.31
(P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and
Corp Buildi P50,00 P11,8 P2,866.90, SSS Accredited) but the same was refused, hence, this
. ng 0 77.14 action.
In their answers, Philippine British Assurance and Zenith Insurance
F- Phil. Corporation admitted the material allegations in the complaint, but
845 denied liability on the ground that the claim of the complainants had
90 already been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79.
Britis Instead of filing an answer, SSS Accredited Group of Insurers
h informed the Commission in its letter of July 22, 1977 that the herein
claim of complainants for the balance had been paid in the amount
of P 5,938.57 in full, based on the Adjustment Standards
Assc I- 70,000 16,62
Corporation Report of September 22, 1975.
o. Buildi 8.00
Co. ng Travellers Insurance, on its part, admitted the issuance of the
Policy No. 599 DV and alleged as its special and affirmative defenses
the following, to wit: that Fire Policy No. 599 DV, covering the
II- furniture and building of complainants was secured by a
Buildin certain Arsenio Chua, mortgage creditor, for the purpose of
g protecting his mortgage credit against the complainants; that the
said policy was issued in the name of Azucena Palomo, only to
FFF & 50,000 24,91 indicate that she owns the insured premises; that the policy contains
PE 8.79 an endorsement in favor of Arsenio Chua as his mortgage interest
may appear to indicate that insured was Arsenio Chua and the
complainants; that the premium due on said fire policy was paid by
PVC SSS Accre
Arsenio Chua; that respondent Travellers is not liable to pay
- dited
complainants.
151
81 On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No.
F-559 DV, issued by respondent Travellers Multi-Indemnity.
Grou
p of Travellers Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the
Insur Buildi 25,000 5,938. insured premises and that the complainants, spouses Pedro and
ers ng 50 Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3
F- Insur I-Ref 30,000 14,46 As adverted to above respondent Insurance Commission dismissed
599 ers 7.31 spouses Palomos' complaint on the ground that the insurance policy
DV subject of the complaint was taken out by Tai Tong Chuache & Company,
petitioner herein, for its own interest only as mortgagee of the insured
property and thus complainant as mortgagors of the insured property
have no right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent Travellers Multi- evidence respondent commission inferred that the credit extended by
Indemnity to the Intervenor-mortgagee. The complainant testified herein petitioner to the Palomos secured by the insured property must
that she was still indebted to Intervenor in the amount of have been paid. Such is a glaring error which this Court cannot sanction.
P100,000.00. Such allegation has not however, been sufficiently Respondent Commission's findings are based upon a mere inference.
proven by documentary evidence. The certification (Exhibit 'E-e')
The record of the case shows that the petitioner to support its claim for
issued by the Court of First Instance of Davao, Branch 11, indicate
the insurance proceeds offered as evidence the contract of mortgage
that the complainant was Antonio Lopez Chua and not Tai Tong
(Exh. 1) which has not been cancelled nor released. It has been held in a
Chuache & Company. 4
long line of cases that when the creditor is in possession of the
From the above decision, only intervenor Tai Tong Chuache filed a document of credit, he need not prove non-payment for it is
motion for reconsideration but it was likewise denied hence, the present presumed. 8 The validity of the insurance policy taken b petitioner was
petition. not assailed by private respondent. Moreover, petitioner's claim that
the loan extended to the Palomos has not yet been paid was
It is the contention of the petitioner that respondent Insurance
corroborated by Azucena Palomo who testified that they are still
Commission decided an issue not raised in the pleadings of the parties
indebted to herein petitioner. 9
in that it ruled that a certain Arsenio Lopez Chua is the one entitled to
the insurance proceeds and not Tai Tong Chuache & Company. Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same should
This Court cannot fault petitioner for the above erroneous
have been brought by Tai Tong Chuache or by its representative in its
interpretation of the decision appealed from considering the manner it
own behalf. From the above premise respondent concluded that the
was written. 5 As correctly pointed out by respondent insurance
obligation secured by the insured property must have been paid.
commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the insured The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
property. Perusal of the decision reveals however that it readily 2 10 respondent pointed out that the action must be brought in the
absolved respondent insurance company from liability on the basis of name of the real party in interest. We agree. However, it should be
the commissioner's conclusion that at the time of the occurrence of the borne in mind that petitioner being a partnership may sue and be sued
peril insured against petitioner as mortgagee had no more insurable in its name or by its duly authorized representative. The fact that Arsenio
interest over the insured property. It was based on the inference that Lopez Chua is the representative of petitioner is not questioned.
the credit secured by the mortgaged property was already paid by the Petitioner's declaration that Arsenio Lopez Chua acts as the managing
Palomos before the said property was gutted down by fire. The partner of the partnership was corroborated by respondent insurance
foregoing conclusion was arrived at on the basis of the certification company. 11 Thus Chua as the managing partner of the partnership may
issued by the then Court of First Instance of Davao, Branch II that in a execute all acts of administration 12 including the right to sue debtors of
certain civil action against the Palomos, Antonio Lopez Chua stands as the partnership in case of their failure to pay their obligations when it
the complainant and not petitioner Tai Tong Chuache & Company. became due and demandable. Or at the very least, Chua being a partner
of petitioner Tai Tong Chuache & Company is an agent of the
We find the petition to be impressed with merit. It is a well known
partnership. Being an agent, it is understood that he acted for and in
postulate that the case of a party is constituted by his own affirmative
behalf of the firm. 13 Public respondent's allegation that the civil case
allegations. Under Section 1, Rule 131 6 each party must prove his own
flied by Arsenio Chua was in his capacity as personal creditor of spouses
affirmative allegations by the amount of evidence required by law which
Palomo has no basis.
in civil cases as in the present case is preponderance of evidence. The
party, whether plaintiff or defendant, who asserts the affirmative of the The respondent insurance company having issued a policy in favor of
issue has the burden of presenting at the trial such amount of evidence herein petitioner which policy was of legal force and effect at the time
as required by law to obtain favorable judgment. 7 Thus, petitioner who of the fire, it is bound by its terms and conditions. Upon its failure to
is claiming a right over the insurance must prove its case. Likewise, prove the allegation of lack of insurable interest on the part of the
respondent insurance company to avoid liability under the policy by petitioner, respondent insurance company is and must be held liable.
setting up an affirmative defense of lack of insurable interest on the part
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET
of the petitioner must prove its own affirmative allegations.
ASIDE and ANOTHER judgment is rendered order private respondent
It will be recalled that respondent insurance company did not assail the Travellers Multi-Indemnity Corporation to pay petitioner the face value
validity of the insurance policy taken out by petitioner over the of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs
mortgaged property. Neither did it deny that the said property was against said private respondent.
totally razed by fire within the period covered by the insurance.
SO ORDERED.
Respondent, as mentioned earlier advanced an affirmative defense of
lack of insurable interest on the part of the petitioner that before the
occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the
material allegations in the complaint, has the burden of proof to show
that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to it.
Article 1802
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of
the certification issued by the then Court of First Instance of Davao, GEORGE LITTON, petitioner-appellant,
Branch II, that in a certain civil action against the Palomos, Arsenio Lopez vs.
Chua stands as the complainant and not Tai Tong Chuache. From said HILL & CERON, ET AL., respondents-appellees.
This is a petition to review on certiorari the decision of the Court of Aside from the aforecited legal provisions, the order of the Bureau of
Appeals in a case originating from the Court of First Instance of Manila Commerce of December 7, 1933, prohibits brokers from buying and
wherein the herein petitioner George Litton was the plaintiff and the selling shares on their own account. Said order reads:
respondents Hill & Ceron, Robert Hill, Carlos Ceron and Visayan Surety
The stock and/or bond broker is, therefore, merely an agent or an
& Insurance Corporation were defendants.
intermediary, and as such, shall not be allowed. . . .
The facts are as follows: On February 14, 1934, the plaintiff sold and
(c) To buy or to sell shares of stock or bonds on his own account for
delivered to Carlos Ceron, who is one of the managing partners of Hill &
purposes of speculation and/or for manipulating the market,
Ceron, a certain number of mining claims, and by virtue of said
irrespective of whether the purchase or sale is made from or to a
transaction, the defendant Carlos Ceron delivered to the plaintiff a
private individual, broker or brokerage firm.
document reading as follows:
In its decision the Court of Appeals states:
Feb. 14, 1934
But there is a stronger objection to the plaintiff's attempt to make the
Received from Mr. George Litton share certificates Nos. 4428, 4429
firm responsible to him. According to the articles of copartnership of
and 6699 for 5,000, 5,000 and 7,000 shares respectively — total
'Hill & Ceron,' filed in the Bureau of Commerce.
17,000 shares of Big Wedge Mining Company, which we have sold
at P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent Sixth. That the management of the business affairs of the
brokerage. copartnership shall be entrusted to both copartners who shall jointly
administer the business affairs, transactions and activities of the
HILL & CERON
copartnership, shall jointly open a current account or any other kind
of account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case,
By: (Sgd.) CARLOS CERON
with the consent of the other partner. . . .
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance
Under this stipulation, a written contract of the firm can only be signed
of P720, and unable to collect this sum either from Hill & Ceron or from
by one of the partners if the other partner consented. Without the
its surety Visayan Surety & Insurance Corporation, Litton filed a
consent of one partner, the other cannot bind the firm by a written
complaint in the Court of First Instance of Manila against the said
contract. Now, assuming for the moment that Ceron attempted to
defendants for the recovery of the said balance. The court, after trial,
represent the firm in this contract with the plaintiff (the plaintiff
ordered Carlos Ceron personally to pay the amount claimed and
conceded that the firm name was not mentioned at that time), the
absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety
latter has failed to prove that Hill had consented to such contract.
& Insurance Corporation. On appeal to the Court of Appeals, the latter
affirmed the decision of the court on May 29, 1937, having reached the It follows from the sixth paragraph of the articles of partnership of Hill
conclusion that Ceron did not intend to represent and did not act for the &n Ceron above quoted that the management of the business of the
firm Hill & Ceron in the transaction involved in this litigation. partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals that for one of the partners to
Accepting, as we cannot but accept, the conclusion arrived at by the
bind the partnership the consent of the other is necessary. Third
Court of Appeals as to the question of fact just mentioned, namely, that
persons, like the plaintiff, are not bound in entering into a contract with
Ceron individually entered into the transaction with the plaintiff, but in
any of the two partners, to ascertain whether or not this partner with
view, however, of certain undisputed facts and of certain regulations
whom the transaction is made has the consent of the other partner. The
and provisions of the Code of Commerce, we reach the conclusion that
public need not make inquires as to the agreements had between the
the transaction made by Ceron with the plaintiff should be understood
partners. Its knowledge, is enough that it is contracting with the
in law as effected by Hill & Ceron and binding upon it.
partnership which is represented by one of the managing partners.
In the first place, it is an admitted fact by Robert Hill when he testified
There is a general presumption that each individual partner is an
at the trial that he and Ceron, during the partnership, had the same
authorized agent for the firm and that he has authority to bind the
power to buy and sell; that in said partnership Hill as well as Ceron made
firm in carrying on the partnership transactions. (Mills vs. Riggle, 112
the transaction as partners in equal parts; that on the date of the
Pac., 617.)
transaction, February 14, 1934, the partnership between Hill and Ceron
was in existence. After this date, or on February 19th, Hill & Ceron sold The presumption is sufficient to permit third persons to hold the firm
shares of the Big Wedge; and when the transaction was entered into liable on transactions entered into by one of members of the firm
with Litton, it was neither published in the newspapers nor stated in the acting apparently in its behalf and within the scope of his authority.
commercial registry that the partnership Hill & Ceron had been (Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
dissolved. The second paragraph of the articles of partnership of Hill & Ceron reads
Hill testified that a few days before February 14th he had a conversation in part:
with the plaintiff in the course of which he advised the latter not to Second: That the purpose or object for which this
deliver shares for sale or on commission to Ceron because the copartnership is organized is to engage in the business of
partnership was about to be dissolved; but what importance can be brokerage in general, such as stock and bond brokers, real
attached to said advice if the partnership was not in fact dissolved on brokers, investment security brokers, shipping brokers, and
February 14th, the date when the transaction with Ceron took place? other activities pertaining to the business of brokers in
Under article 226 of the Code of Commerce, the dissolution of a general.
commercial association shall not cause any prejudice to third parties The kind of business in which the partnership Hill & Ceron is to engage
until it has been recorded in the commercial registry. (See also being thus determined, none of the two partners, under article 130 of
Cardell vs. Mañeru, 14 Phil., 368.) The Supreme Court of Spain held that the Code of Commerce, may legally engage in the business of brokerage
the dissolution of a partnership by the will of the partners which is not in general as stock brokers, security brokers and other activities
registered in the commercial registry, does not prejudice third persons. pertaining to the business of the partnership. Ceron, therefore, could
(Opinion of March 23, 1885.)
not have entered into the contract of sale of shares with Litton as a section 334). This last presumption is equally applicable to contracts
private individual, but as a managing partner of Hill & Ceron. which have the force of law between the parties.
The respondent argues in its brief that even admitting that one of the Wherefore, unless the contrary is shown, namely, that one of the
partners could not, in his individual capacity, engage in a transaction partners did not consent to his copartner entering into a contract with
similar to that in which the partnership is engaged without binding the a third person, and that the latter with knowledge thereof entered into
latter, nevertheless there is no law which prohibits a partner in the stock said contract, the aforesaid presumption with all its force and legal
brokerage business for engaging in other transactions different from effects should be taken into account.
those of the partnership, as it happens in the present case, because the
There is nothing in the case at bar which destroys this presumption; the
transaction made by Ceron is a mere personal loan, and this argument,
only thing appearing in he findings of fact of the Court of Appeals is that
so it is said, is corroborated by the Court of Appeals. We do not find this
the plaintiff "has failed to prove that Hill had consented to such
alleged corroboration because the only finding of fact made by the Court
contract". According to this, it seems that the Court of Appeals is of the
of Appeals is to the effect that the transaction made by Ceron with the
opinion that the two partners should give their consent to the contract
plaintiff was in his individual capacity.
and that the plaintiff should prove it. The clause of the articles of
The appealed decision is reversed and the defendants are ordered to partnership should not be thus understood, for it means that one of the
pay to the plaintiff, jointly and severally, the sum of P720, with legal two partners should have the consent of the other to contract for the
interest, from the date of the filing of the complaint, minus the partnership, which is different; because it is possible that one of the
commission of one-half per cent (½%) from the original price of P1,870, partners may not see any prospect in a transaction, but he may
with the costs to the respondents. So ordered. nevertheless consent to the realization thereof by his copartner in
reliance upon his skill and ability or otherwise. And here we have to hold
Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
once again that it is not the plaintiff who, under the articles of
RESOLUTION partnership, should obtain and prove the consent of Hill, but the latter's
July 13, 1939 partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third
CONCEPCION, J.: person, the plaintiff, who asks for it. While the said presumption stands,
A motion has been presented in this case by Robert Hill, one of the the plaintiff has nothing to prove.
defendants sentenced in our decision to pay to the plaintiff the amount Passing now to another aspect of the case, had Ceron in any way stated
claimed in his complaint. It is asked that we reconsider our decision, the to the appellant at the time of the execution of the contract, or if it could
said defendant insisting that the appellant had not established that be inferred by his conduct, that he had the consent of Hill, and should it
Carlos Ceron, another of the defendants, had the consent of his turn out later that he did not have such consent, this alone would not
copartner, the movant, to enter with the appellant into the contract annul the contract judging from the provisions of article 130 of the Code
whose breach gave rise to the complaint. It is argued that, it being of Commerce reading as follows:
stipulated in the articles of partnership that Hill and Ceron, only partners
of the firm Hill & Ceron, would, as managers, have the management of No new obligation shall be contracted against the will of one
the business of the partnership, and that either may contract and sign of the managing partners, should he have expressly stated it;
for the partnership with the consent of the other; the parties of but if, however, it should be contracted it shall not be annulled
partnership having been, so it is said, recorded in the commercial for this reason, and shall have its effects without prejudice to
registry, the appellant could not ignore the fact that the consent of the the liability of the partner or partners who contracted it to
movant was necessary for the validity of the contract which he had with reimburse the firm for any loss occasioned by reason thereof.
the other partner and defendant, Ceron, and there being no evidence (Emphasis supplied.)
that said consent had been obtained, the complaint to compel Under the aforequoted provisions, when, not only without the consent
compliance with the said contract had to be, as it must be in fact, a but against the will of any of the managing partners, a contract is
procedural failure. entered into with a third person who acts in good faith, and the
Although this question has already been considered and settled in our transaction is of the kind of business in which the partnership is
decision, we nevertheless take cognizance of the motion in order to engaged, as in the present case, said contract shall not be annulled,
enlarge upon our views on the matter. without prejudice to the liability of the guilty partner.

