BENJAMIN YU, petitioner, petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the
;s charges, contending in the main that Benjamin Yu was never hired as an employee by the present
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU,
respondents.
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and
Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the
Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its main office in
Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General
Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance
would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall supervision of the workers at the marble
quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm's
products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora
Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership
to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk
of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta
continued to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati
to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation
of the marble quarry was entered into with the Cruz spouses in February of 1988.2 The actual operations of
the business enterprise continued as before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong,
petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy
Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the
original partners and that it was for him to decide whether or not he was responsible for the obligations of
the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore
in the Jade Mountain business enterprise. His unpaid salaries remained unpaid.3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries
accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against
Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied
or new partnership.4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees.5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and
dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business,
that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager,
and that there was no law requiring the new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to
retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's
claim for unpaid wages should be asserted against the original members of the preceding partnership, but
these though impleaded had, apparently, not been served with summons in the proceedings before the Labor
Arbiter.6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul
the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of
jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a
juridical personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not
have been affected by changes in the latter's membership.7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership
which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into
existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as
against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of
the changes in the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code
provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of
the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what
happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article 1829
of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is
completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new partners,
without the old partnership undergoing the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the business enterprise owned by the
preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited,
without winding up the business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of them and opening a new
business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal
approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to
inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et
al,8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains
liable to a third party creditor of the old partnership.9 The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code
which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or
partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and
assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or more third persons, if the business is
continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns)
their rights in partnership property to the remaining partner, who continues the business without liquidation
of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set
forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the
deceased partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership property to one
or more third persons who promise to pay the debts and who continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the business
under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with
others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the business, under this
article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only,
unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this
article the creditors of the retiring or deceased partner or the representative of the deceased partner, have
a prior right to any claim of the retired partner or the representative of the deceased partner against the
person or partnership continuing the business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for such interest or for his right in
partnership property.
 In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent
Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of
fraud. promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin
Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount
xxx xxx xxx of ten percent (10%) of the total amount due from private respondent Jade Mountain.

(Emphasis supplied) WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment
filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the
of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to following amounts:
priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare (a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00
of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of
detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under P72,000.00;
Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade Mountain. (b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of
service or a total of P12,000.00;
It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a
new general or assistant general manager to run the affairs of the business enterprise take over. An (c) indemnity for moral damages in the amount of P20,000.00;
assistant general manager belongs to the most senior ranks of management and a new partnership is entitled
to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant (d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26
General Manager did not therefore constitute unlawful termination, or termination without just or authorized December 1989 and until fully paid; and
cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10 The
new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, (e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade
who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager Mountain.
thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay
at the rate of one month's pay for each year of service that he had rendered to the old partnership, a Costs against private respondents.
fraction of at least six (6) months being considered as a whole year.
SO ORDERED.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we
consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly
benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying,
processing and exporting enterprise. His work constituted value-added to the business itself and therefore,
the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new
partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission
on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new
Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main
office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of
operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant
General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment,
for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity
for moral damages in the amount of P20,000.00 is proper and reasonable.

