G.R. No.

L-4935 May 28, 1954

J. M. TUASON & CO., INC. vs. QUIRINO BOLAÑOS

This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and description of
the land sought to be recovered. The original complaint described the land as a portion of a
lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land
record of Rizal Province and as containing an area of 13 hectares more or less. But the
complaint was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied
by him. The second amendment became necessary and was allowed following the
testimony of plaintiff's surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still
later, in the course of trial, after defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant was about 13 hectares, as shown
in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessor in interest" from
"time in-memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the complaint be dismissed with
costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant
makes the following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer certificates
of Title Nos. 37686 and 37677.
 Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the
land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount
of P132.62 monthly from January, 1940, until he vacates the premises.

VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the
defendant.

As to the first assigned error, there is nothing to the contention that the present action is
not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the
Rules of Court require is that an action be brought in the name of, but not necessarily by,
the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law
to bring the action, that is to file the complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes
now plaintiff, through its undersigned counsel." It is true that the complaint also states
that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.",
another corporation, but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless enter
into a joint venture with another where the nature of that venture is in line with the
business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that
the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects, as if
they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues made by the pleadings,
the court may allow the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and the objecting party
fails to satisfy the court that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may grant a continuance to
enable the objecting party to meet such evidence.

Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision, Chief
Justice Moran says in this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil Procedure,
ruled that where the facts shown entitled plaintiff to relief other than that asked for, no
amendment to the complaint is necessary, especially where defendant has himself raised the
 point on which recovery is based, and that the appellate court treat the pleadings as
amended to conform to the evidence, although the pleadings were not actually amended. (I
Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage
of the trial, that the land in dispute "is that described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant later changed
his lawyer and also his theory and tried to prove that the land in dispute was not covered
by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly
establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio
Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by
transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-
B-4, situated in the same barrio, having an area of 74,789 square meters, more or less,
covered by transfer certificate of title No. 37677 of the land records of the same province,
both lots having been originally registered on July 8, 1914 under original certificate of title
No. 735. The identity of the lots was established by the testimony of Antonio Manahan and
Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well
within the area covered by the two transfer certificates of title already mentioned. This fact
also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered
in 1914, the decree of registration can no longer be impugned on the ground of fraud,
error or lack of notice to defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be collaterally attacked by any
person claiming title to, or interest in, the land prior to the registration proceedings.
(Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of
that of plaintiff, the registered owner, be acquired by prescription or adverse possession.
(Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs.
Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that
the right to secure possession under a decree of registration does not prescribed.
(Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this
point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796.
This disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until
he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the hearing was
P10 a month for each hectare and that the area occupied by defendant was 13.2619
hectares. The total rent to be paid for the area occupied should therefore be P132.62 a
month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco
that as early as 1939 an action of ejectment had already been filed against defendant. And
it cannot be supposed that defendant has been paying rents, for he has been asserting all
along that the premises in question 'have always been since time immemorial in open,
continuous, exclusive and public and notorious possession and under claim of ownership
adverse to the entire world by defendant and his predecessors in interest.' This assignment
of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.

During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same cause and seeking to sustain
that allegation with a copy of the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not appear. That other case is one for
recovery of ownership, while the present one is for recovery of possession. And while
appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the
action seeks relief for each individual plaintiff and not relief for and on behalf of others. The
motion for dismissal is clearly without merit. Wherefore, the judgment appealed from is
affirmed, with costs against the plaintiff.
 G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH vs. SANITARY WARES MANUFACTURING CORPORATION

These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated
June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American
Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino
stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates and in the event they
cannot agree on the six (6) nominees, they shall vote only among themselves to determine
who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young
went abroad to look for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware,
United States entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of manufacturing in the Philippines
and selling here and abroad vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors,

which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts and the
right to designate certain officers, such as a member of the Executive Committee whose
vote was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition that
at least 60% of the capital stock of the corporation shall be owned by Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other subsidiaries of
joint joint venture groups in the countries where Philippine exports were contemplated. On
March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by
Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of
the preliminary items in the agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors
nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E.
Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled
the last two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the
3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar.
The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, and Baldwin Young. The Secretary then certified for the election of
the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which
 was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No.
05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only recessed and
that the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by
the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of directors
and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles
Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for
quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and
Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed
as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo warranto
petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the
SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate
Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay
(docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP
No. 05617). The petitions were consolidated and the appellate court in its decision ordered
the remand of the case to the Securities and Exchange Commission with the directive that
a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under
the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate
court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang
Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875
assign the following errors:
 I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING

THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the
following grounds:

11.1. That Amended Decision would sanction the CA's disregard of binding
contractual agreements entered into by stockholders and the replacement of the
conditions of such agreements with terms never contemplated by the stockholders
but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

I . THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING

THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS
TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.

II. THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional 10% equity during elections of Saniwares'
board of directors.

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F
Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd
668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962
wherein it is clearly stated that the parties' intention was to form a corporation and not a
joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-
GR No. 75875)

They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young Group
on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the
Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded
in their pleading that the "Agreement" failed to express the true intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have been reduced

to writing, it is to be considered as containing all such terms, and therefore, there
can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the
following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue by
the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and
Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the
true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties,
 the latter shall prevail over the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together attributing to the doubtful
ones that sense which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371,
New Civil Code). (Part I, Original Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint adventure, or to assume some
other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George,
27 Wyo, 423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation. As stated
by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the

Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.

An examination of the Agreement shows that certain provisions were included to

protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].

The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9

votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power. Furthermore,
 the grant to ASI of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3
out of the 9 directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which owns
40% of the capital stock and the Philippine National stockholders who own the
balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.

Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is assured
of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements. The foreign group
may, from the start, intend to establish its own sole or monopolistic operations and merely
uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine firm enlarges its operations
and becomes profitable, the foreign group undermines the local majority ownership and
actively tries to completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say the least. To the
extent that such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements reserve
controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the

parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because it
has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered
as one (which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March 1983, practically
only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A"
thereof).

Secondly, even assuming that Saniwares is technically not a close corporation

because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M
& St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with
legal questions as to the extent to which the requirements arising from the corporate
form of joint venture corporations should control, and the courts ruled that
substantial justice lay with those litigants who relied on the joint venture agreement
rather than the litigants who relied on the orthodox principles of corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action; (2) give
certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of disputes by arbitration
 (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this

provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in
close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close corporations
to those which comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will not come within
the definition. In such case, its stockholders should not be precluded from entering
into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-
Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation
or nomination of directors restricts the right of the Agreement's signatories to vote
for directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
90-94)

In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:

As in other joint venture companies, the extent of ASI's participation in the

management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the

parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
 cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a general rule
on this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.

On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has
the right to vote their additional equity pursuant to Section 24 of the Corporation Code
which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not
necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as
amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in the
capital of such entities. (amendments introduced by Presidential Decree 715, section
1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation
Code. The point of query, however, is whether or not that provision is applicable to a joint
venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common
law jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint venture
is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts generally
apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties as
regards the allocation of director seats under Section 5 (a) of the "Agreement," and the
right of each group of stockholders to cumulative voting in the process of determining who
the group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out
by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members
of the board of directors while Section 3 (a) (1) relates to the manner of voting for these
nominees. This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino director
who would be beholden to them would obliterate their minority status as agreed upon by
the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority
 of the board seats, a result which is clearly contrary to the contractual intent of the
parties.

Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the enterprise
in violation of the nationalization requirements enshrined in the Constitution and
circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that
the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon and
embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin,
David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object
to a cumulative voting during the election of the board of directors of the enterprise as
ruled by the appellate court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement
which uses the word "designate" meaning "nominate, delegate or appoint."

They also stress the possibility that the ASI Group might take control of the enterprise if
the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of board
directors should not be interpreted in isolation. This should be construed in relation to
section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative voting while section 5(a)
relates to the manner of nominating the members of the board of directors. The petitioners
in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the cumulative
voting procedure is dependent on the directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase the ASI share in the management of
Saniwares. The joint venture character of the enterprise must always be taken into
account, so long as the company exists under its original agreement. Cumulative voting
may not be used as a device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in the Agreement which are
intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be
maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and
the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of
Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham
Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting. In all other respects, the questioned
decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No.
75875. SO ORDERED.
 G.R. No. 134559 December 9, 1999

ANTONIA TORRES vs. COURT OF APPEALS and MANUEL TORRES, respondents.