The stipulation in the articles of partnership that any of the two The reason or purpose behind these legal provisions is no other than to
managing partners may contract and sign in the name of the partnership protect a third person who contracts with one of the managing partners
with the consent of the other, undoubtedly creates an obligation of the partnership, thus avoiding fraud and deceit to which he may easily
between the two partners, which consists in asking the other's consent fall a victim without this protection which the Code of Commerce wisely
before contracting for the partnership. This obligation of course is not provides.
imposed upon a third person who contracts with the partnership. If we are to interpret the articles of partnership in question by holding
Neither is it necessary for the third person to ascertain if the managing that it is the obligation of the third person to inquire whether the
partner with whom he contracts has previously obtained the consent of managing copartner of the one with whom he contracts has given his
the other. A third person may and has a right to presume that the consent to said contract, which is practically casting upon him the
partner with whom he contracts has, in the ordinary and natural course obligation to get such consent, this interpretation would, in similar
of business, the consent of his copartner; for otherwise he would not cases, operate to hinder effectively the transactions, a thing not
enter into the contract. The third person would naturally not presume desirable and contrary to the nature of business which requires
that the partner with whom he enters into the transaction is violating promptness and dispatch one the basis of good faith and honesty which
the articles of partnership but, on the contrary, is acting in accordance are always presumed.
therewith. And this finds support in the legal presumption that the
In view of the foregoing, and sustaining the other views expressed in the
ordinary course of business has been followed (No. 18, section 334,
decision, the motion is denied. So ordered.
Code of Civil Procedure), and that the law has been obeyed (No. 31,
Article 1809

DAN FUE LEUNG, petitioner,


vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed
the decision of the then Court of First Instance of Manila, Branch II in
Civil Case No. 116725 declaring private respondent Leung Yiu a partner
of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the
annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived
from the operation of Sun Wah Panciteria since October, 1955 from
petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October, 1955. It
was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its
initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational,
the private respondent gave P4,000.00 as his contribution to the
partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00
by affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that the translation to
the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the
petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondents') presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An examination was
conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that said 1. Ordering the defendant to pay the plaintiff by way of temperate
check (Exhibit B) was deposited by and duly credited to the private damages 22% of the net profit of P2,000.00 a day from judicial
respondents savings account with the bank after it was cleared by the demand to May 15, 1971;
drawee bank, the Equitable Banking Corporation. Another witness Elvira
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00
Rana of the Equitable Banking Corporation testified that the check in
a day from May 16, 1971 to August 30, 1975;
question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and 3. And thereafter until fully paid the sum equivalent to 22% of the
indicated in the petitioner's statement of account after the check net profit of P8,000.00 a day.
(Exhibit B) was duly cleared. Rana further testified that upon clearance Except as modified, the decision of the court a quo is affirmed in all
of the check and pursuant to normal banking procedure, said check was other respects. (p. 102, Rollo)
returned to the petitioner as the maker thereof.
Later, the appellate court, in a resolution, modified its decision and
The petitioner denied having received from the private respondent the affirmed the lower court's decision. The dispositive portion of the
amount of P4,000.00. He contested and impugned the genuineness of resolution reads:
the receipt (Exhibit D). His evidence is summarized as follows:
WHEREFORE, the dispositive portion of the amended judgment of
The petitioner did not receive any contribution at the time he started the court a quo reading as follows:
the Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at the WHEREFORE, judgment is rendered in favor of the plaintiff and
Toho Restaurant amounting to a little more than P2,000.00 as capital in against the defendant, ordering the latter to pay to the former the
establishing Sun Wah Panciteria. To bolster his contention that he was sum equivalent to 22% of the net profit of P8,000.00 per day from
the sole owner of the restaurant, the petitioner presented various the time of judicial demand, until fully paid, plus the sum of
government licenses and permits showing the Sun Wah Panciteria was P5,000.00 as and for attorney's fees and costs of suit.
and still is a single proprietorship solely owned and operated by himself is hereby retained in full and affirmed in toto it being understood that
alone. Fue Leung also flatly denied having issued to the private the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 In the same resolution, the motion for reconsideration filed by
(Exhibit B). petitioner was denied.

As between the conflicting evidence of the parties, the trial court gave Both the trial court and the appellate court found that the private
credence to that of the plaintiffs. Hence, the court ruled in favor of the respondent is a partner of the petitioner in the setting up and operations
private respondent. The dispositive portion of the decision reads: of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and findings that the respondent invested in the business as a partner.
against the defendant, ordering the latter to deliver and pay to the Hence, the two courts declared that the private petitioner is entitled to
former, the sum equivalent to 22% of the annual profit derived from a share of the annual profits of the restaurant. The petitioner, however,
the operation of Sun Wah Panciteria from October, 1955, until fully claims that this factual finding is erroneous. Thus, the petitioner argues:
paid, and attorney's fees in the amount of P5,000.00 and cost of suit. "The complaint avers that private respondent extended 'financial
(p. 125, Rollo) assistance' to herein petitioner at the time of the establishment of the
The private respondent filed a verified motion for reconsideration in the Sun Wah Panciteria, in return of which private respondent allegedly will
nature of a motion for new trial and, as supplement to the said motion, receive a share in the profits of the restaurant. The same complaint did
he requested that the decision rendered should include the net profit of not claim that private respondent is a partner of the business. It was,
the Sun Wah Panciteria which was not specified in the decision, and therefore, a serious error for the lower court and the Hon. Intermediate
allow private respondent to adduce evidence so that the said decision Appellate Court to grant a relief not called for by the complaint. It was
will be comprehensively adequate and thus put an end to further also error for the Hon. Intermediate Appellate Court to interpret or
litigation. construe 'financial assistance' to mean the contribution of capital by a
partner to a partnership;" (p. 75, Rollo)
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive The pertinent portions of the complaint state:
portion of which reads: xxx xxx xxx
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for 2. That on or about the latter (sic) of September, 1955, defendant
reconsideration filed by the plaintiff, which was granted earlier by the sought the financial assistance of plaintiff in operating the
Court, is hereby reiterated and the decision rendered by this Court on defendant's eatery known as Sun Wah Panciteria, located in the
September 30, 1980, is hereby amended. The dispositive portion of given address of defendant; as a return for such financial assistance.
said decision should read now as follows: plaintiff would be entitled to twenty-two percentum (22%) of the
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) annual profit derived from the operation of the said panciteria;
and against the defendant, ordering the latter to pay the former the 3. That on October 1, 1955, plaintiff delivered to the defendant the
sum equivalent to 22% of the net profit of P8,000.00 per day from the sum of four thousand pesos (P4,000.00), Philippine Currency, of
time of judicial demand, until fully paid, plus the sum of P5,000.00 as which copy for the receipt of such amount, duly acknowledged by
and for attorney's fees and costs of suit. (p. 150, Rollo) the defendant is attached hereto as Annex "A", and form an integral
The petitioner appealed the trial court's amended decision to the then part hereof; (p. 11, Rollo)
Intermediate Appellate Court. The questioned decision was further In essence, the private respondent alleged that when Sun Wah
modified by the appellate court. The dispositive portion of the appellate Panciteria was established, he gave P4,000.00 to the petitioner with the
court's decision reads: understanding that he would be entitled to twenty-two percent (22%)
WHEREFORE, the decision appealed from is modified, the of the annual profit derived from the operation of the said panciteria.
dispositive portion thereof reading as follows: These allegations, which were proved, make the private respondent and
the petitioner partners in the establishment of Sun Wah Panciteria (12) days. From October 1, 1955 to July 13, 1978, no written
because Article 1767 of the Civil Code provides that "By the contract of demands were ever made by private respondent.
partnership two or more persons bind themselves to contribute money,
The petitioner's argument is based on Article 1144 of the Civil Code
property or industry to a common fund, with the intention of dividing
which provides:
the profits among themselves".
Art. 1144. The following actions must be brought within ten years
Therefore, the lower courts did not err in construing the complaint as
from the time the right of action accrues:
one wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria, (1) Upon a written contract;
notwithstanding the use of the term financial assistance therein. We (2) Upon an obligation created by law;
agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to (3) Upon a judgment.
another without the expectation of any returns therefrom'. It connotes in relation to Article 1155 thereof which provides:
an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4,000.00 was given Art. 1155. The prescription of actions is interrupted when they are
to the petitioner does not obtain in this case.' (p. 99, Rollo) The filed before the court, when there is a written extra-judicial demand
complaint explicitly stated that "as a return for such financial assistance, by the creditor, and when there is any written acknowledgment of
plaintiff (private respondent) would be entitled to twenty-two the debt by the debtor.'
percentum (22%) of the annual profit derived from the operation of the The argument is not well-taken.
said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"...
The private respondent is a partner of the petitioner in Sun Wah
nature of the action filed in court is determined by the facts alleged in
Panciteria. The requisites of a partnership which are — 1) two or more
the complaint as constituting the cause of action." (De Tavera v.
persons bind themselves to contribute money, property, or industry to
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
a common fund; and 2) intention on the part of the partners to divide
Court of Appeals, 135 SCRA 37).
the profits among themselves (Article 1767, Civil Code; Yulo v. Yang
The appellate court did not err in declaring that the main issue in the Chiao Cheng, 106 Phil. 110)-have been established. As stated by the
instant case was whether or not the private respondent is a partner of respondent, a partner shares not only in profits but also in the losses of
the petitioner in the establishment of Sun Wah Panciteria. the firm. If excellent relations exist among the partners at the start of
The petitioner also contends that the respondent court gravely erred in business and all the partners are more interested in seeing the firm grow
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on rather than get immediate returns, a deferment of sharing in the profits
the ground that the alleged standards or specimens used by the PC is perfectly plausible. It would be incorrect to state that if a partner does
Crime Laboratory in arriving at the conclusion were never testified to by not assert his rights anytime within ten years from the start of
any witness nor has any witness identified the handwriting in the operations, such rights are irretrievably lost. The private respondent's
standards or specimens belonging to the petitioner. The supposed cause of action is premised upon the failure of the petitioner to give him
standards or specimens of handwriting were marked as Exhibits "H" "H- the agreed profits in the operation of Sun Wah Panciteria. In effect the
1" to "H-24" and admitted as evidence for the private respondent over private respondent was asking for an accounting of his interests in the
the vigorous objection of the petitioner's counsel. partnership.

The records show that the PC Crime Laboratory upon orders of the lower It is Article 1842 of the Civil Code in conjunction with Articles 1144 and
court examined the signatures in the two receipts issued separately by 1155 which is applicable. Article 1842 states:
the petitioner to the private respondent and So Sia (Exhibits "A" and "D") The right to an account of his interest shall accrue to any partner, or
and compared the signatures on them with the signatures of the his legal representative as against the winding up partners or the
petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of surviving partners or the person or partnership continuing the
Antonio Ah Heng and Maria Wong, employees of the restaurant. After business, at the date of dissolution, in the absence or any agreement
the usual examination conducted on the questioned documents, the PC to the contrary.
Crime Laboratory submitted its findings (Exhibit J) attesting that the
Regarding the prescriptive period within which the private respondent
signatures appearing in both receipts (Exhibits "A" and "D") were the
may demand an accounting, Articles 1806, 1807, and 1809 show that
signatures of the petitioner.
the right to demand an accounting exists as long as the partnership
The records also show that when the pay envelopes (Exhibits "H", "H-1" exists. Prescription begins to run only upon the dissolution of the
to "H-24") were presented by the private respondent for marking as partnership when the final accounting is done.
exhibits, the petitioner did not interpose any objection. Neither did the
Finally, the petitioner assails the appellate court's monetary awards in
petitioner file an opposition to the motion of the private respondent to
favor of the private respondent for being excessive and unconscionable
have these exhibits together with the two receipts examined by the PC
and above the claim of private respondent as embodied in his complaint
Crime Laboratory despite due notice to him. Likewise, no explanation
and testimonial evidence presented by said private respondent to
has been offered for his silence nor was any hint of objection registered
support his claim in the complaint.
for that purpose.
Apart from his own testimony and allegations, the private respondent
Under these circumstances, we find no reason why Exhibit "J" should be
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L.
rejected or ignored. The records sufficiently establish that there was a
Licup, to testify on the income of the restaurant.
partnership.
Mrs. Licup stated:
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving ATTY. HIPOLITO (direct examination to Mrs. Licup).
the issue of prescription in favor of petitioner. The alleged receipt is Q Mrs. Witness, you stated that among your duties was that you
dated October 1, 1955 and the complaint was filed only on July 13, 1978 were in charge of the custody of the cashier's box, of the money,
or after the lapse of twenty-two (22) years, nine (9) months and twelve being the cashier, is that correct?
A Yes, sir. Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and
Q So that every time there is a customer who pays, you were the
for this purpose, employed a bookkeeper. This inspired the Court to
one who accepted the money and you gave the change, if any, is
ask counsel for the defendant to bring said records and counsel for
that correct?
the defendant promised to bring those that were available.
A Yes. Seemingly, that was the reason why this case dragged for quite
Q Now, after 11:30 (P.M.) which is the closing time as you said, what sometime. To bemuddle the issue, defendant instead of presenting
do you do with the money? the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other
A We balance it with the manager, Mr. Dan Fue Leung. poultry products which, however, did not show the gross sales nor
ATTY. HIPOLITO: does it prove that the same is the best evidence. This Court gave
warning to the defendant's counsel that if he failed to produce the
I see. books, the same will be considered a waiver on the part of the
Q So, in other words, after your job, you huddle or confer together? defendant to produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the Rules of Court
A Yes, count it all. I total it. We sum it up.
(Sec. 5(e) Rule 131). "Evidence willfully suppressed would be
Q Now, Mrs. Witness, in an average day, more or less, will you please adverse if produced." (Rollo, p. 145)
tell us, how much is the gross income of the restaurant?
The records show that the trial court went out of its way to accord due
A For regular days, I received around P7,000.00 a day during my shift process to the petitioner.
alone and during pay days I receive more than P10,000.00. That is
The defendant was given all the chance to present all conceivable
excluding the catering outside the place.
witnesses, after the plaintiff has rested his case on February 25,
Q What about the catering service, will you please tell the Honorable 1981, however, after presenting several witnesses, counsel for
Court how many times a week were there catering services? defendant promised that he will present the defendant as his last
A Sometimes three times a month; sometimes two times a month witness. Notably there were several postponement asked by
or more. counsel for the defendant and the last one was on October 1, 1981
when he asked that this case be postponed for 45 days because said
xxx xxx xxx defendant was then in Hongkong and he (defendant) will be back
Q Now more or less, do you know the cost of the catering service? after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said
A Yes, because I am the one who receives the payment also of the date, the counsel for the defendant who again failed to present the
catering. defendant asked for another postponement, this time to November
Q How much is that? 24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a
A That ranges from two thousand to six thousand pesos, sir.
condition in the order granting the postponement to said date that
Q Per service? if the defendant cannot be presented, counsel is deemed to have
waived the presentation of said witness and will submit his case for
A Per service, Per catering.
decision.
Q So in other words, Mrs. witness, for your shift alone in a single day
On November 24, 1981, there being a typhoon prevailing in Manila
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses
said date was declared a partial non-working holiday, so much so,
an income of P7,000.00 in a regular day?
the hearing was reset to December 7 and 22, 1981. On December 7,
A Yes. 1981, on motion of defendant's counsel, the same was again reset
Q And ten thousand pesos during pay day.? to December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22,
A Yes. 1981, the defendant's counsel asked for postponement on the
(TSN, pp. 53 to 59, inclusive, November 15,1978) ground that the defendant was sick. the Court, after much tolerance
and judicial magnanimity, denied said motion and ordered that the
xxx xxx xxx case be submitted for resolution based on the evidence on record
COURT: and gave the parties 30 days from December 23, 1981, within which
to file their simultaneous memoranda. (Rollo, pp. 148-150)
Any cross?