G.R. No. L-35469 March 17, 1932
E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.
This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W.
Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by
the executor from the allowance of the claim sued upon by the committee on claims in said estate. The
purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K.
Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which accrued on
said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial court absolved
the defendant executor from the complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was
engaged during the years with which we are here concerned in buying, selling, and administering real estate.
In several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons,
had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular
vocation was that of a missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to
the United States and was gone for nearly a year and a half, returning on September 21, 1920. On the eve of
his departure Elser made a written statements showing that Lyons was, at that time, half owner with Elser of
three particular pieces of real property. Concurrently with this act Lyons execute in favor of Elser a general
power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons
fully and amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of property
above referred to were sold by Elser, leaving in his hands a single piece of property located at 616-618
Carried Street, in the City of Manila, containing about 282 square meters of land, with the improvements
thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square
meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion and
development of a suburban improvement. This property, which will be herein referred to as the San Juan
Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and when this option was about to expire without his having
been able to raise the necessary funds, he paid P15,000 more for an extension of the option, with the
understanding in both cases that, in case the option should be exercised, the amounts thus paid should be
credited as part of the first payment. The amounts paid for this option and its extension were supplied by
Elser entirely from his own funds. In the end he was able from his own means, and with the assistance which
he obtained from others, to acquire said estate. The amount required for the first payment was P150,000,
and as Elser had available only about P120,000, including the P20,000 advanced upon the option, it was
necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained from a
Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by
himself and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The
money thus raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he
already had in bank Elser purchased the San Juan Estate on or about June 28, 1920. For the purpose of the
further development of the property a limited partnership had, about this time, been organized by Elser and
three associates, under the name of J. K. Pickering & Company; and when the transfer of the property was
effected the deed was made directly to this company. As Elser was the principal capitalist in the enterprise
he received by far the greater number of the shares issued, his portion amount in the beginning to 3,290
shares.
While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced
to come in with him and supply part of the means necessary to carry the enterprise through. In this
connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an
offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two would be well
fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he
had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13), meaning that he
should resign his position with the mission board in New York. On the same date he wrote Lyons a letter
explaining some details of the purchase, and added "have advised in my cable that you resign and I hope you
can do so immediately and will come and join me on the lines we have so often spoken about. . . . There is
plenty of business for us all now and I believe we have started something that will keep us going for some
time." In one or more communications prior to this, Elser had sought to impress Lyons with the idea that he
should raise all the money he could for the purpose of giving the necessary assistance in future deals in real
estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse
from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a
grave doubt had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920
that the board of missions of his church prevailed upon him to return to Manila and resume his position as
managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New
York thanking Elser for his offer to take Lyons into his new project and adding that from the standpoint of
making money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this
venture, was that the board of mission was averse to his engaging in business activities other than those in
which the church was concerned; and some of Lyons' missionary associates had apparently been criticizing his
independent commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon receipt of
this letter Elser was of course informed that it would be out of the question to expect assistance from Lyons
in carrying out the San Juan project. No further efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed that he
was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and
earnings derived from other properties; and when the J. K. Pickering & Company was organized and stock
issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would
be one of his associates in the deal. It will be noted that the par value of these 200 shares was more than
P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his own benefit. It seems to be supposed in
the appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the
present action, or at least strengthens the considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the ratification of the transaction by Lyons and the
appropriation by him of the shares which were issued to him leaves no ground whatever for treating the
transaction as a source of further equitable rights in Lyons. We should perhaps add that after Lyons' return
to the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K.
Pickering & Company, his qualification for this office being derived precisely from the ownership of these
shares.
We now turn to the incident which supplies the main basis of this action. It will be remembered that, when
Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan
Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on
the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity &
Surety Co. insisted upon having security for the liability thus assumed by it. To meet this requirements Elser
mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons
on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons
would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of
July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for
means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on
September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a
property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering &
Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition;
and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H.
del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company.
The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered
it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new
mortgage and the release of the old were never registered; and on September 25, 1920, thereafter, Elser
returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety
Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering &
Company which he had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in
Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to
let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to
the conversation in which Lyons used the words above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of relieving the Carriedo property, the trial
court was, in our opinion, well justified in accepting as a proven fact the consent of Lyons for the mortgage to
remain on the Carriedo property. This concession was not only reasonable under the circumstances, in view of
the abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons 200 shares of
the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which
Elser had owed to Lyons upon statement of account. The trial court found in effect that the excess value of
these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the
assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo property.
Whether the agreement was reached exactly upon this precise line of thought is of little moment, but the
relations of the parties had been such that it was to be expected that Elser would be generous; and he could
scarcely have failed to take account of the use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to
Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus be seen
that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single
cent; and although the court refused to allow the defendant to prove the Elser was solvent at this time in an
amount much greater than the entire encumbrance placed upon the property, it is evident that the risk
imposed upon Lyons was negligible. It is also plain that no money actually deriving from this mortgage was ever
applied to the purchase of the San Juan Estate. What really happened was the Elser merely subjected the
property to a contingent liability, and no actual liability ever resulted therefrom. The financing of the
purchase of the San Juan Estate, apart from the modest financial participation of his three associates in the
San Juan deal, was the work of Elser accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of
redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily
the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him
that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K.
Pickering & Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the
manner already explained had been used to held finance the purchase of the San Juan Estate. He seems to
have supposed that the Carried property had been mortgaged to aid in putting through another deal, namely,
the purchase of a property referred to in the correspondence as the "Ronquillo property"; and in this
connection a letter of Elser of the latter part of May, 1920, can be quoted in which he uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money
for Ronquillo buy (P60,000) if the owner comes through.
Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons
leads us to infer that he thought that the money obtained by mortgaging the Carriedo property had been
used in the purchase of this property. It doubtedless appeared so to him in the retrospect, but certain
consideration show that he was inattentive to the contents of the quotation from the letter above given. He
had already been informed that, although Elser was angling for the Ronquillo property, its price had gone up,
thus introducing a doubt as to whether he could get it; and the quotation above given shows that the intended
use of the money obtained by mortgaging the Carriedo property was that only part of the P50,000 thus
obtained would be used in this way, if the deal went through. Naturally, upon the arrival of Lyons in
September, 1920, one of his first inquiries would have been, if he did not know before, what was the status
of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this
effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are amply
protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons says that no
such cablegram was received by him, and we consider this point of fact of little moment, since the proof
shows that Lyons knew that the Carriedo mortgage had been executed, and after his arrival in Manila he
consented for the mortgage to remain on the property until it was paid off, as shortly occurred. It may well
be that Lyons did not at first clearly understand all the ramifications of the situation, but he knew enough,
we think, to apprise him of the material factors in the situation, and we concur in the conclusion of the trial
court that Elser did not act in bad faith and was guilty of no fraud.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had
used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and
article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use.
Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property
acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs.
Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in the money used, the
case might be difference; and much emphasis is laid in the appellant's brief upon the relation of partnership
which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of
the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership
composed of himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a
participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the
United States with reference to trust supply a basis for this action. The doctrines referred to operate,
however, only where money belonging to one person is used by another for the acquisition of property which
should belong to both; and it takes but little discernment to see that the situation here involved is not one
for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser
and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any damage had
been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo property,
Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters
that passed between him and Elser while the latter was still alive. While the admission of this testimony was
of questionable propriety, any error made by the trial court on this point was error without injury, and the
determination of the question is not necessary to this decision. We therefore pass the point without further
discussion.
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff Mrs.
Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a theatre on the
premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1)
that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in advance
within the first 15 days of each quarter, (2) that the partnership shall be for a period of two years and six
months, starting from July 1, 1945 to December 31, 1947, with the condition that if the land is expropriated
or rendered impracticable for the business, or if the owner constructs a permanent building thereon, or Mrs.
Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period
for which the partnership was agreed to be established has not yet expired; (3) that Mrs. Yulo is authorized
personally to conduct such business in the lobby of the building as is ordinarily carried on in lobbies of
theatres in operation, provided the said business may not obstruct the free ingress and agrees of patrons of
the theatre; (4) that after December 31, 1947, all improvements placed by the partnership shall belong to
Mrs. Yulo, but if the partnership agreement is terminated before the lapse of one and a half years period
under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and
take away all improvements that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to December 31,
1947. It states that it will conduct and carry on the business of operating a theatre for the exhibition of
motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang
Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in the
same proportion as their capital contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to
her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of three
years beginning January 1, 1948 to 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 shall belong exclusively to the second
party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion Santa
Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease shall
continue for an indefinite period of time, but that after one year the lease may be cancelled by either party
by written notice to the other party at least 90 days before the date of cancellation. The last contract was
executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the
owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July 31, 1949. In view of
the above notice, Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on
July 3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of Manila
rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the
Court of First Instance, the two cases were afterwards heard jointly, and judgment was rendered dismissing
the complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the premises terminated
as of July 31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both parties appealed
from said decision and the Court of Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her 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
rentals) because of the pendency of the ejectment suit by the owners of the land against Mrs. Yulo. In this
letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors
the rentals from August, 1949, he was retaining the rentals to make good to the landowners the rentals due
from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on May 26,
1954, alleging the existence of a partnership between them and that the defendant Yang Chiao Seng has
refused to pay her share from December, 1949 to December, 1950; that after December 31, 1950 the
partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner
of the building occupied by the Cine Astor; that the reasonable rental that the defendant should pay
therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the business amounting to P35,000 from November, 1949 to
October, 1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo has
suffered damages in the amount of P160,000 and exemplary damages to the extent of P5,000. The prayer
includes a demand for the payment of the above sums plus the sum of P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get
around the prohibition contained in the contract of lease between the owners and the plaintiff against the
sublease of the said property. As to 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 by reason of an attachment issued
against the properties of the defendant the latter has suffered damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard
evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the
defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950; P5,000
as monthly rental for the use and occupation of the building from January 1, 1951 until defendant vacates the
same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant vacates the
property. This decision, however, was set aside on a motion for reconsideration. In said motion it is claimed
that defendant failed to appear at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable settlement, would be granted; that in view
of the decision of the Court of Appeals in two previous cases between the owners of the land and the
plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation in the profit of the
business, etc. The court, finding the above motion, well-founded, set aside its decision and a new trial was
held. After trial the court rendered the decision making the following findings: that it is not true that a
partnership was created between the plaintiff and the defendant because defendant has not actually
contributed the sum mentioned in the Articles of Partnership, or any other amount; that the real agreement
between the plaintiff and the defendant is not of the partnership but one of the lease for the reason that
under the agreement the plaintiff did not share either in the profits or in the losses of the business as
required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a "guaranteed
participation" in the profits also belies the supposed existence of a partnership between them. It. therefore,
denied plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of the
theatre, the court after ocular inspection found that the said lobby was very narrow space leading to the
balcony of the theatre which could not be used for business purposes under existing ordinances of the City of
Manila because it would constitute a hazard and danger to the patrons of the theatre. The court, therefore,
dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground that the defendant
failed to present sufficient evidence to sustain the same. It is against this decision that the appeal has been
prosecuted by plaintiff to this Court.
which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original
letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the business from December,
1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement between the
plaintiff and the defendant was to end upon the 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 partnership agreement
or the agreement for her to receive a participation of P3,000 automatically ceased as of said date.
We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-
appellant.