Courts may not extricate parties from the necessary consequences of their acts. That the
terms of a contract turn out to be financially disadvantageous to them will not relieve them
of their obligations therein. The lack of an inventory of real property will not ipso
facto release the contracting partners from their respective obligations to each other
arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the
Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC)
of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint.
The counterclaims of the defendant are likewise ordered dismissed. No
pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering
the said parcel of land in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the development of the
subdivision. 4 All three of them also agreed to share the proceeds from the sale of the
subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means
and skills." They add that respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement.
With the said amount, he was able to effect the survey and the subdivision of the lots. He
secured the Lapu Lapu City Council's approval of the subdivision project which he
advertised in a local newspaper. He also caused the construction of roads, curbs and
gutters. Likewise, he entered into a contract with an engineering firm for the building of
sixty low-cost housing units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and
their relatives had separately caused the annotations of adverse claims on the title to the
land, which eventually scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife,
who were however acquitted. Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an Order dated September 6,
1982. On appeal, however, the appellate court remanded the case for further proceedings.
Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by
the CA. Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had
formed a partnership for the development of the subdivision. Thus, they must bear the loss
suffered by the partnership in the same proportion as their share in the profits stipulated in
the contract. Disagreeing with the trial court's pronouncement that losses as well as profits
in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil
Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall
be in proportion to what he may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his services
he has contributed capital, he shall also receive a share in the profits in proportion to
his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership,
ignoring outright the provision of Article 1769, and other related provisions of the
Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of Sale, both of which were the bases of the
appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the agreement
entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots,
they pray that respondent pay them damages equivalent to 60 percent of the value of the
property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of
March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND
PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the
FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division projects
and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as
follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5,
1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY
CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] &
FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency,
for their personal obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be sub-divided and to
be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest
and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, until the sub-division project is terminated and ready for
 sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will not
be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM
60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving from the sales will be divided equally
according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the
work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY,
and-the FIRST PARTY will be given a grace period to turnover the property
mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed
same freely and voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the

partnership in the form of land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested the intention of
the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted earlier, he developed
the roads, the curbs and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to

the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.
Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood
the terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their
acts, and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides:

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

contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument
an inventory of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a
complement of Article 1771, 12 "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim
that respondent should pay them 60 percent of the value of the property. 13 They cannot in
one breath deny the contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the
Joint Venture Agreement an ordinary contract from which the parties' rights and
obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of
the Civil Code, because it is the direct result of an earlier illegal contract, which was for the
sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration
for the sale was the expectation of profits from the subdivision project. Its first stipulation
states that petitioners did not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can take different forms,
such as the prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was therefore a consideration
for the sale, the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of
the value of the property, which was their share in the profits under the Joint Venture
Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the
cause of the failure of the project. 16 But it also ruled that neither was respondent
responsible therefor. 17 In imputing the blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in
this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one
of the exceptions to this doctrine. 18Accordingly, we find no reversible error in the CA's
ruling that petitioners are not entitled to damages. WHEREFORE, the Perition is hereby
DENIED and the challenged Decision AFFIRMED. Costs against petitioners. SO ORDERED
 G.R. No. 172690 March 3, 2010

HEIRS OF JOSE LIM vs. JULIET VILLA LIM

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which
reversed and set aside the decision3 of the Regional Trial Court (RTC) of Lucena City, dated
April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed
Lim (petitioners), represented by Elenito Lim (Elenito). They filed a Complaint4 for
Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow
of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and
Norberto Uy (Norberto), formed a partnership to engage in the trucking business. Initially,
with a contribution of ₱50,000.00 each, they purchased a truck to be used in the hauling
and transport of lumber of the sawmill. Jose managed the operations of this trucking
business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and
partners agreed to continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose were held in trust
by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties
using said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving
as his father’s driver in the trucking business. He was never a partner or an investor in the
business and merely supervised the purchase of additional trucks using the income from
the trucking business of the partners. By the time the partnership ceased, it had nine
trucks, which were all registered in Elfledo's name. Petitioners asseverated that it was also
through Elfledo’s management of the partnership that he was able to purchase numerous
real properties by using the profits derived therefrom, all of which were registered in his
name and that of respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent and approval. Claiming that
they are co-owners of the properties, petitioners required respondent to submit an
accounting of all income, profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia,
sometime in 1980, Jose gave Elfledo ₱50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981,
the partnership only had one truck; but through the efforts of Elfledo, the business
flourished. Other than this trucking business, Elfledo, together with respondent, engaged in
other business ventures. Thus, they were able to buy real properties and to put up their
own car assembly and repair business. When Norberto was ambushed and killed on July
16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due
to a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no
longer run the business. Jimmy suggested that three out of the nine trucks be given to him
as his share, while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.

Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed
that Jose left no properties that Elfledo could have held in trust. Respondent maintained
that all the properties involved in this case were purchased and acquired through her and
her husband’s joint efforts and hard work, and without any participation or contribution
from petitioners or from Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an accounting for the income or
profits of their own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between the plaintiffs
and heirs of Jose Lim and the defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals
received by her from said properties. SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners'
complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,5 which the CA, however, denied in its Resolution6 dated May 8, 2006.

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

CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN
THAT BY A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS
IN THE PARTNERSHIP?7

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving
partner, Elfledo was not a partner; and that he and Norberto entered into a partnership
with Jose. Thus, the CA erred in not giving that testimony greater weight than that of
Cresencia, who was merely the spouse of Jose and not a party to the partnership.8

Respondent counters that the issue raised by petitioners is not proper in a petition for
review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the
review, evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover,
respondent invokes the rationale of the CA decision that, in light of the admissions of
Cresencia and Edison and the testimony of respondent, the testimony of Jimmy was
effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully justified.9

We resolve first the procedural matter regarding the propriety of the instant Petition.

Verily, the evaluation and calibration of the evidence necessarily involves consideration of
factual issues — an exercise that is not appropriate for a petition for review on certiorari
under Rule 45. This rule provides that the parties may raise only questions of law, because
the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze
again and weigh the evidence introduced in and considered by the tribunals below.10 When
supported by substantial evidence, the findings of fact of the CA are conclusive and binding
on the parties and are not reviewable by this Court, unless the case falls under any of the
following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;

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

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

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

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on which
they are based;

(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and

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

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

On the merits of the case, we find that the instant Petition is bereft of merit. A partnership
exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses among them. A contract of partnership is defined by the
Civil Code as one where two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.12

Undoubtedly, the best evidence would have been the contract of partnership or the articles
of partnership. Unfortunately, there is none in this case, because the alleged partnership
was never formally organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the "partner" in the trucking business. A careful review of the records
persuades us to affirm the CA decision. The evidence presented by petitioners falls short of
the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo;
and (2) all the properties acquired by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
evidence against respondent. It must be considered and weighed along with petitioners'
other evidence vis-à-vis respondent's contrary evidence. In civil cases, the party having
the burden of proof must establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on
either side and is usually considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a
phrase that, in the last analysis, means probability of the truth. It is evidence that is more
convincing to the court as worthy of belief than that which is offered in opposition
thereto.13 Rule 133, Section 1 of the Rules of Court provides the guidelines in determining
preponderance of evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
burden of proof must establish his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the
greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which
the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend to
prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified
that Jose gave Elfledo ₱50,000.00, as share in the partnership, on a date that coincided
with the payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any intervention or
opposition whatsoever from any of petitioners herein;16 (3) all of the properties,
particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the business;17 and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng
Kee,18 a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of
the estate of Jose, having been derived from Jose's alleged partnership with Jimmy and
Norberto. They failed to refute respondent's claim that Elfledo and respondent engaged in
other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a
sideline.19 Petitioners could not offer any credible evidence other than their bare
assertions. Thus, we apply the basic rule of evidence that between documentary and oral
evidence, the former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners
in the trucking business, active and visible in the running of its affairs from day one until
this ceased operations upon his demise. The extent of his control, administration and
management of the partnership and its business, the fact that its properties were placed in
his name, and that he was not paid salary or other compensation by the partners, are
indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent
that the other partners only contributed in the initial capital but had no say thereafter on
how the business was ran. Evidently it was through Elfredo’s efforts and hard work that the
partnership was able to acquire more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting as the bookkeeper sans
salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it
was Jose Lim and not Elfledo who was the partner, then upon his death the partnership
should have been dissolved and its assets liquidated. On the contrary, these were not done
but instead its operation continued under the helm of Elfledo and without any participation
from the heirs of Jose Lim. Whatever properties appellant and her husband had acquired,
this was through their own concerted efforts and hard work. Elfledo did not limit himself to
the business of their partnership but engaged in other lines of businesses as well.

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