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila
ATTY. UY (counsel for defendant):
in front of the Republic Supermarket. It is near the corner of Claro M.
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, Recto Street. According to the trial court, it is in the heart of Chinatown
1978). (Rollo, pp. 127-128) where people who buy and sell jewelries, businessmen, brokers,
The statements of the cashier were not rebutted. Not only did the manager, bank employees, and people from all walks of life converge
petitioner's counsel waive the cross-examination on the matter of and patronize Sun Wah.
income but he failed to comply with his promise to produce pertinent There is more than substantial evidence to support the factual findings
records. When a subpoena duces tecum was issued to the petitioner for of the trial court and the appellate court. If the respondent court
the production of their records of sale, his counsel voluntarily offered to awarded damages only from judicial demand in 1978 and not from the
bring them to court. He asked for sufficient time prompting the court to opening of the restaurant in 1955, it is because of the petitioner's
cancel all hearings for January, 1981 and reset them to the later part of contentions that all profits were being plowed back into the expansion
the following month. The petitioner's counsel never produced any of the business. There is no basis in the records to sustain the petitioners
books, prompting the trial court to state: contention that the damages awarded are excessive. Even if the Court
is minded to modify the factual findings of both the trial court and the
appellate court, it cannot refer to any portion of the records for such Jacinto Divinagracias withdrawal from the partnership.[1] Among the
modification. There is no basis in the records for this Court to change or assets to be distributed were five (5) fishing boats, six (6) vehicles, two
set aside the factual findings of the trial court and the appellate court. (2) parcels of land located at Sto. Nio and Talisay, Negros Occidental, and
The petitioner was given every opportunity to refute or rebut the cash deposits in the local branches of the Bank of the Philippine Islands
respondent's submissions but, after promising to do so, it deliberately and Prudential Bank.
failed to present its books and other evidence.
Throughout the existence of the partnership, and even after
The resolution of the Intermediate Appellate Court ordering the Vicente Tabanaos untimely demise in 1994, petitioner failed to submit
payment of the petitioner's obligation shows that the same continues to Tabanaos heirs any statement of assets and liabilities of the
until fully paid. The question now arises as to whether or not the partnership, and to render an accounting of the partnerships
payment of a share of profits shall continue into the future with no fixed finances. Petitioner also reneged on his promise to turn over to
ending date. Tabanaos heirs the deceaseds 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum of
Considering the facts of this case, the Court may decree a dissolution of
P10,000,000.00, despite formal demand for payment thereof.[2]
the partnership under Article 1831 of the Civil Code which, in part,
provides: Consequently, Tabanaos heirs, respondents herein, filed against
petitioner an action for accounting, payment of shares, division of assets
Art. 1831. On application by or for a partner the court shall decree a
and damages.[3] In their complaint, respondents prayed as follows:
dissolution whenever:
1. Defendant be ordered to render the proper accounting of all the
xxx xxx xxx
assets and liabilities of the partnership at bar; and
(3) A partner has been guilty of such conduct as tends to affect
2. After due notice and hearing defendant be ordered to
prejudicially the carrying on of the business;
pay/remit/deliver/surrender/yield to the plaintiffs the following:
(4) A partner willfully or persistently commits a breach of the
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
partnership agreement, or otherwise so conducts himself in matters
land(s), fishing vessels, trucks, motor vehicles, and other forms and
relating to the partnership business that it is not reasonably
substance of treasures which belong and/or should belong, had accrued
practicable to carry on the business in partnership with him;
and/or must accrue to the partnership;
xxx xxx xxx
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
(6) Other circumstances render a dissolution equitable. damages;
There shall be a liquidation and winding up of partnership affairs, return C. Attorneys fees equivalent to Thirty Percent (30%) of the entire
of capital, and other incidents of dissolution because the continuation share/amount/award which the Honorable Court may resolve the
of the partnership has become inequitable. plaintiffs as entitled to plus P1,000.00 for every appearance in court.[4]
WHEREFORE, the petition for review is hereby DISMISSED for lack of Petitioner filed a motion to dismiss the complaint on the grounds
merit. The decision of the respondent court is AFFIRMED with a of improper venue, lack of jurisdiction over the nature of the action or
MODIFICATION that as indicated above, the partnership of the parties is suit, and lack of capacity of the estate of Tabanao to sue.[5] On August
ordered dissolved. 30, 1994, the trial court denied the motion to dismiss. It held that venue
SO ORDERED. was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability;
hence, the action is not only a personal action but also an action in
personam. As regards petitioners argument of lack of jurisdiction over
the action because the prescribed docket fee was not paid considering
the huge amount involved in the claim, the trial court noted that a
request for accounting was made in order that the exact value of the
partnership may be ascertained and, thus, the correct docket fee may
be paid. Finally, the trial court held that the heirs of Tabanao had a right
to sue in their own names, in view of the provision of Article 777 of the
Civil Code, which states that the rights to the succession are transmitted
from the moment of the death of the decedent.[6]
The following day, respondents filed an amended
complaint,[7] incorporating the additional prayer that petitioner be
ordered to sell all (the partnerships) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs their corresponding
EMILIO EMNACE, petitioner, share in the proceeds thereof. In due time, petitioner filed a
vs. manifestation and motion to dismiss,[8] arguing that the trial court did
not acquire jurisdiction over the case due to the plaintiffs failure to pay
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN the proper docket fees. Further, in a supplement to his motion to
TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, dismiss,[9] petitioner also raised prescription as an additional ground
VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT warranting the outright dismissal of the complaint.
TABANAO, respondents.
On June 15, 1995, the trial court issued an Order,[10] denying the
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto motion to dismiss inasmuch as the grounds raised therein were basically
Divinagracia were partners in a business concern known as Ma. Nelma the same as the earlier motion to dismiss which has been denied.Anent
Fishing Industry. Sometime in January of 1986, they decided to dissolve the issue of prescription, the trial court ruled that prescription begins to
their partnership and executed an agreement of partition and run only upon the dissolution of the partnership when the final
distribution of the partnership properties among them, consequent to accounting is done. Hence, prescription has not set in the absence of a
final accounting. Moreover, an action based on a written contract Nevertheless, unlike in the case of Manchester Development Corp.
prescribes in ten years from the time the right of action accrues. v. Court of Appeals,[16] where there was clearly an effort to defraud the
government in avoiding to pay the correct docket fees, we see no
Petitioner filed a petition for certiorari before the Court of
attempt to cheat the courts on the part of respondents. In fact, the
Appeals,[11] raising the following issues:
lower courts have noted their expressed desire to remit to the court any
I. Whether or not respondent Judge acted without payable balance or lien on whatever award which the Honorable Court
jurisdiction or with grave abuse of discretion in taking may grant them in this case should there be any deficiency in the
cognizance of a case despite the failure to pay the payment of the docket fees to be computed by the Clerk of
required docket fee; Court.[17] There is evident willingness to pay, and the fact that the docket
II. Whether or not respondent Judge acted without fee paid so far is inadequate is not an indication that they are trying to
jurisdiction or with grave abuse of discretion in insisting avoid paying the required amount, but may simply be due to an inability
to try the case which involve (sic) a parcel of land to pay at the time of filing. This consideration may have moved the trial
situated outside of its territorial jurisdiction; court and the Court of Appeals to declare that the unpaid docket fees
shall be considered a lien on the judgment award.
III. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in allowing Petitioner, however, argues that the trial court and the Court of
the estate of the deceased to appear as party plaintiff, Appeals erred in condoning the non-payment of the proper legal fees
when there is no intestate case and filed by one who and in allowing the same to become a lien on the monetary or property
was never appointed by the court as administratrix of judgment that may be rendered in favor of respondents. There is merit
the estates; and in petitioners assertion. The third paragraph of Section 16, Rule 141 of
the Rules of Court states that:
IV. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in not The legal fees shall be a lien on the monetary or property judgment in
dismissing the case on the ground of prescription. favor of the pauper-litigant.

On August 8, 1996, the Court of Appeals rendered the assailed Respondents cannot invoke the above provision in their favor
decision,[12] dismissing the petition for certiorari, upon a finding that no because it specifically applies to pauper-litigants. Nowhere in the
grave abuse of discretion amounting to lack or excess of jurisdiction was records does it appear that respondents are litigating as paupers, and as
committed by the trial court in issuing the questioned orders denying such are exempted from the payment of court fees.[18]
petitioners motions to dismiss. The rule applicable to the case at bar is Section 5(a) of Rule 141 of
Not satisfied, petitioner filed the instant petition for review, the Rules of Court, which defines the two kinds of claims as: (1) those
raising the same issues resolved by the Court of Appeals, namely: which are immediately ascertainable; and (2) those which cannot be
immediately ascertained as to the exact amount. This second class of
I. Failure to pay the proper docket fee; claims, where the exact amount still has to be finally determined by the
II. Parcel of land subject of the case pending before the trial courts based on evidence presented, falls squarely under the third
court is outside the said courts territorial jurisdiction; paragraph of said Section 5(a), which provides:
III. Lack of capacity to sue on the part of plaintiff heirs of In case the value of the property or estate or the sum claimed is less or
Vicente Tabanao; and more in accordance with the appraisal of the court, the difference of fee
shall be refunded or paid as the case may be. (Underscoring ours)
IV. Prescription of the plaintiff heirs cause of action.
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,[19] this
It can be readily seen that respondents primary and ultimate Court pronounced that the above-quoted provision clearly
objective in instituting the action below was to recover the decedents contemplates an initial payment of the filing fees corresponding to the
1/3 share in the partnerships assets. While they ask for an accounting of estimated amount of the claim subject to adjustment as to what later
the partnerships assets and finances, what they are actually asking is for may be proved.[20] Moreover, we reiterated therein the principle that
the trial court to compel petitioner to pay and turn over their share, or the payment of filing fees cannot be made contingent or dependent on
the equivalent value thereof, from the proceeds of the sale of the the result of the case. Thus, an initial payment of the docket fees based
partnership assets. They also assert that until and unless a proper on an estimated amount must be paid simultaneous with the filing of
accounting is done, the exact value of the partnerships assets, as well as the complaint. Otherwise, the court would stand to lose the filing fees
their corresponding share therein, cannot be ascertained.Consequently, should the judgment later turn out to be adverse to any claim of the
they feel justified in not having paid the commensurate docket fee as respondent heirs.
required by the Rules of Court.
The matter of payment of docket fees is not a mere
We do not agree. The trial court does not have to employ triviality. These fees are necessary to defray court expenses in the
guesswork in ascertaining the estimated value of the partnerships handling of cases. Consequently, in order to avoid tremendous losses to
assets, for respondents themselves voluntarily pegged the worth the judiciary, and to the government as well, the payment of docket fees
thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one cannot be made dependent on the outcome of the case, except when
which is really not beyond pecuniary estimation, but rather partakes of the claimant is a pauper-litigant.
the nature of a simple collection case where the value of the subject
assets or amount demanded is pecuniarily determinable.[13] While it is Applied to the instant case, respondents have a specific claim 1/3
true that the exact value of the partnerships total assets cannot be of the value of all the partnership assets but they did not allege a specific
shown with certainty at the time of filing, respondents can and must amount. They did, however, estimate the partnerships total assets to be
ascertain, through informed and practical estimation, the amount they worth Thirty Million Pesos (P30,000,000.00), in a letter[21] addressed to
expect to collect from the partnership, particularly from petitioner, in petitioner. Respondents cannot now say that they are unable to make
order to determine the proper amount of docket and other fees.[14] It is an estimate, for the said letter and the admissions therein form part of
thus imperative for respondents to pay the corresponding docket fees the records of this case. They cannot avoid paying the initial docket fees
in order that the trial court may acquire jurisdiction over the action.[15] by conveniently omitting the said amount in their amended
complaint. This estimate can be made the basis for the initial docket fees
that respondents should pay. Even if it were later established that the the territorial jurisdiction of the court a quo. This contention is not well-
amount proved was less or more than the amount alleged or estimated, taken. The records indubitably show that respondents are asking that
Rule 141, Section 5(a) of the Rules of Court specifically provides that the the assets of the partnership be accounted for, sold and distributed
court may refund the excess or exact additional fees should the initial according to the agreement of the partners. The fact that two of the
payment be insufficient. It is clear that it is only the difference between assets of the partnership are parcels of land does not materially change
the amount finally awarded and the fees paid upon filing of this the nature of the action. It is an action in personam because it is an
complaint that is subject to adjustment and which may be subjected to action against a person, namely, petitioner, on the basis of his personal
a lien. liability. It is not an action in rem where the action is against the thing
itself instead of against the person.[27] Furthermore, there is no showing
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon.
that the parcels of land involved in this case are being disputed. In fact,
Maximiano Asuncion,[22] this Court held that when the specific claim has
it is only incidental that part of the assets of the partnership under
been left for the determination by the court, the additional filing fee
liquidation happen to be parcels of land.
therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to The time-tested case of Claridades v. Mercader, et al.,[28] settled
enforce said lien and assess and collect the additional fee. Clearly, the this issue thus:
rules and jurisprudence contemplate the initial payment of filing and
The fact that plaintiff prays for the sale of the assets of the partnership,
docket fees based on the estimated claims of the plaintiff, and it is only
including the fishpond in question, did not change the nature or
when there is a deficiency that a lien may be constituted on the
character of the action, such sale being merely a necessary incident of
judgment award until such additional fee is collected.
the liquidation of the partnership, which should precede and/or is part
Based on the foregoing, the trial court erred in not dismissing the of its process of dissolution.
complaint outright despite their failure to pay the proper docket
The action filed by respondents not only seeks redress against
fees. Nevertheless, as in other procedural rules, it may be liberally
petitioner. It also seeks the enforcement of, and petitioners compliance
construed in certain cases if only to secure a just and speedy disposition
with, the contract that the partners executed to formalize the
of an action. While the rule is that the payment of the docket fee in the
partnerships dissolution, as well as to implement the liquidation and
proper amount should be adhered to, there are certain exceptions
partition of the partnerships assets. Clearly, it is a personal action that,
which must be strictly construed.[23]
in effect, claims a debt from petitioner and seeks the performance of a
In recent rulings, this Court has relaxed the strict adherence to personal duty on his part.[29] In fine, respondents complaint seeking the
the Manchester doctrine, allowing the plaintiff to pay the proper docket liquidation and partition of the assets of the partnership with damages
fees within a reasonable time before the expiration of the applicable is a personal action which may be filed in the proper court where any of
prescriptive or reglementary period.[24] the parties reside.[30] Besides, venue has nothing to do with jurisdiction
for venue touches more upon the substance or merits of the case.[31] As
In the recent case of National Steel Corp. v. Court of
it is, venue in this case was properly laid and the trial court correctly
Appeals,[25] this Court held that:
ruled so.