The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial
because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence at
the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former judgment.
The final result of the hearing shown by the decision indicates that the setting aside of the previous decision
was in the interest of justice.

In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out the
evidence offered by the 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 lower court in admitting evidence is justified by the
express allegation in the defendant's answer that the agreement set forth in the complaint was one of lease
and not of partnership, and that the partnership formed was adopted in view of a prohibition contained in
plaintiff's lease against a sublease of the property.

The most important issue raised in the appeal is that contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and we fully
agree with the conclusion of the trial court that the agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or more persons who bind themselves to contribute money,
property, or industry to a common fund; (2) intention on the part of the partners to divide the profits among
themselves. (Art. 1767, Civil Code.).

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not
furnish any help or intervention in the management of the theatre. In the third place, it does not appear that
she has ever demanded from defendant any accounting of the expenses and earnings of the business. Were
she really a partner, her first concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent
with respect to any of the acts that a partner should have done; all that she did was to receive her share of
P3,000 a month, which can not be interpreted in any manner than a payment for the use of the premises
G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.
By this petition for certiorari the Court is asked to determine if a partnership exists between members of
the same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner
of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of the
Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao
Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to
them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was
executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help
their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the
family. They negotiated with SHELL. For practical purposes and in order not to run counter to the company's
policy of appointing only one dealer, it was agreed that petitioner would apply for the dealership. Respondent
Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein
it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of
fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty.
Angeles, a demand was made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79
and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from May 6, 1966 up
to December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be
subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge
of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and ordering
private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion
for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly
appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another decision
in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment
is hereby rendered in favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil
Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation from April 1969
up to the time this order is issued, the same to be subject to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of
the business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on November
28,1978 affirming in toto the decision of the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that
the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash
Pledge Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title
Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can
use the said amount to augment our capital investment in the operation of that gasoline station constructed
,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement we have entered
into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire
to help us in aumenting our capital investment in the operation of the said gasoline station, has agreed to give
us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum
as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our Lease Agreement
starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be applicable, which time to
our estimate and one-half months from May 25, 1966 or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page
Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and
another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS
Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental of PESOS THREE
THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased
land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash the
amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell
petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the
conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to
accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash Pledge
Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the
CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-
OWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November 1963 and
the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to SHELL, from P
10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to
SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly, commencing
24th May 1966, until such time that the monthly rentals accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement,
therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions of the above-
mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P
15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the operation
of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966 up to four and
one-half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the
private respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th
of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00 which private
respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer.
As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint Affidavit
speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to
the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the
previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit
that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it
speaks of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a
signatory and it would be against its policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of petitioner.

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

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

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

SO ORDERED.

G.R. No. L-9996 October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a
decision of the Court of Tax Appeals, the dispositive part of which reads:
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 years 1945 to 1949, inclusive, in accordance with the respondent's
assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the petition for
review filed by petitioner is hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together
with their personal monies was used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has an assessed
value of P57,517.00 as of 1948;
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 improvements thereon for P130,000.00; this property has an
assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of
1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in
default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for
and in their behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had the same
rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945, the total amount
collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby
leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which
amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 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.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the
years 1945-1949, computed, according to assessment made by said officer, as follows
TOTAL TAXES DUE
P6,878.34.
Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954,
whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of
the respondent contained in his letter of demand dated September 24, 1954" be reversed, and that they be
absolved from the payment of the taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent,
and a petition for reconsideration and new trial having been subsequently denied, the case is now before Us
for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24
of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the terms "corporation" and "partnership," as used in section
24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or organized but not including duly
registered general co-partnerships (compañias colectivas), a tax upon such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include
duly registered general copartnerships. (compañias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down 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 purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (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 brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by the
petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to
business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948
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 suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely Simeon
Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and
contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have
been handled as if the same belonged to a corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became
the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases
cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code
exempts from the aforementioned tax "duly registered general partnerships which constitute precisely one
of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en participation)" and "associations," none of
which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could
not have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general copartnerships" — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections 24 and 84 [b] from the
connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect
that their liability in connection with the leasing of the lots above referred to, under the management of one
person — even if true, on which we express no opinion — tends to increase the similarity between the nature
of their venture and that corporations, and is, therefore, an additional argument in favor of the imposition of
said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from
"partnerships". By specific provisions of said laws, such "corporations" include "associations, joint-stock
companies and insurance companies." However, the term "association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed
affairs, or the attainment of some object, which like a corporation, continues notwithstanding that its
members or participants change, and the affairs of which, like corporate affairs, are conducted by a single
individual, a committee, a board, or some other group, acting in a representative capacity. It is immaterial
whether such organization is created by an agreement, a declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts'
trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership association, and any other type
of organization (by whatever name known) which is not, within the meaning of the Code, a trust or an estate,
or a partnership. (7A Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only a partnership
as known at common law but, as well, a syndicate, group, pool, joint venture or other unincorporated
organizations which carries on any business financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal Income taxation, p.
789; emphasis supplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization,
through or by means of which any business, financial operation, or venture is carried on, . . .. ( 8 Merten's Law
of Federal Income Taxation, p. 562 Note 63; emphasis supplied.) .

For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships —
with the exception only of duly registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income tax for corporations.

As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how created or organized, whether domestic or
resident foreign, 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 case, shall exceed one thousand pesos, in accordance with the
following schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account (cuentas
en participacion), association or insurance company, no matter how created or organized. (emphasis supplied.)

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our
National Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved on June 15,
1939, the day immediately after the approval of said Commonwealth Act No. 465 (June 14, 1939), it is
apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the
same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned
for a period of over twelve years, and that the yearly gross rentals of said properties from June 1945 to
1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in section 193 (q) of our
National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s) thereof:

'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or
renting property or his own account as principal and holding himself out as a full or part time dealer in real
estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year. . . (emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.
G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA,
LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
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
the payment of the deficiency corporate income taxes assessed against 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 1%
monthly interest from December 15, 1958, subject to the provisions 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 the
resolution of said court denying petitioners' motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
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. 4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oña the surviving spouse was appointed administrator of the
estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted the
project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because three of the
heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors when the project of partition
was approved, Lorenzo T. Oña, their father and administrator of the estate, filed a petition in Civil Case No.
9637 of the Court of First Instance of Manila for appointment as guardian of said minors. On November 14,
1949, the Court appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR
rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-
half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to 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.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide
the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oña who
used said properties in business by leasing or selling them and investing the income derived therefrom and
the proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and
investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the
following year-end balances:
From said investments and properties petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of 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 corresponding shares of the petitioners in the net income for the year are also known. Every year,
petitioners returned for income tax purposes their shares in the net income derived from said properties and
securities and/or from transactions involving them (Exhibit 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 who, as heretofore pointed out, invested them in real properties
and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners
formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section
24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the
amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. (See
Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against the assessment and
asked for reconsideration of the ruling of respondent that they have formed an unregistered partnership.
Finding no merit in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4,
Memorandum for Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was 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 for the years 1955 and 1956 and the
"Compromise for non-filing," the latter item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page
86, BIR records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS
OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM
(sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR CORPORATE
INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP,
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS FROM
THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THE INHERITED
PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX
APPEALS ERRED IN NOT 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, FROM THE DEFICIENCY TAX OF THE UNREGISTERED
PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the
Court of Tax Appeals, should 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 formed an unregistered partnership subject to tax under Sections 24 and 84(b) of the
National Internal Revenue Code? (2) Assuming they 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 upon the security of the said properties, with the result that as far
as their respective shares in the inheritance are concerned, the total 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 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 properties
they owned in common be deducted from the deficiency corporate taxes, herein involved, assessed against
such unregistered partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective
shares in their inheritance since those dates admittedly under the administration or management of the head
of the family, the widower and father Lorenzo T. Oña, the assessment in question refers to the later years
1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944
to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he considered them as having formed an unregistered
partnership. At least, there is nothing in the record indicating that an earlier assessment had already been
made. Such being the case, and We see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the
impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that they
were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the income
derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of
which said properties and investments steadily increased yearly from P87,860.00 in "land account" and
P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account"
and P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners
never actually received any share of the income or profits from Lorenzo T. Oña and instead, they allowed him
to continue using said shares as part of the common fund for their ventures, even as they paid the
corresponding income taxes on the basis of their respective shares of the profits of their common business
as reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oña, in the purchase and sale of corporate securities. It is likewise admitted that
all the profits from these ventures were divided among petitioners proportionately in accordance with their
respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment
petitioners allowed not only the incomes from their respective shares of the inheritance but even the
inherited properties themselves to be used by Lorenzo T. Oña as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act
was tantamonut to actually contributing such incomes to a common fund and, in effect, they thereby formed
an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-
owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners,
but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and
physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares
in the partition, they might decide to continue holding said shares under the common management of the
administrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this
were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render
meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
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 argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple.
From the moment of such partition, the heirs are entitled already to their respective definite shares of the
estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection
therewith. If after 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 profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The
sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the returns are derived," and, for that
matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, this Court
clearly differentiated the concept of partnerships under the Civil Code from that of unregistered
partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal
Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code
exempts from the aforementioned tax "duly registered general partnerships," which constitute precisely one
of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in
confirmity with the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", none of
which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could
not have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" — which are possessed of
the aforementioned personality — have been expressly excluded by law (sections 24 and 84[b]) from the
connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it includes not only a partnership
as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated
organization which carries on any business, financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income Taxation, p.
789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization,
through or by means of which any business, financial operation, or venture is carried on. ... . (8 Merten's Law
of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships —
with the exception only of duly registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. 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 pursued
by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the
corporate taxes in question, of their inherited properties from those acquired by them subsequently, We
consider as justified the following ratiocination of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding
should be limited to the business engaged in apart from the properties inherited by petitioners. In other
words, the taxable income of the partnership should be limited to the income derived from the acquisition
and sale of real properties and corporate securities and should not include the income derived from the
inherited properties. It is admitted that the inherited properties and the income derived therefrom were
used in the business of buying and selling other real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from the purchase and sale of other properties them. In principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not
but also the income of the inherited properties. exactly above suspicion in their conduct vis-a-vis their tax obligation to the State.

Besides, as already observed earlier, the income derived from inherited properties may be considered as
individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at
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 profits, it is but proper that the income of such shares should be considered
as the part of the taxable income of an unregistered partnership. This, We hold, is the clear intent of the
law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court.
Pertinently, the court ruled this wise:

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an
unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners
in their individual income tax returns reported their shares of the profits of the unregistered 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 Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income of the partnership must be reduced
by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct;
rather, it should be the other way around. The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed against the partnership. Consequently, each
of the petitioners in his individual capacity overpaid his income tax for the years in question, but the income
tax due from the partnership has been correctly assessed. Since the individual income tax liabilities of
petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as
individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income taxes, they may already be
barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see
it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the
wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course,
such 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 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 petitioners has already lapsed, it would not seem
right to virtually disregard prescription merely upon the ground that the reason for the delay is precisely
because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from

G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
The distinction between co-ownership and an unregistered partnership or joint venture for income tax
purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28,
1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold
by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale
made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in
1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for
the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and
1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the partnership by them which is
subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income
tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No.
3045. In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision
and action taken by respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact
formed by petitioners which like a corporation was subject to corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the
circumstances of this case, although there might in fact be a co-ownership between the petitioners, there
was no adequate basis for the conclusion that they thereby formed an unregistered partnership which made
"hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the
respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS,
THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID
DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP
EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM
PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with their own
personal funds they used in buying several real properties. They appointed their brother to manage their
properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or
leased to various tenants for several years and they gained net profits from the rental income. Thus, the
Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from
them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24
of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers' fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the terms corporation and partnership as used in sections 24
and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding taxable year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no matter how created or organized but not including duly
registered general co-partnerships (companies collectives), a tax upon such income equal to the sum of the
following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participation), associations or insurance companies, but does not include
duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down 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 purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots
(24) acquired and transcations undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by
petitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiar to
business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948
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 suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters
and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have
been handled as if the same belonged to a corporation or business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelists became
the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the
set up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases
cited by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money,
property or industry to a common fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing
that the purpose was not limited to the conservation or preservation of the common fund or even the
properties acquired by them. The character of habituality peculiar to business transactions engaged in for
the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make
any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was
only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new
purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The
character of habituality peculiar to business transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was under the
management of one of the partners. Such condition existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2
and 3, provides;
(2) Co-ownership or co-possession does not 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;