The court acquires jurisdiction over the action if the filing of the
On the third issue, petitioner asserts that the surviving spouse of
initiatory pleading is accompanied by the payment of the requisite fees,
Vicente Tabanao has no legal capacity to sue since she was never
or, if the fees are not paid at the time of the filing of the pleading, as of
appointed as administratrix or executrix of his estate. Petitioners
the time of full payment of the fees within such reasonable time as the
objection in this regard is misplaced. The surviving spouse does not need
court may grant, unless, of course, prescription has set in the meantime.
to be appointed as executrix or administratrix of the estate before she
It does not follow, however, that the trial court should have dismissed can file the action. She and her children are complainants in their own
the complaint for failure of private respondent to pay the correct right as successors of Vicente Tabanao. From the very moment of
amount of docket fees. Although the payment of the proper docket fees Vicente Tabanaos death, his rights insofar as the partnership was
is a jurisdictional requirement, the trial court may allow the plaintiff in concerned were transmitted to his heirs, for rights to the succession are
an action to pay the same within a reasonable time before the expiration transmitted from the moment of death of the decedent.[32]
of the applicable prescriptive or reglementary period. If the plaintiff fails
Whatever claims and rights Vicente Tabanao had against the
to comply within this requirement, the defendant should timely raise
partnership and petitioner were transmitted to respondents by
the issue of jurisdiction or else he would be considered in estoppel. In
operation of law, more particularly by succession, which is a mode of
the latter case, the balance between the appropriate docket fees and
acquisition by virtue of which the property, rights and obligations to the
the amount actually paid by the plaintiff will be considered a lien or any
extent of the value of the inheritance of a person are
award he may obtain in his favor. (Underscoring ours)
transmitted.[33] Moreover, respondents became owners of their
Accordingly, the trial court in the case at bar should determine the respective hereditary shares from the moment Vicente Tabanao died.[34]
proper docket fee based on the estimated amount that respondents
A prior settlement of the estate, or even the appointment of
seek to collect from petitioner, and direct them to pay the same within
Salvacion Tabanao as executrix or administratrix, is not necessary for any
a reasonable time, provided the applicable prescriptive or reglementary
of the heirs to acquire legal capacity to sue. As successors who stepped
period has not yet expired. Failure to comply therewith, and upon
into the shoes of their decedent upon his death, they can commence
motion by petitioner, the immediate dismissal of the complaint shall
any action originally pertaining to the decedent.[35] From the moment of
issue on jurisdictional grounds.
his death, his rights as a partner and to demand fulfillment of petitioners
On the matter of improper venue, we find no error on the part of obligations as outlined in their dissolution agreement were transmitted
the trial court and the Court of Appeals in holding that the case below is to respondents. They, therefore, had the capacity to sue and seek the
a personal action which, under the Rules, may be commenced and tried courts intervention to compel petitioner to fulfill his obligations.
where the defendant resides or may be found, or where the plaintiffs
Finally, petitioner contends that the trial court should have
reside, at the election of the latter.[26]
dismissed the complaint on the ground of prescription, arguing that
Petitioner, however, insists that venue was improperly laid since respondents action prescribed four (4) years after it accrued in
the action is a real action involving a parcel of land that is located outside
1986. The trial court and the Court of Appeals gave scant consideration
to petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination.[36] The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners.[37] For as long
as the partnership exists, any of the partners may demand an accounting
of the partnerships business. Prescription of the said right starts to run
only upon the dissolution of the partnership when the final accounting
is done.[38]
Contrary to petitioners protestations that respondents right to
inquire into the business affairs of the partnership accrued in 1986,
prescribing four (4) years thereafter, prescription had not even begun
to run in the absence of a final accounting. Article 1842 of the Civil Code
provides:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the
date of dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with
the duty to account, the above-cited provision states that the right to
demand an accounting accrues at the date of dissolution in the absence
of any agreement to the contrary. When a final accounting is made, it is
only then that prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what respondents are
seeking in their action before the trial court, since petitioner has failed
or refused to render an accounting of the partnerships business and
assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when
it denied petitioners motions to dismiss. Likewise, the Court of Appeals
did not commit reversible error in upholding the trial courts
orders. Precious time has been lost just to settle this preliminary issue,
with petitioner resurrecting the very same arguments from the trial
court all the way up to the Supreme Court. The litigation of the merits
and substantial issues of this controversy is now long overdue and must
proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is
DENIED for lack of merit, and the case is REMANDED to the Regional
Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount that plaintiffs therein
seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court is ORDERED to
conduct the appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.
There has been laid before us for consideration and decision a question
of some importance and of some intricacy. The issue in the case relates
to a determination of the nature of the mercantile establishment which
operated under the name of Teck Seing & co., Ltd., and this issue
requires us to look into, and analyze, the document constituting Teck
Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang, mayor de edad
comerciante, vecino y residente del municipio de Tabogon
Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu Provincia
de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante,
vecino y residente del municipio y Provincia de Cebu, Islas
Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y
residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas,
y Jo Ybec, mayor de edad, comerciante, vecino y residente del
municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos
constar por la presente, que constituimos y formamos una
sociedad mercantil limitada, bajo las leyes vigentes en las Islas
Filipinas y para ser registrada de acuerdo con los reglamentos
vigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra
su domicilio principal en la Calle Magallanes No. 94, de la Ciudad
de Cebu, Provincia de Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda
legal de las Islas Filipinas, dividido en cinco acciones de a P6,000
como sigue:

Santiago P6,000.00
Jo
Chung
Cang . . .
........
..

Go 6,000.00
Tayco . .
........
........
........

Article 1815 Yap 6,000.00


Gueco . .
TECK SEING AND CO., LTD., petitioner-appellee. ........
SANTIAGO JO CHUNG, ET AL., partners, ........
vs. ......
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Jo Ybec . 6,000.00
Following the presentation of an application to be adjudged an insolvent
........
by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the
........
Pacific Commercial Company, Piñol & Company, Riu Hermanos, and W.
........
H. Anderson & Company, filed a motion in which the Court was prayed
..
to enter an order: "(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of said
partners to file an inventory of his property in the manner required by Lim 6,000.00
section 51 of Act No. 1956; and (C) that each of said partners be Yogsing
adjudicated insolvent debtors in this proceeding." The trial judge first ........
granted the motion, but, subsequently, on opposition being renewed, ........
denied it. It is from this last order that an appeal was taken in accordance .......
with section 82 of the Insolvency Law.
justifiquen la concesion de una gratificacion especial, aparte del
Total . . . 30,000.00
salario aqui dispuesto y especificado.
........
........ Que pasado el termino de seis años, y es de la conveniencia de los
... accionistas la continuacion del negocio de esta sociedad, dicho
termino sera prorrogado por igual numero de años, sin necesidas
Que la duracion de la sociedad sera la de seis años, a contar de la del otorgamiento de ulteriores escrituras, quedando la presente
fecha de esta escritura, pudiendo prorrogarse este tiempo a en vigor hasta el termino dispuesto por todos los accionistas.
discrecion unanime de todos los accionistas. Que las diferencias que pudieran suscitarse entre los accionistas,
El objeto de la sociedad sera la compra y venta de mercaderias en bien sea por razon de lo estipulado en esta en ella comprendidos,
general. se procurara arreglar entre los mismos amistosa y
extrajudicialmente, y si no se consiguiere un arreglo de este modo,
El administrador o administradores de la sociedad podran, previa
dichos accionistas nombraran un arbitro, cuya resolucion estan
conformidad de los accionistas, establecer cuantas sucursales o
todos obligados y por la presente se comprometen y se obligan a
establecimientos considere necesarios para facilitar sus negocios
acatarla en todas sus partes, renunciando ulteriores recursos.
y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el En cuyos terminos dejamos formalizada esta escritura de sociedad
fomento de su capital. mercantillimitada, y prometemos cumplirla fiel y estrictamente
segun los pactos que hemos establecido.
Las ganancias o perdidas que resultaren durante cada año
comercial, se distribuiran proporcionalmente entre los En testimonio de todo lo cual, firmamos en la Ciudad de Cebu,
accionistas, de acuerdo con el capital aportado por cada uno de Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil
los mismos. novecientos diez y nueve.
Las ganancias que resultaren en cada año comercial, si resultaren (Fdos.) "LIM YOGSING
algunas ganancias, no podran ser retiradas pors los accionistas "Jo YBec por Ho Seng Sian
hasta dentro del termino de tres años a contar de la fecha del "SANTIAGO JO CHUNG CANG
primer balance anual del negocio, quedadno por tanto estas "GO TAYCO
ganancias en reserva, para ampliar el capital aportado opor los "YAP GUECO
accionistas y ampliar por tanto la esfera de accion emprendida por
la misma sociedad. Al pasar o expirar el termino de tres años, cada Firnando en presencia de:
accionista podra retirar o depositar en poder de la sociedad, las (Fdos.) "ATILANO LEYSON
ganancias que le debiera corresponder durante dicho termino "JULIO DIAZ
de tres años.
"ESTADOS UNIDOS DE AMERCA
Que los accionistas no podran extraer ni disponer en ningun "ISLAS FILIPINAS
tiempo cualesquiera cantidad o cantidades de la sociedad, que "PROVINCIA DE CEBU
haya sido aportado por los mismos, para atender sus gastos
particulares ni aun pagando redito alguno sobre la cantidad que En el Municipio de Cebu, de la Provincia antes mencionada, I.F.,
intenen disponer o extraer de dicha sociedad. hoy 31 de octubre de 1919, A.D., ante mi, Notario Publico que
subscribe, comprecieron personalmente Santiago Jo Chung Cang,
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado este
Vicente Jocson Jo, la administracion de la Compañia, quienes ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama
podran usar indistintamente la firma social, quedando por de fecha 27 de septiembre de 1919 que se me ha presentado en
consiguiente autorizados amobs para hacer en nombre de ella este mismo acto, de quienes doy fe de que les conozco por ser las
toda calse de operaciones, negocios y especulaciones mercantiles, mismas personas que otorgaron el preinserto documento,
practicando judicial y extra-judicialment cuantos actos se ratificando ant emi su contenido y manifestando ser el mismo un
requieran para el bien de la sociedad, nombrar procuradores o acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo Chung
abogados para reclamaciones y cobro de creditos y proponer ante Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F.
los tribunales las demandas, convenios, transacciones y el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco
excepciones procdentes. En caso de ausencia, enfermedad o tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9
cualquier otro impedimento del accionista administrador Sr. Lim de octubre de 1919 bajo el No. G2042490, Yap Gueco tambien me
Yogsing, este podra conferir poder general o especial al accionista exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero de
que crea conveniente para que en union del administrador auxiliar 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la
Sr. Vicente Jocson Jo, pudieran ambos administrar suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919
convenientemente los negocios de la sociedad. Que los bajo el No. F1455662, y Ho Seng Sian representante de Jo Ybec,
administradores podran tener los empleados necesarios para el me exhibio su cedula personal expedida en Cebu, Cebu, I.f. el dia
mejor que debieran percibir dichos empleados por servicios 4 de febrero de 1919 bajo el No. F1453733.
rendidos a la sociedad.
Ante mi,
Que ambos administradores podran disponer de mil discientos
pesos (P1,200) moneda filipina, anualmente, para sus gastos (Fdo.) "F.V.ARIAS
particulares, siendo dicha cantidad de P1,200 la que corresponde "Notario Publico
a cada uno de dichos administradores, como emolumentos o "Hasta el 1.º de enero de 1920
salarios que se les asigna a cas uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas "Asiento No. 157
podran disponer cada fin de añola gratificacion quese concedera Pagina No. 95 de mi
a cada administrador, si los negocios del año fueran boyantes y Registro Notarial
Serie 1919 business under the name of all its members, of several of them, or of
Libro 2.º one only. Turning to the document before us, it will be noted that all of
the requirements of the Code have been met, with the sole exception
Presentado a las diez y cuarenta y tres minutos de la mañana de
of that relating to the composition of the firm name. We leave
hoy, segun el asiento No. 125, pagina 9 del Tomo 1.º del Libro
consideration of this phase of the case for later discussion.
Diario. Cebu, 11 de febrero de 1920.
The remaining possibility is the revised contention of counsel for the
(Fdo.) "QUIRICO ABETO petitioners to the effect that Teck Seing & Co., Ltd., is "una sociedad
[SELLO] "Registrador mercantil "de facto" solamente" (only a de facto commercial
Mercantil Ex-Officio" association), and that the decision of the Supreme court in the case of
Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling.
Inscrito el documento que preced al folio 84 hoja No. 188, It was this argument which convinced the trial judge, who gave effect to
inscripcion 1.a del Tomo 3.º del Libro Registro de Sociedades his understanding of the case last cited and which here must be given
Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta serious attention.
pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses
Administrativo.
that the firm Kieng-Chiong-Seng was not organized by means of any
public document; that the partnership had not been recorded in the
(Fdo.) "QUIRICO ABETO
mercantile registry; and that Kieng-Chiong-Seng was not proven to be
[SELLO] "Registrador
the firm name, but rather the designation of the partnership. The
Mercantil Ex-Officio"
conclusion then was, that the partnership in question was merely de
facto and that, therefore, giving effect to the provisions of article 120 of
Proceeding by process of elimination, it is self-evident that Teck Seing &
the Code of Commerce, the right of action was against the persons in
Co., Ltd., is not a corporation. Neither is it contended by any one that
charge of the management of the association.
Teck Seing & Co., Ltd., is accidental partnership denominated cuenta en
participacion (joint account association). Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, side by side with the facts before us, a marked difference is
Counsel for the petitioner and appellee described his client in once place
at once disclosed. In the cited case, the organization of the partnership
in his opposition to the motion of the creditors as "una verdadera
was not evidenced by any public document; here, it is by a public
sociedad anonima" (a true sociedad anonima). The provisions of the
document. In the cited case, the partnership naturally could not present
Code of Commerce relating to sociedades anonimas were, however,
a public instrument for record in the mercantile registry; here, the
repealed by section 191 of the Corporation Law (Act No. 1459), with the contract of partnership has been duly registered. But the two cases are
exceptions the sociedades anonimas lawfully organized at the time of
similar in that the firm name failed to include the name of any of the
the passage of the Corporation Law were recognized, which is not our
partners.
case.
We come then to the ultimate question, which is, whether we should
The document providing for the partnership contract purported to
follow the decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or
form "una sociedad mercantil limitada," and counsel for the petitioner's
whether we should differentiate the two cases, holding Teck Seing &
first contention was that Teck Seing & Co., Ltd., was not "una sociedad
Co., Ltd., a general copartnership, notwithstanding the failure of the firm
regular colectiva, ni siquiera comanditaria, sino una sociedad mercantil
name to include the name of one of the partners. Let us now notice this
limitada." Let us see if the partnership contract created a "sociedad en
decisive point in the case.
comandita," or, as it is known in English, and will hereafter be spoken of,
"a limited partnership." Article 119 of the Code of Commerce requires every commercial
association before beginning its business to state its article, agreements,
To establish a limited partnership there must be, at least, one general
and conditions in a public instrument, which shall be presented for
partner and the name of the least one of the general partners must
record in the mercantile registry. Article 120, next following, provides
appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.)
that the persons in charge of the management of the association who
But neither of these requirements have been fulfilled. The general rule
violate the provisions of the foregoing article shall be responsible in
is, that those who seek to avail themselves of the protection of laws
solidum to the persons not members of the association with whom they
permitting the creation of limited partnerships must show a
may have transacted business in the name of the association. Applied to
substantially full compliance with such laws. A limited partnership that
the facts before us, it would seem that Teck Seing & Co., Ltd. has fulfilled
has not complied with the law of its creation is not considered a limited the provisions of article 119. Moreover, to permit the creditors only to
partnership at all, but a general partnership in which all the members
look to the person in charge of the management of the association, the
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore,
partner Lim Yogsing, would not prove very helpful to them.
Partnership, pp. 499, 595; 20 R C. L. 1064.)
What is said in article 126 of the Code of Commerce relating to the
The contention of the creditors and appellants is that the partnership
general copartnership transacting business under the name of all its
contract established a general partnership.
members or of several of them or of one only, is wisely included in our
Article 125 of the Code of Commerce provides that the articles of commercial law. It would appear, however, that this provision was
general copartnership must estate the names, surnames, and domiciles inserted more for the protection of the creditors than of the partners
of the partners; the firm name; the names, and surnames of the partners themselves. A distinction could well be drawn between the right of the
to whom the management of the firm and the use of its signature is alleged partnership to institute action when failing to live up to the
instrusted; the capital which each partner contributes in cash, credits, provisions of the law, or even the rights of the partners as among
or property, stating the value given the latter or the basis on which their themselves, and the right of a third person to hold responsible a general
appraisement is to be made; the duration of the copartnership; and the copartnership which merely lacks a legal firm name in order to make it
amounts which, in a proper case, are to be given to each managing a partnership de jure.
partner annually for his private expenses, while the succeeding article of
the Code provides that the general copartnership must transact
The civil law and the common law alike seem to point to a difference Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916],
between the rights of the partners who have failed to comply with the 33 Phil., 350, 360.)
law and the rights of third persons who have dealt with the partnership.
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the
The supreme court of Spain has repeatedly held that notwithstanding following comment after articles 121 and 126 of the Code:
the obligation of the members to register the articles of association in
From the decisions cited in this and in the previous comments, the
the commercial registry, agreements containing all the essential
following is deduced: 1st. Defects in the organization cannot affect
requisites are valid as between the contracting parties, whatever the
relations with third persons. 2d. Members who contract with other
form adopted, and that, while the failure to register in the commercial
persons before the association is lawfully organized are liable to
registry necessarily precludes the members from enforcing rights
these persons. 3d. The intention to form an association is necessary,
acquired by them against third persons, such failure cannot prejudice
so that if the intention of mutual participation in the profits and
the rights of third persons. (See decisions of December 6, 1887, January
losses in a particular business is proved, and there are no articles of
25, 1888, November 10, 1890, and January 26, 1900.) The same
association, there is no association. 4th. An association, the articles
reasoning would be applicable to the less formal requisite pertaining to
of which have not been registered, is valid in favor of third persons.
the firm name.