From the above it appears that the fact that those who agree to form a co- ownership share or do not share
any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements constituting partnership is necessary,
such as the clear intent to form a partnership, the existence of a juridical personality different from that of
the individual partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real
estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross returns of
that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived. (Elements of the Law of
Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate
basis to support the proposition that they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on
their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as
the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been
formed, since there is no such existing unregistered partnership with a distinct personality nor with assets
that can be held liable for said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of
the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any
further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of
March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving
petitioners of the corporate income tax liability in this case, without pronouncement as to costs.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiffs commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole property.-
Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though they
may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds therefrom.
(Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. There must be a clear intent to form a partnership,
the existence of a juridical personality different from the individual partners, and the freedom of each party
to transfer or assign the whole property.
JOSE MIGUEL ANTON, PETITIONER, VS. SPOUSES ERNESTO OLIVA AND CORAZON OLIVA AS
SUBSTITUTED BY HER LEGAL HEIRS, NAMELY: GRAZIELA MARIE COLLANTES, GRETEL ELAINE
DING, GLADYS MIRIAM OLIVA, GEOFFREY JOSEPH OLIVA AND GLYNNIS CARMEN CALPOTURA,
RESPONDENTS.
This case is about the obligation to continue complying with the terms of the agreement despite the court's
declaration that no partnership exist between the parties.
The Facts and the Case
On September 9, 2008 respondents Ernesto and Corazon Oliva[1] (the Olivas) filed an action for accounting
and specific performance with damages against petitioner spouses Jose Miguel and Gladys Miriam Anton (the
Antons) before the Regional Trial Court (RTC) of Quezon City.[2] The Olivas alleged that they entered into
three Memoranda of Agreement (MOA)[3] with Gladys Miriam, their daughter, and Jose Miguel, their son-in-
law, setting up a business partnership covering three fast food stores, known as "Pinoy Toppings" that were to
be established at SM Megamall, SM Cubao, and SM Southmall. Under the MOAs, the Olivas wer,e entitled to
30% share of the net profits of the SM Megamall store and 20% in the cases of SM Cubao and SM Southmall
stores.
The pertinent portions of the first MOA dated May 2, 1992, covering the SM Megamall store, provides:
That the FIRST PARTY[4] shall be considered a partner with a THIRTY PERCENT (30%) share in the above-
mentioned outlet to be set up by the SECOND PARTY;[5]
That the proceeds of said business, after deducting the expenses, shall be used to pay the principal amount
of £500,000.00 and the interest therein which is to be computed based on the bank rate since the FIRST
PARTY secured the above amount through a bank loan;
That the net profits, if any, after deducting the expenses and payments of the principal and interest shall be
divided in a seventy percent (70%) for the SECOND PARTY and thirty percent (30%) to the FIRST PARTY;
That the SECOND PARTY, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-
described business without any interference from his partners, their agents, representatives, or assigns and
should such interference happens, the SECOND PARTY has the right to buy back the share of the FIRST
PARTY less the amounts already paid on the principal and to dissolve the partnership agreement. In case the
above amount together with its corresponding interest had been fully paid and said interference shall take
place, the SECOND PARTY shall also be entitled to dissolve the partnership agreement;
That the parties agree to strictly comply with the terms and conditions of this agreement
The pertinent terms of the second MOA dated May 6, 1993, covering the SM Cubao store, reads:
That the First Party shall be considered a partner with a 20% share in the above-mentioned outlet to be set
up by the Second Party;
That the proceeds of said business, after deducting the expenses, will be used to pay the principal amount of
P240,000.00 and the interest therein which is to be computed based on the RCBC rate;
That the net proceeds, if any, after deducting the expenses and payments of the principal and interest shall
be divided on an eighty-twenty basis;
That the Second Party, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-
described establishment without any interference from his partners.
That the Second Party, particularly JOSE MIGUEL ANTON shall submit his monthly sales report in
connection with the above-mentioned business to his partners.
The pertinent portions of the third MOA dated April 20, 1995, covering the SM Southmall Branch, has
essentially the same terms, thus:
That the First Party shall be considered a partner with a twenty (20%) percent share in the above-mentioned
outlet to be set up by the Second Party;
That the proceeds of said business, after deducting the expenses, will be used to pay the principal amount of
P300,000.00;
That the net profits, if any, after deducting the expenses and payments of the principal and interest shall be
divided on a eighty-twenty percent;
That the Second Party, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-
described business without any interference from his partners;
That the Second Party-, particularly JOSE MIGUEL ANTON shall submit his monthly sales report in
connection with the above business.
The Olivas alleged that while the Antons gave them a total of P2,547,000.00 representing their monthly
shares of the net profits from the operations of the SM Megamall and SM Southmall stores, the Antons did
not give them their shares of the net profits from the store at SM Cubao. Further, Jose Miguel did not
render to them an account of the operations of the three stores. And, beginning November 1997, the Antons
altogether stopped giving the Olivas their share in the net profits of the three stores. The Olivas demanded
an accounting of partnership funds but, in response, Jose Miguel terminated their partnership agreements.
Answering the complaint, Jose Miguel alleged that he and his wife, Gladys Miriam, never partnered with the
Olivas in the operations of the three stores. The Antons merely borrowed money from the Olivas to finance
the opening of those stores. Gladys Miriam, who managed the operations of the business, remitted to the
Olivas the amounts due them even after the loans had been paid. If any accounting was needed, it should orily
be for the purpose of ascertaining the correctness the payments made.
On Gladys Miriam's part, she affirmed having managed the three stores up until she and Jose Miguel
separated. They paid the Olivas in checks, representing their share in the profits of the business. Gladys
Miriam filed a case for legal separation against her husband, Jose Miguel, prompting the latter to terminate
their business partnership with her parents.
On October 17, 2003 the RTC rendered judgment,[6] holding that no partnership relation existed between
the Olivas and the Antons but Jose Miguel had an obligation to render an accounting from the start of the
business until the termination of their MOAs and, thereafter, pay the Olivas their share of the net profits,
if any, plus interests.
Jose Miguel appealed the RTC decision to the Court of Appeals (CA) in CA-G.R. CV 85521.[7] On November
22, 2007 the CA rendered a decision, essentially affirming the RTC finding that no partnership existed
between the parties. But the CA modified the RTC decision and a) deleted the RTC order that directed the
Antons to get an independent accountant, approved by the Olivas, to do an accounting of the operations of
the three stores; b) directed the Antons to pay the Olivas the P240,000.00 loan in connection with the third
MOA as well as their share in the net profits of the three stores from November 1997 to the present, with
legal interest until the same shall have been paid in full; and c) ordered the Antons to furnish the Olivas
copies of the monthly sales reports of the stores at SM Southmall and SM Cubao as provided in the May 6,
1993 and April 20, 1995 MOAs, from November 1997 to the present.
The Key Issue Presented
The key issue in this case is whether or not the CA erred in holding that, notwithstanding the absence of a
partnership between the Olivas and the Antons, the latter have the obligation to pay the former their shares
of the net profits of the three stores plus legal interest on those shares until they have been paid. Ruling of
the Court
To begin with, the Court will not disturb the finding of both the RTC and the CA that, based on the terms of
the MOAs and the circumstances surrounding its implementation, the relationship between the Olivas and the
Antons was one of creditor-debtor, not of partnership. The finding is sound since, although the MOA
denominated the Olivas as "partners." the amounts they gave did not appear to be capital contributions to the
establishment of the stores. Indeed, the stores had to pay the amounts back with interests.
Moreover, the MOAs forbade the Olivas from interfering with the running of the stores. At any rate, none of
the parties has made an issue of the common finding of the courts below respecting the nature of their
relationship.
Petitioner Jose Miguel points out that since the Olivas were not the Antons' partners in the stores, they
were not entitled to receive percentage shares of the net profits from the stores' operations.
But, as the CA correctly held, although the Olivas were mere creditors, not partners, the Antons agreed to
compensate them for the risks they had taken. The Olivas gave the loans with no security and they were to
be paid such loans only if the stores made profits. Had the business suffered loses and could not pay what it
owed, the Olivas would have ultimately assumed those loses just by themselves. Still there was nothing illegal
or immoral about this compensation scheme. Thus, unless the MOAs are subsequently rescinded on valid
grounds or the parties mutually terminate them, the same remain valid and enforceable.
It did not matter that the Antons had already paid for two of the loans and their interests. Their obligation
to share net profits with the Olivas was not extinguished by such payment. Indeed, the Antons paid the
Olivas their share of the profits from two stores although the loans corresponding to them had in the
meantime been paid. Only after Jose Miguel's marital relation with Gladys Miriam turned sour in November
1997 did he cease to pay the Olivas their shares of the profits.
The CA also correctly ruled that, since the Olivas were mere creditors, not partners, they had no right to
demand that the Antons make an accounting of the money loaned out to them. Still, the Olivas were entitled
to know from the Antons how much net profits the three stores were making annually since the Olivas were
entitled to certain percentages of those profits. Indeed, the third and second MO A directed the Antons to
provide the Olivas with copies of the monthly sales reports from the operations of the stores involved,
apparently to enable them to know how much were due them. There is no reason why the Antons should not
furnish the Olivas copies of similar reports from the operations of the store at SM Megamall, this merely
being a consequence of the Antons' obligation to share with the Olivas the net profits from that store.
Jose Miguel also complains that the CA had no basis in awarding interest on the third loan covering the
establishment of the SM SouthiAall store since the particular MOA did not provide for such interest. But,
actually, the interests that the CA awarded to the Olivas referred, not to interests on the loans they gave,
but to interest that their unpaid shares of the net profits of the three stores should earn on account of
Jose Miguel's unjustified refusal to pay them beginning November 1997.
Given that the legal interests that the CA directed the Antons to pay referred to the Olivas' unpaid shares
of the net profits of the three stores from November 1997, such interests cannot be regarded as
forbearance for money that warrants an interest of 12% per annum. Rather, they were for unjust withholding
of the Olivas" shares of the net profits from the Antons' three stores that would warrant an interest of 6%
per annum.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated November 22, 2007 of the
Court of Appeals in CA-G.R. CV 85521 with the following MODIFICATIONS:
1. The legal interest that petitioner Jose Miguel Anton shall pay respondent Ernesto Oliva and the
substituted heirs of respondent Corazon Oliva on their unpaid shares in the net profits of the "Pinoy
Toppings" stores at SM Southmall, SM Megamall, and SM Cubao shall be computed at the rate of 6% per
annum; and
2. Petitioner Jose Miguel Anton is to furnish respondent Ernesto Oliva and the substituted legal heirs of
respondent Corazon Oliva copies of the monthly sales reports of all three "Pinoy Toppings" stores at SM
Southmall, SM Cubao, and SM Megamall from November 1997 until the proper termination of their
Memoranda of Agreement dated May 2, 1992, May 6, 1993, and April 20, 1995.
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX,
INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K.
LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO., INC.,
HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY
TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC.,
LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC.,
ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC.,
AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES), Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to
nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases
C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying
petitioner’s motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court
(RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang
(Yang) and several corporations for specific performance and accounting. In his complaint,3 docketed as Civil
Case No. 69235 and eventually raffled to Branch 68 of the court,4 Aurelio alleged that, since June 1973, he
and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had
expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator
of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations.
Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater investment.5
The same complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the
continuation of their family business and common family funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to
his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral
part as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his
share in the remaining family businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo
caused to be registered in the names of other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some
of these real properties is attached hereto and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested
for an accounting and liquidation of his share in the joint venture/partnership [but these demands for
complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants
as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at
this time the annotation on the titles of these real properties… a notice of lis pendens …. (Emphasis in the
original; underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by
his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left
with the company, among us brothers and I will ask you to stay as I want you to run this office every time I
am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely
to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is
left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent
(10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are
entitled to. …. It will be you and me alone on this. If ever I pass away, I want you to take care of all of this.
You keep my share for my two sons are ready take over but give them the chance to run the company which I
have built.

xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS:
(P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form
of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share
of Wack-Wack …and Valley Golf … because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER
With Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly
that portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint
states no cause of action, since no cause of action may be derived from the actionable document, i.e., Annex
"A-1", being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is
further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex "A-1", are
unenforceable under the provisions of the Statute of Frauds.7
For his part, Yang - who was served with summons long after the other defendants submitted their answer –
moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint
does not state any.8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion,
petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated
March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10,
2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration12 and Yang’s motion to dismiss. The following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of
the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion
was denied in an Order of July 4, 2003.14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of
the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial court,
the first denying his motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5,
and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed
as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP
No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities, the appellate court
came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead
petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March
5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby
dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which
petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a
quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed
Resolution of December 7, 2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document because this was not a
public instrument and immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to
support his pleaded cause of action by another legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or
payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an accounting
has been duly conducted of what he deems to be partnership/joint venture property.19
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be a proportionate sharing of the profits and
losses between them.20 A contract of partnership is defined by the Civil Code as one where two or more
persons bound themselves to contribute money, property, or industry to a common fund with the intention of
dividing the profits among themselves.21 A joint venture, on the other hand, is hardly distinguishable from,
and may be likened to, a partnership since their elements are similar, i.e., community of interests in the
business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed
by the law on partnership.22
The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and
respondent Eduardo are 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 relates to the question of what legal provision
is applicable under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex
"A-1" - which he depicts in his complaint to be the contract of partnership/joint venture between himself and
Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal
requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil Code:
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. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
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.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring
to a partnership involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented for
notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the
Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes
into the matter of validity when immovable property is contributed to the partnership, the next logical point
of inquiry turns on the nature of petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of
immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the
so-called "partnership/joint venture" was his supposed share in the family business that is consisting of movie
theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his
contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and real
rights. ….23
Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted
of his share in the Litonjua family businesses which owned variable immovable properties. Petitioner’s
assertion in his motion for reconsideration24 of the CA’s decision, that "what was to be contributed to the
business [of the partnership] was [petitioner’s] industry and his share in the family [theatre and land
development] business" leaves no room for speculation as to what petitioner contributed to the perceived
partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who between petitioner and his brother Eduardo, contributed
immovables. In context, the more important consideration is that real property was contributed, in which
case an inventory of the contributed property duly signed by the parties should be attached to the public
instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question
were not contributed, but were acquired after the formation of the supposed 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 theatres and realty development family
businesses which already owned immovables even before Annex "A-1" was allegedly executed.
Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires
and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership sued upon and
sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be
constituted in any form, save when immovable property or real rights are contributed thereto or when the
partnership has a capital of at least ₱3,000.00, in which case a public instrument shall be necessary.25 And if
only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to
the public instrument is also indispensable to the validity of the partnership whenever immovable property is
contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the
probative value and legal effect of Annex "A-1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties
to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the
said "partnership/joint venture" is NOT a public instrument and there was NO inventory of the immovable
property duly signed by the parties. As such, the said "Memorandum" … is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with
the essential formalities of a valid contract, the purported "partnership/joint venture" is legally inexistent
and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source
of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right
which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does
NOT state a valid cause of action because NOT all the essential elements of a cause of action are present.
(Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution of
December 7, 200427 denying petitioner’s motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable
document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions
which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of
[petitioner’s] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and there was no inventory of immovable
properties signed by the parties. Both the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or nullity
as a partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts
it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable
contract even though it may not be a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights
and obligations of the parties and which rights and obligations may be enforceable and demandable. Just
because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after
he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot
really be faulted for not yielding to petitioner’s dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate court’s certiorari jurisdiction
was circumscribed by what was alleged to have been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed,28 since the parties’ basic position had been well-defined,
that of petitioner being that the actionable document established a partnership/joint venture, it is on those
positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s act of changing his original
theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability
of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the
actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s]
theory of the case which is not only prohibited by the Rules but also is an implied admission that the very
theory he himself … has adopted, filed and prosecuted before the respondent court is erroneous.
Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable
document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the
cause of action on the basis of partnership law xxx.29 (Emphasis in the original; Words in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract,
petitioner’s complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this
consideration alone, petitioner’s claim against Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner
with a right to demand from respondent Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you
to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be
alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20
years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he
indeed wrote Annex "A-1", is a promise which is not to be performed within one year from "contract"
execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute
of Frauds and ergo unenforceable for non-compliance therewith.30 By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed
by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of
frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount
or the equity component of the promise was intended to go to a common fund would be to read something not
written in Annex "A-1". Thus, even this angle alone argues against the very idea of a partnership, the creation
of which requires two or more contracting minds mutually agreeing to contribute money, property or industry
to a common fund with the intention of dividing the profits between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance anchored on
an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not
state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can
successfully be maintained against respondent Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against Yang.
Surely, Yang could not have become a partner in, or could not have had any form of business relationship with,
an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as
his partner. In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the
continuation of their family business and common family funds which were theretofore being mainly managed
by Eduardo." 33 But Yang denies kinship with the Litonjua family and petitioner has not disputed the
disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be
made because, as aptly observed by the CA, the actionable document did not contain such provision, let alone
mention the name of Yang. How, indeed, could a person be considered a partner when the document purporting
to establish the partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the
[respondent] corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater investment’
(par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became their
partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner would
contradict himself by alleging that his "investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct investments in several corporation
including but not limited to [six] corporate respondents" This simply means that the "Odeon Theatre
business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business.34
Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he
sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and
formulated the legal situation in the following wise:
[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the
[petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …
respondent. However, there was NO allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and …Yang. More importantly, however, the foregoing
ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly
affects said claim against …Yang. Since [petitioner] is trying to establish his claim against … Yang by linking
him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING
that would contractually connect [petitioner] and … Yang. To establish a valid cause of action, the complaint
should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between
[petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement
of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against … Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the
following:
xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is
controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact, We
emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned in a document purporting to
establish a partnership could be considered a partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice
it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different
tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in his
complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner’s
statement in par. #8 of his motion for reconsideration of the CA’s decision combined with what he said in par.
# 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal
matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether the
actionable document bears out an actionable contract – be it a partnership, a joint venture or whatever or
some innominate contract … It may be noted that one kind of innominate contract is what is known as du ut
facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable
contract even though it may not be a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).38
Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due
process; hence, the proscription against a party shifting from one theory at the trial court to a new and
different theory in the appellate court.39 On the same rationale, an issue which was neither averred in the
complaint cannot be raised for the first time on appeal.40 It is not difficult, therefore, to agree with the CA
when it made short shrift of petitioner’s innominate contract theory on the basis of the foregoing basic
reasons.
Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of
changing theories but of supporting his pleaded cause of action – that of the existence of a partnership - by
another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable
position. Paragraph 12 of his motion for reconsideration of the CA’s decision virtually relegates partnership as
a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for reading,
with myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily, the cited
paragraphs are a study of a party hedging on whether or not to pursue the original cause of action or
altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo,
Sr. and [petitioner], no immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document attached to the
complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T
Yang simply because his document does not create a partnership or a joint venture. This is … a myopic reading
of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership"
nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint
venture/partnership [being applicable] to the business relationship … between [him], Eduardo and Bobby
[Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this
consideration, petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of them, as purportedly evidenced by the undated and
unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip petitioner of
a cause of action under the premises. A complaint for delivery and accounting of partnership property based
on such void or legally non-existent actionable document is dismissible for failure to state of action. So, in
gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.
 EUFRACIO D. ROJAS, PLAINTIFF-APPELLANT, VS. CONSTANCIO B. MAGLANA, DEFENDANT-
APPELLEE.
This is a direct appeal to this Court from a decision* of the then Court of First Instance of Davao, Seventh
Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange
Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests
products licenses and concessions over public and/or private forest lands and to operate, develop and
promote such forests rights and concessions." (Rollo, p. 114)
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in
behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the
logging operations of the partnership. It is also provided in the said articles of co-partnership that all
profits and losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership
(Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as
industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit
"B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from
the slight difference in the purpose of the second partnership which is to hold and secure renewal of timber
license instead of to secure the license as in the first partnership and the term of the second partnership is
fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to
ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07
(Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE
OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISES" (Exhibits "C" and "D")
agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the
Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument
that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all
equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also
given to the second partnership, be dissolved. Pahamotang was paid in full on August 31, 1957. No other
rights and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area
(Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to
CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or
in equipment, to the capital investments of the partnership as well as his obligation to perform his duties as
logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share
will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute
(Decision, R.A. 949).
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year
1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners
started examining the records and supporting papers of the partnership as well as the information furnished
them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim attaching
thereto the amended answer (Ibid., pp. 26?336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the
report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon
to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the
second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.
A. pp. 895-896).
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as
follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired
from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share - the
partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the basis of share and share alike - this covered by actual
contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of profits
and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of 80%
for the defendant and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution,
February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said
partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name
were acquired with partnership funds or with funds of the defendant and - the Court declares that there is
no evidence that these properties were acquired the partnership funds, and therefore the same should not
belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be
liable for them - the Court declares that neither parties is entitled to damages, for as already stated above
it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court for the
assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it
dissolve the partnership or not - the Court declares that the letter of the defendant to the plaintiff dated
February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to
the laborers and employees of the Eastcoast Development Enterprises, - the COURT DECLARES THE SAME
AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit '9-B' executed by Pablo Angeles David - is VALID
AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount
of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according
to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to
the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to him, and this should be considered as part of Maglana's
contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.
"SO ORDERED." (Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was
carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership
and at will. It was considered as a partnership at will because there was no term, express or implied; no
period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit
"A") has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership among
appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly,
the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the
relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered
partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the
relations between them and it was legal error to consider a de facto partnership between said two partners
or a partnership at will. Hence, the letter of appellee MagIana dated February 23, 1961, did not legally
dissolve the registered partnership between them, being in contravention of the partnership agreement
agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to
the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of "share
and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears
evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution
of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for
Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an
equal share in the profits and fixed the term of the second partnership to thirty 30 years, everything else
was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both
partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of Timber
License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents and
purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary
Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of the second partnership, all business transactions were
carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even
up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No
rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which
was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that
thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his
obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as
his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but
to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he
will not be able to comply with the promised contributions and he will not work as logging superintendent. By
such statements, it is obvious that Roxas understood what Maglana was referring to and left no room for
doubt that both considered themselves governed by the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor a Partnership At Will, for as stressed, there is an
existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the
answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way we may view the situation, the conclusion
is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of
its duly registered Articles of Co-Partnership: that is, all profits and losses of the partnership shall be
divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by
the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961
are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while
Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a
settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes
a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and
for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code)
(Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous
reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the
amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital
contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided for in the duly registered Articles of Co-
Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the
CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment,
refused to contribute either in cash or in equipment to the capital investment and to perform his duties as
logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not
only abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A.,
p.949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is
hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises
continued to exist until liquidated and that the sharing basis of the partners should be on share and share
alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners.
We also hereby AFFIRM the decision of the trial court in all other respects.