5th. The private pact or agreement to form a commercial association
The common law is to the same effect. The State of Michigan had a is governed not by the commercial law but by the civil law. 6th.
statute prohibiting the transaction of business under an assumed name Secret stipulations expressed in a public instrument, but not inserted
or any other than the real name of the individual conducting the same, in the articles of association, do not affect third persons, but are
unless such person shall file with the county clerk a certificate setting binding on the parties themselves. 7th. An agreement made in a
forth the name under which the business is to be conducted and the real public instrument, other than the articles of association, by means
name of each of the partners, with their residences and post-office of which one of the partners guarantees to another certain profits
addresses, and making a violation thereof a misdemeanor. The supreme or secures him from losses, is valid between them, without affecting
Court of Michigan said: the association. 8th. Contracts entered into by commercial
associations defectively organized are valid when they are
The one object of the act is manifestly to protect the public against
voluntarily executed by the parties, if the only controversy relates to
imposition and fraud, prohibiting persons from concealing their
whether or not they complied with the agreement.
identity by doing business under an assumed name, making it unlawful
to use other than their real names in transacting business without a xxx xxx xxx
public record of who they are, available for use in courts, and to punish
The name of the collective merchant is called firm name. By this
those who violate the prohibition. The object of this act is not limited
name, the new being is distinguished from others, its sphere of
to facilitating the collection of debts, or the protection of those giving
action fixed, and the juridical personality better determined,
credit to persons doing business under an assumed name. It is not
without constituting an exclusive character of the general
unilateral in its application. It applies to debtor and creditor,
partnership to such an extent as to serve the purpose of giving a
contractor and contractee, alike. Parties doing business with those
definition of said kind of a mercantile partnership, as is the case in
acting under an assumed name, whether they buy or sell, have a right,
our Code.
under the law, to know who they are, and who to hold responsible, in
case the question of damages for failure to perform or breach of Having in mind that these partnerships are prevailingly of a personal
warranty should arise. character, article 126 says that they must transact business under
the name of all its members, of some of them, or of one only, the
The general rule is well settled that, where statutes enacted to protect
words "and company" to be added in the latter two cases.
the public against fraud or imposition, or to safeguard the public
health or morals, contain a prohibition and impose a penalty, all It is rendered impossible for the general partnership to adopt a firm
contracts in violation thereof are void. . . . name appropriate to its commercial object; the law wants to link,
and does link, the solidary and unlimited responsibility of the
As this act involves purely business transactions, and affects only
members of this partnership with the formation of its name, and
money interests, we think it should be construed as rendering
imposes a limitation upon personal liberty in its selection, not only
contracts made in violation of it unlawful and unforceable at the
by prescribing the requisites, but also by prohibiting persons not
instance of the offending party only, but not as designed to take away
members of the company from including their names in its firm
the rights of innocent parties who may have dealt with the offenders
name under penalty of civil solidary responsibility.
in ignorance of their having violated the statute. (Cashin vs. Pliter
[1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.) Of course, the form required by the Code for the adoption of the
firm name does not prevent the addition thereto of any other title
The early decision of our Supreme Court in the case of Prautch Scholes
connected with the commercial purpose of the association. The
& Co. vs. Hernandez [1903], 1 Phil., 705), contains the following
reader may see our commentaries on the mercantile registry about
pertinent observations:
the business names and firm names of associations, but it is proper
Another case may be supposed. A partnership is organized for to establish here that, while the business name may be alienated by
commercial purposes. It fails to comply with the requirements of any of the means admitted by the law, it seems impossible to
article 119. A creditor sues the partnership for a debt contracted by it, separate the firm names of general partnerships from the juridical
claiming to hold the partners severally. They answer that their failure entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)
to comply with the Code of Commerce makes them a civil partnership
On the question of whether the fact that the firm name "Teck Seing &
and that they are in accordance with article 1698 of the Civil Code only
Co., Ltd." does not contain the name of all or any of the partners as
liable jointly. To allow such liberty of action would be to permit the
prescribed by the Code of Commerce prevents the creation of a general
parties by a violation of the Code to escape a liability which the law
partnership, Professor Jose A. Espiritu, as amicus curiæ, states:
has seen fit to impose upon persons who organized commercial
partnership; "Because it would be contrary to all legal principles that My opinion is that such a fact alone cannot and will not be a
the nonperformance of a duty should redound to the benefit of the sufficient cause of preventing the formation of a general
person in default either intentional or unintentional." (Mercantile partnership, especially if the other requisites are present and the
requisite regarding registration of the articles of association in the
Commercial Registry has been complied with, as in the present case.
I do not believe that the adoption of a wrong name is a material fact
to be taken into consideration in this case; first, because the mere
fact that a person uses a name not his own does not prevent him
from being bound in a contract or an obligation he voluntarily
entered into; second, because such a requirement of the law is
merely a formal and not necessarily an essential one to the existence
of the partnership, and as long as the name adopted sufficiently
identity the firm or partnership intended to use it, the acts and
contracts done and entered into under such a name bind the firm to
third persons; and third, because the failure of the partners herein
to adopt the correct name prescribed by law cannot shield them
from their personal liabilities, as neither law nor equity will permit
them to utilize their own mistake in order to put the blame on third
persons, and much less, on the firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are partners, although their
purpose was to avoid the creation of such relation. Here, the intention
of the persons making up Teck Seing & co., Ltd. was to establish a
partnership which they erroneously denominated a limited partnership.
If this was their purpose, all subterfuges resorted to in order to evade
liability for possible losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be disregarded. The
partners who have disguised their identity under a designation distinct
from that of any of the members of the firm should be penalized, and
not the creditors who presumably have dealt with the partnership in
good faith.
Articles 127 and 237 of the Code of Commerce make all the members of
the general copartnership liable personally and in solidum with all their
property for the results of the transactions made in the name and for
the account of the partnership. Section 51 of the Insolvency Law,
likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm
be insolvent, but one or more partners thereof are solvent, the creditors
may proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los
Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency
of Campos Rueda & Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the
document hereinbefore quoted established a general partnership or, to
be more exact, a partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the
motion presented by the creditors, in conformity with the provisions of
the Insolvency Law. Without special findings as to the costs in this
instance, it is ordered.
was entitled by the articles of agreement to a fixed salary of P2,500 as
long as he was in charge of the branch office established at Ligao. If he
had left that branch office soon after the partnership was organized, he
would have been in the same condition then that Emilio Muñoz was
from the beginning. Such a change would have deprived him of the
salary P2,500, but would not have affected in any way the partnership
nor have produced the effect of relieving him from liability as a partner.
The argument of the appellees seems to be that, because no yearly or
monthly salary was assigned to Emilio Muñoz, he contributed nothing to
the partnership and received nothing from it. By the articles themselves
he was to receive at the end of five years one-eighth of the profits. It can
not be said, therefore, that he received nothing from the partnership.
The fact that the receipt of this money was postponed for five years is
not important. If the contention of the appellees were sound, it would
result that, where the articles of partnership provided for a distribution
of profits at the end of each year, but did not assign any specific salary
to an industrial partner during that time, he would not be a member of
the partnership. Industrial partners, by signing the articles, agree to
contribute their work to the partnership and article 138 of the Code of
Commerce prohibits them from engaging in other work except by the
Article 1816 express consent of the partnership. With reference to civil partnerships,
section 1683 of the Civil Code relates to the same manner.
It is also said in the brief of the appellees that Emilio Muñoz was entirely
LA COMPAÑIA MARITIMA, plaintiff-appellant,
excluded from the management of the business. It rather should be said
vs.
that he excluded himself from such management, for he signed the
FRANCISCO MUÑOZ, ET AL., defendants-appellees.
articles of partnership by the terms of which the management was
The plaintiff brought this action in the Court of First Instance of Manila expressly conferred by him and the others upon the persons therein
against the partnership of Franciso Muñoz & Sons, and against Francisco named. That partners in their articles can do this, admits of no doubt.
Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to recover Article 125 of the Code of Commerce requires them to state the
the sum of P26,828.30, with interest and costs. Judgment was rendered partners to whom the management is intrusted. This right is recognized
in the court below acquitting Emilio Muñoz de Bustillo and Rafael Naval also in article 132. In the case of Reyes vs. The Compania Maritima (3
of the complaint, and in favor of the plaintiff and against the defendant Phil. Rep., 519) the articles of association provided that the directors for
partnership, Francisco Muñoz & Sons, and Francisco Muñoz de Bustillo the first eight years should be certain persons named therein. This court
form the sum of P26,828.30 with interest at the rate of 8 per cent per not only held that such provision was valid but also held that those
annum from the 31st day of March, 1905, and costs. From this judgment directors could not be removed from office during the eight years, even
the plaintiff appealed. by a majority vote of all the stockholders of the company.
On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Emilio Muñoz was, therefore, a general partner, and the important
Muñoz, and Rafael Naval formed on ordinary general mercantile question in the case is whether, as such general partner, he is liable to
partnership under the name of Francisco Muñoz & Sons for the purpose third persons for the obligations contracted by the partnership, or
of carrying on the mercantile business in the Province of Albay which whether he relieved from such liability, either because he is an industrial
had formerly been carried on by Francisco Muñoz. Francisco Muñoz was partner or because he was so relieved by the express terms of the
a capitalist partner and Emilio Muñoz and Rafael Naval were industrial articles of partnership.
partners. Paragraph 12 of the articles of partnership is as follows:
It is said in the decision of the court below that in the articles of Twelfth. All profits arising from mercantile transactions carried on, as
partnership it was called an ordinary, general mercantile partnership, well as such as may be obtained from the sale of property and other
but that from the article it does not appear to be such a partnership. In assets which constitute the corporate capital, shall be distributed, on
the brief of the appellees it is also claimed that it is not an ordinary, completion of the term of five years agreed to for the continuation of
general commercial partnership. We see nothing in the case to support the partnership, in the following manner: Three-fourths thereof for
either the statement of the court below in its decision or the claim of the capitalist partner Francisco Muñoz de Bustillo and one-eighth
the appellees in their brief. In the articles of partnership signed by the thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso,
partners it is expressly stated that they have agreed to form, and do and the remaining one-eighth thereof for the partner Rafael Naval y
form, an ordinary, general mercantile partnership. The object of the Garcia. If, in lieu of profits, losses should result in the winding up of
partnership, as stated in the fourth paragraph of the articles, is a purely the partnership, the same shall be for the sole and exclusive account
mercantile one and all the requirements of the Code of Commerce in of the capitalist partner Francisco Muñoz de Bustillo, without either of
reference to such partnership were complied with. The articles of the two industrial partners participating in such losses.
partnership were recorded in the mercantile registry in the Province of
Albay. If it should be held that the contract made in this case did not Articles 140 and 141 of the Code of Commerce are as follows:
create an ordinary, general mercantile partnership we do not see how ART. 140. Should there not have been stated in the articles of
one could be created. copartnership the portion of the profits to be received by each
The claim of the appellees that Emilio Muñoz contributed nothing to the partner, said profits shall be divided pro rata, in accordance with the
partnership, either in property, money, or industry, can not be interest each one has on the copartnership, partners who have not
sustained. He contributed as much as did the other industrial partner, contributed any capital, but giving their services, receiving in the
Rafael Naval, the difference between the two being that Rafael Naval
distribution the same amount as the partner who contributed the where there were two industrial and only one capitalist partner, the
smallest capital. industrial partners should have no voice in the management of the
business when the articles of partnership were silent on that subject;
ART. 141. Losses shall be charged in the same proportion among the
that when the manager appointed mismanages the business the
partners who have contributed capital, without including those who
industrial partners should have no right to appoint a comanager; that
have not, unless by special agreement the latter have been
they should have no right to examine the books; that they might use the
constituted as participants therein.
firm name in their private business; or that they have no voice in the
A comparison of these articles with the twelfth paragraph above quoted liquidation of the business after dissolution. To give a person who
will show that the latter is simply a statement of the rule laid down in contributed no more than, say, P500, these rights and to take them
the former. The article do not, therefore, change the rights of the away from a person who contributed his services, worth, perhaps,
industrial partners as they are declared by the code, and the question infinitely more than P500, would be discriminate unfairly against
may be reduced to the very simple one namely, Is an industrial partner industrial partners.
in an ordinary, general mercantile partnership liable to third persons for
If the phrase "all the partners" as found in the articles other than article
the debts and obligations contracted by the partnership?
127 includes industrial partners, then article 127 must include them and
In limited partnership the Code of Commerce recognizes a difference they are liable by the terms thereof for the debts of the firm.
between general and special partners, but in a general partnership there
But it is said that article 141 expressly declares to the contrary. It is to
is no such distinction-- all the members are general partners. The fact
be noticed in the first place that this article does not say that they shall
that some may be industrial and some capitalist partners does not make
not be liable for losses. Article 140 declares how the profits shall be
the members of either of these classes alone such general partners.
divided amongthe partners. This article simply declares how the losses
There is nothing in the code which says that the industrial partners shall
shall be divided among the partners. The use of the words se
be the only general partners, nor is there anything which says that the
imputaran is significant. The verb means abonar una partida a alguno
capitalist partners shall be the only general partners.
en su cuenta o deducirla de su debito. Article 141 says nothing about
Article 127 of the Code of Commerce is as follows: third persons and nothing about the obligations of the partnership.
All the members of the general copartnership, be they or be they not While in this section the word "losses" stand's alone, yet in other articles
managing partners of the same, are liable personally and in of the code, where it is clearly intended to impose the liability to third
solidum with all their property for the results of the transactions made persons, it is not considered sufficient, but the word "obligations" is
in the name and for the account of the partnership, under the added. Thus article 148, in speaking of the liability of limited partners,
signature of the latter, and by a person authorized to make use uses the phrase las obligaciones y perdidas. There is the same use of the
thereof. two same words in article 153, relating to anonymous partnership. In
Do the words "all the partners" found in this article include industrial article 237 the word "obligations" is used and not the word "losses."
partners? The same expression is found in other articles of the code. In The claim of the appellees is that this article 141 fixes the liability of the
article 129 it is said that, if the management of the partnership has not industrial partners to third persons for the obligations of the company.
been limited by special act to one of the partners, all shall have the right If it does, then it also fixes the liability of the capitalist partners to the
to participate in the management. Does this mean that the capitalist same persons for the same obligations. If this article says that industrial
partners are the only ones who have that right, or does it include also partners are not liable for the debts of the concern, it also says that the
industrial partners? Article 132 provides that, when in the articles of capitalist partners shall be only liable for such debts in proportion to the
partnership the management has been intrusted to a particular person, amount of the money which they have contributed to the partnership;
he can not be deprived of such management, but that in certain cases that is to say, that if there are only two capitalist partners, one of whom
the remaining partners may appoint a comanager. Does the phrase has contributed two-thirds of the capital and the other one-third, the
"remaining partners" include industrial partners, or is it limited to latter is liable to a creditor of the company for only one-third of the debt
capitalist partners, and do industrial partners have no right to and the former for only two-thirds. It is apparent that, when given this
participate in the selection of the comanager? Article 133 provides that construction, article 141 is directly in conflict with article 127. It is not
all the partners shall have the right to examine the books of the disputed by the appellees that by the terms of article 127 each one of
partnership. Under this article are the capitalist partners the only ones the capitalist partners is liable for all of the debts, regardless of the
who have such right? Article 135 provides that the partners can not use amount of his contribution, but the construction which they put upon
the firm name in their private business. Does this limitation apply only article 141 makes such capitalist partners liable for only a proportionate
to capitalist partners or does it extend also to industrial partners? Article part of the debts.
222 provides that a general partnership shall be dissolve by the death of
There is no injustice in imposing this liability upon the industrial
one of the general partners unless it is otherwise provided in the articles.
partners. They have a voice in the management of the business, if no
Would such a partnership continue if all the industrial partners should
manager has been named in the articles; they share in the profits and as
die? Article 229 provides that upon a dissolution of a general partnership
to third persons it is no more than right that they should share in the
it shall be liquidated by the former managers, but, if all the partners do
obligations. It is admitted that if in this case there had been a capitalist
not agree to this, a general meeting shall be called, which shall
partner who had contributed only P100 he would be liable for this entire
determine to whom the settlement of the affairs shall be intrusted. Does
debt of P26,000.
this phrase "all the partners" include industrial partners, or are the
capitalist partners the only ones who have a voice in the selection of a Our construction of the article is that it relates exclusively to the
manager during a period of liquidation? Article 237 provides that the settlement of the partnership affairs among the partners themselves
private property of the general partners shall not be taken in payment and has nothing to do with the liability of the partners to third persons;
of the obligations of the partnership until its property has been that each one of the industrial partners is liable to third persons for the
exhausted. Does the phrase "the general partners" include industrial debts of the firm; that if he has paid such debts out of his private
partners? property during the life of the partnership, when its affairs are settled
he is entitled to credit for the amount so paid, and if it results that there
In all of these articles the industrial partners must be included. It can not
is not enough property in the partnership to pay him, then the capitalist
have been intended that, in such a partnership as the one in question,
partners must pay him. In this particular case that view is strengthened In a work published by Lorenzo Benito in 1889 (Lecciones de derecho
by the provisions of article 12, above quoted. There it is stated that if, mercantil) it is said that industrial partners are not liable for debts. The
when the affairs of the partnership are liquidated — that is, at the end author, at page 127, divides general partnership into ordinary and
of five years — it turns out that there had been losses instead of gains, irregular. The irregular partnership are those which include one or more
then the capitalist partner, Francisco Muñoz, shall pay such losses — industrial partners. It may be said in passing that his views can not apply
that is, pay them to the industrial partners if they have been compelled to this case because the articles of partnership directly state that it is an
to disburse their own money in payment of the debts of the partnership. ordinary partnership and do not state that it is an irregular one. But his
view of the law seems to be derived from something other than the
While this is a commercial partnership and must be governed therefore
Code of Commerce now in force. He says:
by the rules of the Code of Commerce, yet an examination of the
provisions of the Civil Code in reference to partnerships may throw . . . but it has not been very fortunate in sketching the characters of
some light upon the question here to be resolved. Articles 1689 and a regular collective partnership (since it says nothing conclusive in
1691 contain, in substance, the provisions of articles 140 and 141 of the reference to the irregular partnership) . . . . (p. 127.)
Code of Commerce. It is to be noticed that these articles are found in
And again:
section 1 of Chapter II [Title VIII] of Book IV. That section treats of the
obligations of the partners between themselves. The liability of the This article would not need to be commented upon were it not
partners as to third persons is treated in a distinct section, namely, because the writer entirely overlooked the fact that there might
section 2, comprising articles from 1697 to 1699. exist industrial partners who did not contribute with capital in
money, credits, or goods, which partners generally participate in the
If industrial partners in commercial partnerships are not responsible to
profits but not in the losses, and whose position must also be
third persons for the debts of the firm, then industrial partners in civil
determined in the articles of copartnership. (p. 128.)
partnerships are not. Waiving the question as to whether there can be
a commercial partnership composed entirely of industrial partners, it And again: lawphil.net
seems clear that there can be such civil partnership, for article 1678 of The only defect that can be pointed out in this article is the fact that
the Civil Code provides as follows: it has been forgotten that in collective partnerships there are
A particular partnership has for its object specified things only, industrial partners who, not being jointly liable for the obligations of
their use of profits, or a specified undertaking, or the exercise the copartnership, should not include their names in that of the firm.
of a profession or art. (p. 129.)
It might very easily happen, therefor, that a civil partnership could be As a logical result of his theory he says that an industrial partner has no
composed entirely of industrial partners. If it were, according to the right to participate in the administration of the partnership and that his
claim of the appellees, there would be no personal responsibility name can not appear in the firm name. In this last respect his view is
whatever for the debts of the partnership. Creditors could rely only opposed to that of Manresa, who says (Commentaries on the Spanish
upon the property which the partnership had, which in the case of a Civil Code, vol. 11, p. 330):
partnership organized for the practice of any art or profession would be It only remains to us to state that a partner who contributes his
practically nothing. In the case of Agustin vs. Inocencio, 1 just decided by industry to the concern can also confer upon it the name or the
this court, it was alleged in the complaint, and admitted by the answer — corporate name under which such industry should be carried on. In
That is partnership has been formed without articles of association this case, so long as the copartnership lasts, it can enjoy the credit,
or capital other than the personal work of each one of the partners, reputation, and name or corporate name under which such industry
whose profits are to be equally divided among themselves. is carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same,
Article 1675 of the Civil Code is as follows:
and he alone is entitled to use it, because such a name or style is an
General partnership of profits include all that the partners may accessory to the work of industrial partner, and upon recovering his
acquire by their by their industry or work during the continuation of work or his industry he also recovers his name or the style under
the partnership. which he exercised his activity. It has thus been decided by the
French court of cassation in a decision dated June 6, 1859.
Personal or real property which each of the partners may possess at
the time of the celebration of the agreement shall continue to be In speaking of limited partnerships Benito says (p. 144) that here are
their private property, the usufruct only passing to the partnership. found two kinds of partners, one with unlimited responsibility and the
other with limited responsibility, but adopting his view as to industrial
It might very well happen in partnership of this kind that no one of the
partners, it should be said that there are three kinds of partners, one
partners would have any private property and that if they did the
with unlimited responsibility, another with limited responsibility, and
usufruct thereof would be inconsiderable.
the third, the industrial partner, with no responsibility at all. In Estasen's
Having in mind these different cases which may arise in the practice, recent publication on mercantile partnerships (Tratado de las
that construction of the law should be avoided which would enable two Sociedades Mercantiles) he quotes from the work of Benito, but we do
persons, each with a large amount of private property, to form and carry not understand that he commits himself to the doctrines therein laid
on a partnership and, upon the bankruptcy of the latter, to say to its down. In fact, in his former treatise,Instituciones de Derecho
creditors that they contributed no capital to the company but only their Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes the
services, and that their private property is not, therefore, liable for its existence of these irregular general partnerships, or the exemption from
debts. the liability to third persons of the industrial partners. He says in his
But little light is thrown upon this question by the authorities. No latter work (p. 186) that according to Dr. Benito the irregular general
judgment of the supreme court of Spain has been called to our partner originated from the desire of the partnership to associate with
attention, and we have been able to find none which refers in any way itself some old clerk or employee as a reward for his services and the
to this question. There is, therefore, no authority from the tribunal for interest which he had shown in the affairs of the partnership, giving him
saying that an industrial partner is not liable to third persons for the in place of a fixed salary a proportionate part of the profits of the
debts of the partnership. business. Article 269 of the Code of Commerce of 1829 relates to this
subject and apparently provides that such partners shall not be liable for
debts. If this article was the basis for Dr. Benito's view, it can be so no partners from the collective partnership; therefore the industrial
longer, for it does not appear in the present code. We held in the case partners are personally and jointly liable with all their property for the
of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere results of the transactions made in the name and for account of the
agreement of that kind does not make the employee a partner. partnership.
An examination of the works of Manresa and Sanchez Roman on the Civil But they form the collective partnership in the manner in which our laws
Code, and of Blanco's Mercantile Law, will shows that no one of these allows the same to be formed — that is, by contributing with their
mentions in any way the irregular general partnership spoken of by Dr. industry, not with property.
Benito, nor is there anything found in any one of these commentaries
And the word all, in reference to property, which is common with the
which in any way indicates that an industrial partner is not liable to third
three classes of partnership defined by the code, to wit, collective,
persons for the debts of the partnership. An examination of the French
limited copartnership (comanditaria), and corporation (anonima), gives
law will also show that no distinction of that kind is therein anywhere
the rule for such personal and joint liability, which is the purpose of the
made and nothing can be found therein which indicates that the
provision in the above-quoted article.
industrial partners are not liable for the debts of the partnership.
(Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, The above three classes of partnership agree in that property must in
and 512.) each of them be contributed. "The articles of general copartnership
must state . . . the capital which each partner contributes in cash, credits,
Our conclusion is upon this branch of the case that neither on principle
or property, stating the value given the latter or the basis on which their
nor on authority can the industrial partner be relieved from liability to
appraisal is to be made." (Art. 125.) "The same statements shall be
third persons for the debts of the partnership.
included in articles of limited copartnerships (compañias en comandita)
It is apparently claimed by the appellee in his brief that one action can which are required for those of general copartnerships" — that is,
not be maintained against the partnership and the individual partners, among other things, the capital which each partner contributes. (Art.
this claim being based upon the provisions of article 237 of the Code of 145.) "The articles of incorporation (of corporations) must include . . .
Commerce which provides that the private property of the partners shall the corporate capital, stating the value at which property, not cash,
not be taken until the partnership property has been exhausted. But this contributed has been appraised, or the basis on which the appraisal is
article furnishes to argument in support of the appellee's claim. An to be made; and the number of shares into which the corporate capital
action can be maintained against the partnership and partners, but the is divided and represented." (Art. 151.)
judgment should recognize the rights of the individual partners which
Now, then, "The liability of the members of a corporation for the
are secured by said article 237.lawphil.net
obligations and losses of the same shall be limited to the funds they
The judgment of the court below is reversed and judgment is ordered contributed or bound themselves to contribute to the corporate
against all of the defendants for the sum of P26,828.30, with interest capital." (Art. 153.) "The liability of special partners for the obligations
thereon at the rate of 8 per cent per annum since the 31st day of March, and losses of the copartnership shall be limited to the funds which they
1905, and for the cost of this action. Execution of such judgment shall contributed or bound themselves to contribute to the limited
not issue against the private property of the defendants Francisco copartnership, with the exception of the sense mentioned in article 147"
Muñoz, Emilio Muñoz, or Rafael Naval until the property of the — that is, if any of them include his name or permit its conclusion in the
defendant Francisco Muñoz & Sons is exhausted. No costs will be firm name. (Art. 148, par. 3.) However, in a collective partnership the
allowed to their party in this court. So ordered. liability is not limited to the funds or property contributed, but extends
to all the property which partners may own within or without the
Torres, Johnson and Tracey, JJ., concur.
copartnership.
Separate Opinions
In every mercantile copartnership it is the corporate capital that
ARELLANO, C. J., dissenting: responds for the obligations of the same; this is elemental. The
I consider that the judgment appealed from is entirely in accordance members of a joint stock, a limited, or a collective company respond
with the law.lawphil.net with their capital for the obligations of the association; in the joint stock
concerns, with their shares; in the limited class, with the amount
The question set up in the majority decision, "In a regular collective contributed; in the collective, with their constituted capital. An industrial
commercial company, is an industrial partner liable as to third persons partner, with what principal sum, share, or quota in the corporate
by reason of the debts and obligations contracted by the capital does he or can he respond for the obligations of the collective
copartnership?" I decide in a negative sense; he is not; by express partnership? Evidently with none whatever.
provision of the law he can not be held to be liable, save, of course, and
agreement to the contrary, which in such case would be a special law, If the capital of the association is exhausted, the extreme case
and would set aside the general law. of losses incurred by the company arises, and third persons can not
recover the amount of the obligations of the company from the
The basis for the contrary opinion and decision is article 127 of the Code corporate capital, because the latter is sufficient to recover them.
of Commerce: Shareholders in the case of a joint stock company, beyond the value of
All the members of the general copartnership, be they or be their stock, have no longer to think of any ulterior subsidiary
they not managing partners of the same, are personally and in responsibility. Neither do the partners of a limited company. In either
solidum liable with all their property for the results of the case the partners are only liable to the extent of their corporate capital.
transactions made in the name and for the account of the Collective partners have to respond not only with their corporate capital
partnership, under the signature of the latter, and by a person but also with the whole of their property outside of the association. And
authorized to ake use thereof. it is desired that the industrial partner who, in a collective copartnership,
did not primarily respond with his corporate capital, because he had
Now, do the words "all the members" found in this article include the none, shall subsidiary respond with such property as he may have
industrial partners? outside of the company, and with which nobody, either within or
At first it would appear that they do. In order to complete such without the copartnership, had counted upon, since both inside and
reasoning the following premise will be sufficient: That the industrial outside of the company his industry or work only had been reckoned
with. Therefore, the word all, of article 127 cited above, simply denoted no subject for the principal and direct seizure when the assets of the
the extent of the ulterior or subsidiary responsibility, and that which copartnership are attached. How is it possible to conceive any ulterior,
does not appear, which does not materially exist, can hardly be made to subsidiary, indirect responsibility over the property which it was not
apply. even thought to be included, since he only contributed to the company
his industry and work, not property of any class whatever? It seems very
An industrial partner can not engage in transactions of any class
anomalous that one who has not obligated himself in the least should
whatever, otherwise he would be subject to serious consequences (art.
be responsible or the greater part, that he who is not comprehended
138), while a capitalist partner, as a rule, may so engage without
within the explicit terms should be included by implication, and that he
extending profits or liabilities to the company (arts. 134 and 136); an
who pledge nothing should be held to respond with his property.
industrial partner, as regards profits, can only receive in the distribution
the same amount as the partner who contributed the smallest amount As to the nature of the defendant company in this action, I take it to
of capital (art. 140); in the case at bar, one-eighth goes to each of the be:lawphil.net
two industrial partners, three-fourths being for the capitalist, and even
1. That the defendant company is really a collective one such as is
at the expiration of the copartnership they run the risk of having the
described in the Code of Commerce; the firm of "F. Muñoz & Sons" and
one-eighth of the profits earned in former years absorbed by a total loss
the terms of the articles of association prove it so beyond all doubt.
incurred during the last year of the contract of copartnership; and it is
claimed that such industrial partner, so much delayed with regard to 2. That it is a regular collective company; the word regular means, as
profits, who has not the same rights, shall be under the sameobligations employed in the Code of Commerce, that the collective company is the
as regards obligations because he is a collective partner? This seems rule, the standard in all commercial associations, the one combining all
neither just nor logical. the effects which are consequent upon this form of convention; and the
limited and the joint-stock companies are theexception.
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital, 3. That it is not irrelevant in view of the manner in which the present
without including" the industrial partners (since they have not Code of Commerce, like the former one of 1829, has defined the
the same rights), and they should not be included therein nor in the collective company, that such a distinguished professor of law as Doctor
corporation of the partner who contributed the smallest capital, simply Lorenzo de Benito should have established in his "Lessons on Mercantile
for the reason that the industrial partner has nothing to lose, he not Law" a difference between the regular collective associations and
having contributed anything which the company may lose when the irregular collective companies; "regular are those wherein, as article 122
losses of the copartnership are considered, either among the partners reads, all the members in a collective name and under a firm name bind
thereof or with regard to third persons. themselves to participate in the proportion which they may establish
with the same rights and obligations." "And irregular, those wherein one
There need be no distinction made between obligations and losses.
or more members who, though not contributing toward the company
During the existence of a company the gains or the losses are set off the
with anything but their industry, participate in the profits in the manner
one against the other, and the difference is either in favor of or against
agreed to in the articles of association or as determined by law,
the concern. As to the industrial partner, in connection with the
and ordinarily do not share in the losses which the copartnership may
question submitted, it is not a matter of striking a balance from time to
sustain. Such members are called industrial partners, and the collective
time, but one of the final adjustment of assets and liabilities, because
copartnership having a member of said class is also sometimes called an
the matter under discussion refers only to his private property, which
association of capital and industry.
has nothing to do with the company nor with losses in liquidating the
same. Article 127 is affected by article 237: "The private property of the This is what the law says (he continues), but it has not been very
general partners which is not included in the assets of the copartnership fortunate in sketching the characters of a regular collective
when it is established can not be seized for the payment of the partnership (since in conclusion it says nothing in reference to the
obligations contracted by the copartnership until after the common irregular partnership), because precisely the collective name and
assets have been attached." And such condition is stated in the majority the corporate name are applicable to both the collective and the
decision. As long as there is property belonging to the company, limited companies; and as to the covenant entered into by the
obligations in favor of third persons are covered by the primary and partners to participate in the proportion which they may establish
direct responsibility of the company; the question arises when the with the same rights and obligations, this is inherent to all
assets of the company are exhausted and it becomes necessary to partnerships without distinction as to class. What characterizes this
appeal to the ulterior or subsidiary liability of the private property of the partnership is that all the members, "with the exception of the
partners; in this case such obligations constitute the extreme losses in industrial partners," are jointly responsible and with all their property
the liquidation of the company. for the corporate obligations.
The case at bar could only thus be set forth: Should an industrial partner 4. That the code in force, by means of three articles, 138, 140, and 141,
be responsible for such losses, for such obligations in favor of third among those which regulate collective partnerships, has involved this
persons? Article 141 expressly states that he shall not. In order to state association of capital and industry; whence irregularity necessarily
the contrary it would be necessary to appeal to discriminations in the arises; the irregularity of such an irregular system is that in a collective
wording of said article; and this is neither permitted where the law does partnership wherein, besides the element property, common or generic
not make them nor would they lead to anything after all. In the aforesaid to the three aforesaid classes, there appears this one, to wit, industry, a
article 237 the corroboration of the word all of article 127 may be found: special features only in collective partnerships, according to the system
"The private property of the general partners which isnot included in the of the code.
assets of the copartnership," differing from such as were included, can Had the system adopted by the codes of Portugal, Brazil, and the
not seized for the payment of obligations contracted by the Argentine Republic been followed, a different classification would have
copartnership, until after the common assets have been attached; after been made of the association of capital and industry which, according
such attachment all the assets, according to article 127, such as were to the last of the codes cited, is properly characterized by means of the
included, and those that were not included, in this order, shall be subject following articles:
to the results of the transactions of the copartnership. An industrial
partner has not contributed any property whatever; he therefore offers 435. Habilitacion or association of capital and industry is the name
given to the partnership formed on the one part by one or more
persons who furnish funds for a general business, or for some From the general rule which we have just set up the industrial partners
particular commercial transaction, and on the other part by one or who contract no obligation to secure the liabilities of the company
more individuals who join the copartnership with their industry should be excepted, unless there be an express covenant to the
alone. contrary." (Art. 319 of the code of 1829, identical with art. 141 of the
code now in force.)
438. The obligation of the partners who furnished capital is in
solidum, and extends beyond the capital contributed by them to the During almost half a century no obligation has been raised by the
concern. professors of law, the press, or the bar, to this doctrine regarding the
exemption, not merely with respect to losses but to company
439. The articles of association, besides the requirements contained
obligations of the industrial partner, on the suppositions, which I do not
in article 395, must specify the obligations of the industrial partner
admit, as already shown, that it may be possible to discriminate
or partners and the share in the profits to which they are entitled in
between losses and obligations in connection with an industrial partner,
the apportionment.
for whom there are none but the final losses, such as absorb the assets
In the absence of such declaration, the industrial partner shall draw of the company, which can not be otherwise than outstanding
from the profits a share equal to those of the partner who furnished obligations in favor of third parties inasmuch as, so long as there are
the smallest capital. company assets, no recourse can be held to the private property of any
440. An industrial partner can not contract on behalf of the partner.
partnership nor is he obligated with his own property toward the
creditors of the company.
TEODORO DE LOS REYES, plaintiff-appellee,
Nevertheless, if besides his industry he should contribute some vs.
capital toward the company either in money or thing of value, the VICENTE LUKBAN and ESPERIDION BORJA, defendants. VICENTE
association shall then be considered as a collective one, and the LUKBAN, appellant.
industrial partner, whatever might have been stipulated, shall
respond in solidum. On December 5, 1913, Teodoro de los Reyes brought suit in the Court of
First Instance of this city against Vicente Lukban and Esperidion Borja, to
In my opinion it can not be denied that there is no substantial difference recover from them individually the sum of P853, the balance of a debt
between the three articles of our code and those transcribed from that of P1,086.65 owing for merchandise bought on credit in October and
of the Argentine Republic as regards the rights and obligations of November, 1904, by the firm Lukban & Borja, from the plaintiff's ship
industrial partners in conjunction with partners who furnish capital; supply store, named La Industria.
there is no difference except in the system, the code of the Argentine
Republic dealing with this class of association of capital and industry In case No. 3759, prosecuted in the said court by the creditor Reyes
separately from the only three defined in our code, all of them of capital against the said firm of Lukban & Borja, the latter was ordered by a final
only or essentially of partners who furnish capital. Therefore, as said judgment of October 19, 1905, to pay the said sum of P1,086.65,
code has an article almost literally identical with article 127 of our code, together with the interest thereon, amounting to a total of P1,102.95,
this question can not possibly arise in that country. That code contains in addition to the costs, P46.24.
article 454, which reads: "All those who form a collective commercial One of the partner, Esperidion Borja, paid P522.69 on account of the
company, whether managing the corporate funds or not, are debt.lawphi1.net There still remains to be paid P610.21, and this sum,
obligated in solidum (with all their property, as our code would state) together with the costs and legal interest thereon from July 14, 1905, to
for the results of the transactions made in the name and for account of the date of the complaint, December 5, 1913, aggregates the total sum
the partnership," etc. To the question, Do the words "all the partners" of P894.17. The plaintiff prayed the court to order the defendants jointly
found in said article include the industrial partners? undoubtedly the or severally to pay him, the plaintiff, this last mentioned amount,
answer would be no. together with the legal interest thereon from the date of the complaint,
And it would not suffice to say that the above article of the code of the and the costs.
Argentine Republic, namely, "on collective copartnership," involves no After due summons the defendants appeared, and one of them,
section which may refer to industrial partners, and that, therefore, there Esperidion Borja, in answer to the complaint entered a general and
can be no question as to the words "all the members;" it is because, by specific denial of each and all of the allegations therein contained, and,
reason of the nature thereof, whether under one system or another, the as a special defense, alleged that it was res judicata and that the
provisions and the principles being identical, the conclusions can not plaintiff's action, if it existed, had already prescribed.
otherwise than identical. In a copartnership, and as the result of the
obligations thereunder, an industrial partner can not lose except what The other defendant, Vicente Lukban, in his amended answer set forth
he has actually contributed thereto for a limited or an unlimited (1) that he denied generally and specifically each and all of the facts
purpose, subject ultimately to company or personal obligations; this is alleged in each and all of the paragraphs of the complaint; (2) that the
all that law and logic may demand of him; anything else would not come issues raised by the complaint had already been decided in case No.
under the law, but may be demanded of him by reason of his express 10908, in which the firm of Lukban & Borja was acquitted, without costs;
covenant, because he has consented to something beyond the (3) that the defendant Lukban was merely an industrial partner in the
character and the effects of the contract of partnership of capital and firm of Lukban & Borja, Espiridion Borja being the partner thereof who
industry entered into by him, called collective; nothing else has been the furnished the capital; (4) that the assets of the firm of Lukban & Borja
subject of his consent and obligation. had not been exhausted (by attachment), wherefore the present action
is premature; and (5) that the plaintiff Reyes' action, as regards this
Manuel Duran y Bas, a former professor of the University of Barcelona, defendant Lukban, has prescribed.
in his addition to the work of Marti de Eixala, which is so generally and
specially consulted in that eminently commercial and industrial city, has At the trial of the case the parties made the following stipulation:
offered no remarks to the original text of said work which establish as 1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes
an elemental doctrine that "When the copartnership is purely a brought suit against the firm of Lukban & Borja to recover the sum of
collective one, each of its members is jointly obligated for the result of P1,086.65 owing for merchandise bought on credit in the months of
the transactions which should be charged to the copartnership . . . .
October and November, 1904, from the ship supply store known by 1. In not holding that the action brought against this defendant is
the name of La Industria. The said suit was heard before the improper, inasmuch as prior to its prosecution no attachment was
Honorable John C. Sweeney, on October 19, 1905, on which date the levied on the assets of the said partnership.
said judge sentenced the defendant firm to pay the sum of P1,086.65,
2. In not holding that the action brought against this appellee
Philippine currency, with legal interest thereon from July 14, 1905, to
[defendant] has not been proven.
the date of the judgment, amounting to P16.30, Philippine currency,
and costs amounting to P46.24. It does not appear that this obligation 3. In not holding that the present is not a true case of res judicata.
was set forth in writing. All the preceding has been taken from the 4. In not holding that the appellee's action has prescribed in so far
record of that court in case No. 3759, De los Reyes vs, Lukban & Borja. as it concerns this appellant.
2. On August 19, 1913, the same plaintiff Teodoro de los Reyes With respect to the first assignment of error, the contents of the writ
brought suit against Lukban & Borja to recover the sum of P853, and the return of the execution of the final judgment rendered in the
alleging for this purpose that the defendant Espiridion Borja paid said case No. 3759 show that the dissolved partnership of Lukban &
P522.69 on account of the sum of P1,086.65 allowed in the judgment Borja had absolutely no property whatever of its own. Had any property
referred to in the preceding paragraph, there remaining unpaid whatever of the said partnership still remained, the defendant Lukban
P610.21 of the principal debt, to which is added the legal interest would have pointed it out inorder to avoid being obliged to pay in
thereon from January 1, 1906, to the date of the commencement of solidum all the balance of the sum which the firm was sentenced to pay
the said suit, thus forming the total sum above stated of P853. After by the said final judgment of October 19, 1905. He did not do so because
hearing the case, the Honorable Judge Del Rosario, on November 20, the firm of Lukban & Borja no longer had any kind of property or credits,
1913, rendered judgment absolving the firm of Lukban & Borja from as shown by the document setting forth the agreement made by and
the complaint without special finding as to costs. All the facts related between several creditors of the said firm, a third party named Ramon
in this paragraph appear in case No. 10908 of this court. Tinsay and the former partner of the firm, Espiridion Borja, in which
3. That several years ago and seven months after its organization, or, document it appears that the firm Lukban & Borja owed four creditors,
more specifically, on April 13, 1909, the firm of Lukban & Borja was among them the plaintiff De los Reyes, the total sum of P10,165.01 and
lawfully dissolved, as stated by Borja; and that the five years from the these creditors with some difficulty succeeded in collecting the sum of
13th of the same month of the year 1904, stipulated for its duration P5,000 through a transaction with the said Ramon Tinsay who paid this
had elapsed. (Judgment in case No. 10908.) The articles of last amount for the account of the partner Espiridion Borja. It appears
incorporation of the firm of Lukban & Borja are found in the attached that the latter paid to the creditor De los Reyes the aforementioned sum
document, which, for its identification, is marked as Exhibit A of this of P522.69, on account of the firm's debt to Teodoro de los Reyes, a debt
agreement. which was recognized in the said judgment of October 19, 1905. The
attachment, or recourse to the property, the lack of which proceeding
4. That the assets of the firm of Lukban & Borja had not been
was complained of, is a proceeding that was resorted to when attempt
exhausted (by attachment) for the reason that the plaintiff did not
was made to execute the final judgment rendered against the
know what property belonged to it.
partnership of Lukban & Borja, which proceeding gave negative results;
5. Vicente Lukban and Espiridion Borja, notwithstanding that they therefore, if the requirement of article 237 of the Code of Commerce
alleged themselves to be copartners of the firm of Lukban & Borja, must be complied with by the creditor it is evident that it has already
were not sued by the herein plaintiff in cases Nos. 3759 and 10908, been done for the defendant Lukban was unable to show that the
but that plaintiff sued the firm of Lukban & Borja, represented by partnership to which he belonged actually possessed any more assets.
Borja.
With respect to the second assignment of error, if Teodoro de los Reyes
After hearing the evidence, the court rendered judgment on November is entitled to collect individually from the partners Lukban and Borja the
25, 1914, sentencing the defendants Vicente Lukban and Espiridion amount of the debt that the dissolved partnership owed at the time of
Borja jointly and severally to pay to the plaintiff Teodoro de los Reyes its dissolution, it is unquestionable that such a right has given rise to the
the sum of P610.20, together with the legal interest thereon from corresponding right of action to demand the payment of the debt from
December 17, 1913, and the costs. To this judgment Lukban excepted, the partners individually, or from each of them, by the insolvency of the
announced his intention to file the proper bill of exceptions and moved partnership, inasmuch as they are personally and severally liable with all
for a new trial on the grounds that the evidence did not justify the their property for the results of the operations of the partnership which
decision and that the latter was contrary to law. By an order of they conducted.
December 10, the motion for a new trial was overruled and an exception
Article 127 of the Code of Commerce provides:
was entered by this defendant-appellant. The other defendant,
Espiridion Borja, made no exception to the said ruling so the judgment All the member of the general copartnership, be they or be they not
became final with respect to him. managing partners of the same, are personally and severally liable
with all their property for the results of the transactions made in the
The subject matter of this suit is an acknowledged debt held to be owing
name and for the account of the partnership, under the signature of
by a judicial pronouncement contained in a judgment rendered in case
the latter, and by a person authorized to make use thereof.
No. 3759, prosecuted by the creditor Teodor de los Reyes against the
general partnership of Lukban & Borja, which was sentenced to pay the With regard to the third assignment of error. Although the action
said debt. The creditor was unable to collect it in its entirety but brought in case No. 10908 by the creditor Teodoro de los Reyes against
recovered only a part thereof, to wit, P522.69, which was paid by the the partnership Lukban & Borja be not different from that brought in the
partner Borja. In order to demonstrate the propriety of the judgment present case No. 11296, and although it be deemed to have arisen out
appealed from, rendered against the parties who were the partners of of the right of the plaintiff-creditor to collect his credit, yet the first time
the said firm, we shall confine ourselves in this decision to the four it was brought against the partnership. The action against Vicente
errors assigned to the said judgment by the defendant Lukban, Lukban and Espiridion Borja individually ca not be demurred to on the
inasmuch as the other defendant Borja acquiesced in the said judgment ground of res judicata by the judgment of acquittal entered in case No.
and the same became final as to him. These error are the following: 10908.
Article 1252 of the Civil Code provides:
In order that the presumption of the res judicata may be valid in 3d. That the partnership of Lukban and Borja was dissolved by
another suit, it is necessary that, between the case decided by the operation of law about five years ago, that is to say, about the 13th
sentence and that in which the name is invoked, there must be the of April, 1909, on which date the five years stipulated in the contract
most perfect identity between the things causes, and persons of the of partnerships the duration of the same expired, said partnership
litigants, and their capacity as such. having been formed on the 13th of April, 1904. . . .
There may be perfect identity between the cause of action and the 4th That the plaintiff made no attempt to collect the said judgment
things demanded in case no. 10908, wherein the said partnership was of P1,086.65, or any part thereof, from the partnership property for
absolved from the complaint, and in the present case No. 11296; it is, the reason that he did not know of the existence of any such
however, undeniable that the parties defendant are not the same nor is property.
their capacity as such. In the first case it was the partnership that was
5th. That Vicente Lukban and Espiridion Borja, although they were
sued, while in the present case it is Lukban and Borja individually, as
members of the firm of Lukban and Borja, were not made parties to
former members of that dissolved partnership, who are sued jointly and
the actions in which the judgments above referred to were
severally. Therefore, pursuant to the above-cited article of the Civil
obtained, but in each of said actions the partnership of Lukban and
Code, the provisions of which harmonize with those of section 307 of
Borja was the sole defendant.
the Code of Civil Procedure, the former judgment can not be set up
as res judicata in the present action. The trial court found in favor of the plaintiff and entered judgment
against the defendants Vicente Lukban and Espiridion Borja jointly and
As regards the last assignment of error, alleging prescription of action,
severally for the sum of P610.20, with interest from the 17th day of
suffice it to say that from October 19, 1905, to December 5, 1913, even
December, 1913. From that judgment this appeal was taken.
without counting the interruption caused by the action brought on
August 18th of this latter year, the ten year period fixed by section 43 of We have these facts before us:
the Code of Civil Procedure has not elapsed. In view of the negative The partnership of Lukban and Borja was formed on the 13th of April,
results of the proceedings had by the sheriff in levying execution of the 1904, to run for a period of five years. On the 19th of October, 1905, the
final judgment rendered against the partnership of Lukban & Borja, the plaintiff obtained a judgment against the said partnership for the sum of
creditor in the exercise of his rights has brought the proper action P1,086.65. Later the partnership paid on said judgment the sum of
against those who were the members of that firm for the recovery of P522.69, a balance of P610.21. On the 19th of August, 1913, and after
the unpaid balance of his credit, and he filed his complaint within the the lapse of more than five years from the date of the judgment and
period fixed by the law of procedure and the defendants cannot allege without execution having been issued thereon, the plaintiff began the
that it is now res judicata. action for the recovery of the balance due on said judgment. The
For the foregoing reasons the judgment appealed from is affirmed with complaint in that action was dismissed on the ground that, on the date
the costs of this instance against the appellant. So ordered. on which the action was brought, the partnership had ceased to exist,
the five years term having expired, and that no action could be brought
Johnson, Carson, Trent and Araullo, JJ., concur.
against it. Later the present action was commenced against the
members of the partnership personally for the recovery of the balance
Separate Opinions due on said judgment. It is admitted that no attempt has been made by
the plaintiff to collect the original judgment out of the partnership
property.
MORELAND, J., dissenting:
The first question which arises is: Can an action be maintained against
This action was begun against Vicente Lukban and Espiridion Borja the partnership, or against any or all of the members thereof, on the old
personally to recover the sum of P853, the balance due on a judgment judgment for the purpose of obtaining another judgment of precisely
obtained against the partnership known as "Lukban & Borja." The facts similar character? We think not. The only action on a judgment
preceding the beginning of this action are stated in a stipulation authorized either by the Civil Code or by the Code of Civil Procedure is
between the parties as follows: one for the enforcement of the judgment (section 447, Code of Civil
1st. That on the 15th of July, 1905, the plaintiff, Teodoro de los Procedure). 1 A judgment is not recognized by the Civil Code, or by the
Reyes, sued the firm of Lukban and Borja, a copartnership, for the Code of Civil Procedure or any other law called to our attention, as a
recovery of P1,086.65, the purchase price of article sold to the said contract either express or implied, or as a quasi contract, or as a debt,
partnership during the months of October and November, 1904. The or any other kind of obligation which can be made the basis of an action
action was tried before the Hon. John C. Sweeney who, on October to obtain another judgment of precisely the same nature. In some cases
19, 1905, found in favor of the plaintiff for P1,086.65, Philippine it is regarded more in the nature of an order for the specific
currency, with interest from the 14th of July, 1905, to the date of performance of the contract on which the action is founded; and in
the judgment, amounting to P16.30, and costs, amounting to every case it is considered the highest form which men's relations can
P46.24. . . . take under the law and no action based thereon can make it any better
or higher; and an action for that purpose is useless. It would seem to be
2d. That on the 19th of August, 1913, the said plaintiff, Tedoro de but natural that the law not permit the courts to be moved and parties
los Reyes, began an action against the said partnership, Lukban and perturbed and cause loss of time and money for the sole purpose of
Borja, to recover the sum of P853, alleging that the defendant obtaining a thing not one with better than that which the courts have
Espiridion Borja paid on the above-mentioned judgment the sum of already given him and cannot be of the slightest legal value to him. When
P522.69, leaving a balance due thereon of P610.21, with interest courts have given a party the very highest thing of which they are
from the 1st of January, 1906, to the date of filing the complaint, capable their powers cannot be again exercised in that particular regard.
principal and interest amounting to P853, already mentioned. On They exhausted. Why should a party who has one judgment which is
the trial of the case the Hon. Judge Del Rosario in the month of completely enforceable be permitted to have another on top of it no
November, 1913, entered a judgment dismissing the complaint on more enforceable?
the merits against the said partnership of Lukban and Borja without
costs. An action on a judgment as a debt, obligation, or contract being
unknown to the Civil Code or the Spanish law generally, it is a necessary
result that , if any right of action on a judgment exists in this jurisdiction, Nor do we find it necessary to consider at this time whether or not the
it must have been conferred by a statute passed since the American judgment in the second action against the plaintiff and in favor of the
occupation. The only legislation on that subject is found, as we have partnership is res adjudicata in the present action. For the same reason
stated, in section 447 of the Code of Civil Procedure, which permits an we find it unnecessary to decide whether the action has prescribed
action to be brought, not on the judgment as a debt or for the purpose under the provisions of the Code of Civil Procedure.
of securing a new judgment of precisely similar character to the old one,
The judgment appealed from should be reversed and the cause
but to enforce the old judgment after the explanation of the time during
dismissed on the merits, without costs in this instance.
which an execution may be issued. In other words, the action authorized
by section 447 is not to obtain a new judgment but to enforce the old;
and the judgment secured in such an action is not for a sum of money,
but it is simply an order directing the execution of the old judgment. It
simply takes the place of the execution which, five years having elapsed,
is not issuable. In a word, it is another means of obtaining an execution. 2
We are of the opinion, therefore, that the second action against the
partnership to procure a new judgment for the amount remaining due
on the old judgment was not maintainable and was property dismissed
by the court; and, while the dismissal was based on an untenable
ground, it was, nevertheless, correct. No appeal was taken from that
judgment, and it is now, of course, final and was when this action was
commenced.
The second question which arises is: Can an action to recover a
judgment on a judgment be maintained against the members of a
partnership personally if it cannot be maintained against the partnership
itself? As we have already said, the present action is directed against the
members of the partnership personally and is to recover a joint and
several judgment against them upon the old judgment against the
partnership.
It is clear that our reasoning in connection with the first question is
correct, then this action cannot be maintained. If there is no authority
of law for bringing an action on a judgment to secure a new judgment,
then this action cannot be maintained any more than the action against
the partnership under similar circumstances. There is no law giving a
right of action on a judgment in favor of or against anybody, except that
conferred by section 447 above quoted; and that, as we have seen, is
simply a right to enforce the old judgment.
The third question which presents itself is: Even admitting the right of
the plaintiff to maintain an action on the old judgment, is the remedy of
the plaintiff a new judgment against the members of the partnership
personally or it is the execution of the old judgment against them?
Under the law and procedure existing in this jurisdiction prior to
American occupation, a new judgment against the members of the firm
personally under circumstances such as appear in this case was not
permitted. The first step required of a plaintiff who had a judgment
against a partnership of the character described in this action was to
execute the judgment as far as possible against the property of the
partnership; and, after was exhausted, to proceed, by execution, against
the property of the individual members under the same judgment. It
was not necessary, nor was it permitted, to bring a new action against
the members of the firm personally on the old judgment and obtain a
new judgment against them. That procedure has not been changed by
any legislation since American occupation and that is the practice to-
day.
As a necessary result the plaintiff is not entitled to a judgment in this
action.
We do not stop to discuss the question presented by the appellant as to
whether the exhaustion of the property of the partnership is a necessary
prerequisite to the bringing of this action. That question is not involved,
inasmuch as it cannot be reached until has been determined whether
such as an action can be maintained. If the action cannot be maintained
under any theory, then it is unnecessary to determine the validity of the
defenses to that action, one of which is, appellant claims, that the
plaintiff has not exhausted his remedy against the partnership property.
Article 1818

ELMO MUÑASQUE, petitioner,


vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS,respondents.
In this petition for certiorari, the petitioner seeks to annul and set added
the decision of the Court of Appeals affirming the existence of a
partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be
excluded from the liabilities of the partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its
Cebu Branch Manager Pons for remodelling a portion of its building
without exchanging or expecting any consideration from Galan although
the latter was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing company
(Tropical). Galan would receive some kind of compensation in the form
of some percentages or commission; that Tropical, under the terms of
the contract, agreed to give petitioner the amount of P7,000.00 soon
after the construction began and thereafter, the amount of P6,000.00
every fifteen (15) days during the construction to make a total sum of
P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same
check persuading the latter that the same be deposited in a joint
account; that on January 26, 1967 when the second check for P6,000.00
was due, petitioner refused to indorse said cheek presented to him by
Galan but through later manipulations, respondent Pons succeeded in
changing the payee's name from Elmo Muñasque to Galan and
Associates, thus enabling Galan to cash the same at the Cebu Branch of
the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction
materials, the payment of which should have been made from the
P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16,
1967 deadline;that because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents
under the terms of the written contract between the petitioner and divided into three equal installments at the lute of Six Thousand Pesos
respondent company. (P6,000.00) every fifteen (15) working days.
The respondents answered the complaint by denying some and The first payment made by respondent Tropical was in the form of a
admitting some of the material averments and setting up counterclaims. check for P7,000.00 in the name of the petitioner.Petitioner, however,
indorsed the check in favor of respondent Galan to enable the latter to
During the pre-trial conference, the petitioners and respondents agreed
deposit it in the bank and pay for the materials and labor used in the
that the issues to be resolved are:
project.
(1) Whether or not there existed a partners between Celestino Galan
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for
and Elmo Muñasque; and
his personal use so that when the second check in the amount of
(2) Whether or not there existed a justifiable cause on the part of P6,000.00 came and Galan asked the petitioner to indorse it again, the
respondent Tropical to disburse money to respondent Galan. petitioner refused.
The business firms Cebu Southern Hardware Company and Blue The check was withheld from the petitioner. Since Galan informed the
Diamond Glass Palace were allowed to intervene, both having legal Cebu branch of Tropical that there was a"misunderstanding" between
interest in the matter in litigation. him and petitioner, respondent Tropical changed the name of the payee
After trial, the court rendered judgment, the dispositive portion of which in the second check from Muñasque to "Galan and Associates" which
states: was the duly registered name of the partnership between Galan and
petitioner and under which name a permit to do construction business
IN VIEW WHEREOF, Judgment is hereby rendered: was issued by the mayor of Cebu City. This enabled Galan to encash the
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly second check.
and severally the intervenors Cebu and Southern Hardware Meanwhile, as alleged by the petitioner, the construction continued
Company and Blue Diamond Glass Palace the amount of P6,229.34 through his sole efforts. He stated that he borrowed some P12,000.00
and P2,213.51, respectively; from his friend, Mr. Espina and although the expenses had reached the
(2) absolving the defendants Tropical Commercial Company and amount of P29,000.00 because of the failure of Galan to pay what was
Ramon Pons from any liability, partly due the laborers and partly due for the materials, the construction
work was finished ahead of schedule with the total expenditure reaching
No damages awarded whatsoever. P34,000.00.
The petitioner and intervenor Cebu Southern Company and its The two remaining checks, each in the amount of P6,000.00,were
proprietor, Tan Siu filed motions for reconsideration. subsequently given to the petitioner alone with the last check being
On January 15, 197 1, the trial court issued 'another order amending its given pursuant to a court order.
judgment to make it read as follows: As stated earlier, the petitioner filed a complaint for payment of sum of
IN VIEW WHEREOF, Judgment is hereby rendered: money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly
into the hands of respondent Galan, the additional expenses that the
and severally the intervenors Cebu Southern Hardware Company
petitioner incurred in the construction, moral and exemplary damages,
and Blue Diamond Glass Palace the amount of P6,229.34 and
and attorney's fees.
P2,213.51, respectively,
Both the trial and appellate courts not only absolved respondents
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Tropical and its Cebu Manager, Pons, from any liability but they also held
Southern Hardware Company and Tan Siu jointly and severally
the petitioner together with respondent Galan, hable to the intervenors
interest at 12% per annum of the sum of P6,229.34 until the amount
Cebu Southern Hardware Company and Blue Diamond Glass Palace for
is fully paid;
the credit which the intervenors extended to the partnership of
(3) ordering plaintiff and defendant Galan to pay P500.00 petitioner and Galan
representing attorney's fees jointly and severally to Intervenor Cebu
In this petition the legal questions raised by the petitioner are as follows:
Southern Hardware Company:
(1) Whether or not the appellate court erred in holding that a
(4) absolving the defendants Tropical Commercial Company and partnership existed between petitioner and respondent Galan. (2)
Ramon Pons from any liability, Assuming that there was such a partnership, whether or not the court
No damages awarded whatsoever. erred in not finding Galan guilty of malversing the P13,000.00 covered
by the first and second checks and therefore, accountable to the
On appeal, the Court of Appeals affirmed the judgment of the trial court petitioner for the said amount; and (3) Whether or not the court
with the sole modification that the liability imposed in the dispositive committed grave abuse of discretion in holding that the payment made
part of the decision on the credit of Cebu Southern Hardware and Blue by Tropical through its manager Pons to Galan was "good payment, "
Diamond Glass Palace was changed from "jointly and severally" to
"jointly." Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
Not satisfied, Mr. Muñasque filed this petition. and a perfidious partner who misappropriated the amount of
The present controversy began when petitioner Muñasque in behalf of P13,000.00 due to the petitioner.Petitioner also contends that the
the partnership of "Galan and Muñasque" as Contractor entered into a appellate court committed grave abuse of discretion in holding that the
written contract with respondent Tropical for remodelling the payment made by Tropical to Galan was "good" payment when the same
respondent's Cebu branch building. A total amount of P25,000.00 was gave occasion for the latter to misappropriate the proceeds of such
to be paid under the contract for the entire services of the Contractor. payment.
The terms of payment were as follows: thirty percent (30%) of the whole The contentions are without merit.
amount upon the signing of the contract and the balance thereof
The records will show that the petitioner entered into a con-tract with ... The appellant is bound by the delimitation of the issues contained
Tropical for the renovation of the latter's building on behalf of the in the trial court's order issued on the very day the pre-trial
partnership of "Galan and Muñasque." This is readily seen in the first conference was held. Such an order controls the subsequent course
paragraph of the contract where it states: of the action, unless modified before trial to prevent manifest
injustice.In the case at bar, modification of the pre-trial order was
This agreement made this 20th day of December in the year 1966
never sought at the instance of any party.
by Galan and Muñasque hereinafter called the Contractor, and
Tropical Commercial Co., Inc., hereinafter called the owner do Petitioner could have asked at least for a modification of the issues if he
hereby for and in consideration agree on the following: ... . really wanted to include the determination of Galan's personal liability
to their partnership but he chose not to do so, as he vehemently denied
There is nothing in the records to indicate that the partner-ship
the existence of the partnership. At any rate, the issue raised in this
organized by the two men was not a genuine one. If there was a falling
petition is the contention of Muñasque that the amounts payable to the
out or misunderstanding between the partners, such does not convert
intervenors should be shouldered exclusively by Galan. We note that the
the partnership into a sham organization.
petitioner is not solely burdened by the obligations of their illstarred
Likewise, when Muñasque received the first payment of Tropical in the partnership. The records show that there is an existing judgment against
amount of P7,000.00 with a check made out in his name, he indorsed respondent Galan, holding him liable for the total amount of P7,000.00
the check in favor of Galan. Respondent Tropical therefore, had every in favor of Eden Hardware which extended credit to the partnership
right to presume that the petitioner and Galan were true partners. If aside from the P2, 000. 00 he already paid to Universal Lumber.
they were not partners as petitioner claims, then he has only himself to
We, however, take exception to the ruling of the appellate court that
blame for making the relationship appear otherwise, not only to Tropical
the trial court's ordering petitioner and Galan to pay the credits of Blue
but to their other creditors as well. The payments made to the
Diamond and Cebu Southern Hardware"jointly and severally" is plain
partnership were, therefore, valid payments.
error since the liability of partners under the law to third persons for
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled: contracts executed inconnection with partnership business is only pro
Although it may be presumed that Margarita G. Saldajeno had acted rata under Art. 1816, of the Civil Code.
in good faith, the appellees also acted in good faith in extending While it is true that under Article 1816 of the Civil Code,"All partners,
credit to the partnership. Where one of two innocent persons must including industrial ones, shall be liable prorate with all their property
suffer, that person who gave occasion for the damages to be caused and after all the partnership assets have been exhausted, for the
must bear the consequences. contracts which may be entered into the name and fm the account cd
No error was committed by the appellate court in holding that the the partnership, under its signature and by a person authorized to act
payment made by Tropical to Galan was a good payment which binds for the partner-ship. ...". this provision should be construed together
both Galan and the petitioner. Since the two were partners when the with Article 1824 which provides that: "All partners are liable solidarily
debts were incurred, they, are also both liable to third persons who with the partnership for everything chargeable to the partnership under
extended credit to their partnership. In the case of George Litton v. Hill Articles 1822 and 1823." In short, while the liability of the partners are
and Ceron, et al, (67 Phil. 513, 514), we ruled: merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners
There is a general presumption that each individual partner is an solidarily liable for the whole obligation if the case of the third person
authorized agent for the firm and that he has authority to bind the falls under Articles 1822 or 1823.
firm in carrying on the partnership transactions. (Mills vs. Riggle,112
Pan, 617). Article