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
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. 18 Accordingly, 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.
G.R. No. 142612. July 29, 2005
OSCAR ANGELES and EMERITA ANGELES, Petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, Respondents.
This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000 of the Secretary of
Justice in Resolution No. 155.3 The Secretary of Justice affirmed the resolution4 in I.S. No. 96-939 dated
28 February 1997 rendered by the Provincial Prosecution Office of the Department of Justice in Santa Cruz,
Laguna ("Provincial Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the complaint
for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles spouses") against respondent Felino
Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315 of the
Revised Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the brother-in-law
of the Angeles spouses, being married to Emerita Angeles’ sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them to enter
into a contract of antichresis,5 colloquially known as sanglaang-perde, covering eight parcels of land ("subject
land") planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with ₱210,000 as consideration. As the Angeles spouses
stay in Manila during weekdays and go to Laguna only on weekends, the parties agreed that Mercado would
administer the lands and complete the necessary paperwork.6
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained that the
subject land earned ₱46,210 in 1993, which he used to buy more lanzones trees. Mercado also reported that
the trees bore no fruit in 1994. Mercado gave no accounting for 1995. The Angeles spouses claim that only
after this demand for an accounting did they discover that Mercado had put the contract of sanglaang-perde
over the subject land under Mercado and his spouse’s names.7 The relevant portions of the contract of
sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (₱210,000), salaping gastahin,
na aking tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino,
tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili,
iniliwat at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa
kanila ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat
na puno ng lanzones, hindi kasama ang ibang halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay
na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos
sa taong 1997, kaya’t pagkatapos ng lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat na
puno ng lanzones sa nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa
akin ay magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa
mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay bibigyan nila ng LIMA
(5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang mag[-]asawa nila G. AT
GNG. FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5)
[sic] taonng [sic] aming kasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses’ allegations. Mercado claimed that there exists
an industrial partnership, colloquially known as sosyo industrial, between him and his spouse as industrial
partners and the Angeles spouses as the financiers. This industrial partnership had existed since 1991,
before the contract of antichresis over the subject land. As the years passed, Mercado used his and his
spouse’s earnings as part of the capital in the business transactions which he entered into in behalf of the
Angeles spouses. It was their practice to enter into business transactions with other people under the name
of Mercado because the Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name
for the Angeles spouses. Mercado also attached the minutes of the barangay conciliation proceedings held on
7 September 1996. During the barangay conciliation proceedings, Oscar Angeles stated that there was a
written sosyo industrial agreement: capital would come from the Angeles spouses while the profit would be
divided evenly between Mercado and the Angeles spouses.9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing of criminal
information for estafa against Mercado. This resolution, however, was issued without Mercado’s counter-
affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January 1997
resolution, Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial Prosecution
Office issued an amended resolution dismissing the Angeles spouses’ complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was initially unsaddled [with]
problems. Management became the source of misunderstanding including the accounting of profits, which led
to further misunderstanding until it was revealed that the contract with the orchard owner was only with the
name of the respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary support to sustain a prima facie finding.
Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office denied in a
resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document evidencing the
contract of sanglaang-perde with Juana Suazo was executed in the name of the Mercado spouses, instead of
the Angeles spouses. The Angeles spouses allege that this document alone proves Mercado’s misappropriation
of their ₱210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the crime of
estafa cannot be sustained. [The Angeles spouses] failed to show sufficient proof that [Mercado]
deliberately deceived them in the "sanglaang perde" transaction. The document alone, which was in the name
of [Mercado and his spouse], failed to convince us that there was deceit or false representation on the part
of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado] satisfactorily explained
that the [Angeles spouses] do not want to be revealed as the financiers. Indeed, it is difficult to believe that
the [Angeles spouses] would readily part with their money without holding on to some document to evidence
the receipt of money, or at least to inspect the document involved in the said transaction. Under the
circumstances, we are inclined to believe that [the Angeles spouses] knew from the very start that the
questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and [Mercado].
The formation of a partnership was clear from the fact that they contributed money to a common fund and
divided the profits among themselves. Records would show that [Mercado] was able to make deposits for the
account of the [Angeles spouses]. These deposits represented their share in the profits of their business
venture. Although the [Angeles spouses] deny the existence of a partnership, they, however, never disputed
that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the hearing of
their barangay conciliation case reveals that the [Angeles spouses] acknowledged their joint business
ventures with [Mercado] although they assailed the manner by which [Mercado] conducted the business and
handled and distributed the funds. The veracity of this transcript was not raised in issued [sic] by [the
Angeles spouses]. Although the legal formalities for the formation of a partnership were not adhered to, the
partnership relationship of the [Angeles spouses] and [Mercado] is evident in this case. Consequently, there is
no estafa where money is delivered by a partner to his co-partner on the latter’s representation that the
amount shall be applied to the business of their partnership. In case of misapplication or conversion of the
money received, the co-partner’s liability is civil in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of jurisdiction in
dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even without any documentary
proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation by Mercado of the proceeds
of the lanzones after the Angeles spouses demanded an accounting from him of the income at the office of
the barangay authorities on 7 September 1996, and Mercado failed to do so and also failed to deliver the
proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for estafa against
Mercado.12
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same is performed in a
capricious or whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of discretion must
be so patent and gross as to amount to an evasion of positive duty, or to a virtual refusal to perform a duty
enjoined by law, as where the power is exercised in an arbitrary and despotic manner because of passion or
personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of discretion
when he dismissed their appeal. Moreover, the Angeles spouses committed an error in procedure when they
failed to file a motion for reconsideration of the Secretary of Justice’s resolution. A previous motion for
reconsideration before the filing of a petition for certiorari is necessary unless: (1) the issue raised is one
purely of law; (2) public interest is involved; (3) there is urgency; (4) a question of jurisdiction is squarely
raised before and decided by the lower court; and (5) the order is a patent nullity.14 The Angeles spouses
failed to show that their case falls under any of the exceptions. In fact, this present petition for certiorari
is dismissible for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses

The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on Articles
1771 to 1773 of the Civil Code, which state that:
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. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in [Mercado’s]
name as [the Angeles spouses] are apprehensive that, if they come out into the open as financiers of said
contracts, they might be kidnapped by the New People’s Army or their business deals be questioned by the
Bureau of Internal Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar
Angeles was then working with the government.16
Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing the appeal
of the Angeles spouses.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition for certiorari is
partnership and the members thereof to third persons. DISMISSED.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an SO ORDERED.
inventory of said property is not made, signed by the parties, and attached to the public instrument.

The Angeles spouses’ position that there is no partnership because of the lack of a public instrument
indicating the same and a lack of registration with the Securities and Exchange Commission ("SEC") holds no
water. First, the Angeles spouses contributed money to the partnership and not immovable property. Second,
mere failure to register the contract of partnership with the SEC does not invalidate a contract that has the
essential requisites of a partnership. The purpose of registration of the contract of partnership is to give
notice to third parties. Failure to register the contract of partnership does not affect the liability of the
partnership and of the partners to third persons. Neither does such failure to register affect the
partnership’s juridical personality. A partnership may exist even if the partners do not use the words
"partner" or "partnership."

Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract showing a
sosyo industrial or industrial partnership, contribution of money and industry to a common fund, and division
of profits between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged misappropriation by Mercado: "The document
alone, which was in the name of [Mercado and his spouse], failed to convince us that there was deceit or false
representation on the part of [Mercado] that induced the [Angeles spouses] to part with their money.
[Mercado] satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers."15

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for damages,
injunction and restraining order filed by the Angeles spouses against Mercado and Leo Cerayban, stated: