FIRST DIVISION
[8]
G.R. No. 154486, December 01, 2010
FEDERICO JARANTILLA, JR.,
PETITIONER, VS. ANTONIETA
JARANTILLA, BUENAVENTURA
REMOTIGUE, SUBSTITUTED BY
CYNTHIA REMOTIGUE, DOROTEO
JARANTILLA AND TOMAS JARANTILLA,
RESPONDENTS.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari[1] seeks
to modify the Decision[2] of the Court of
Appeals dated July 30, 2002 in CA-G.R. CV
No. 40887, which set aside the Decision[3]
dated December 18, 1992 of the Regional
Trial Court (RTC) of Quezon City, Branch 98
in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa
Jaleco were survived by eight children:
Federico, Delfin, Benjamin, Conchita,
Rosita, Pacita, Rafael and
Antonieta.[4] Petitioner Federico Jarantilla,
Jr. is the grandchild of the late Jarantilla
spouses by their son Federico Jarantilla, Sr.
and his wife Leda Jamili.[5] Petitioner also
has two other brothers: Doroteo and Tomas
Jarantilla.
Petitioner was one of the defendants in the
complaint before the RTC while Antonieta
Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he
joined his aunt Antonieta in her complaint,
were his late aunt Conchita Jarantilla's
husband Buenaventura Remotigue, who
died during the pendency of the case, his
cousin Cynthia Remotigue, the adopted
daughter of Conchita Jarantilla and
Buenaventura Remotigue, and his brothers
Doroteo and Tomas Jarantilla.[6]
In 1948, the Jarantilla heirs extrajudicially
partitioned amongst themselves the real
properties of their deceased
parents.[7] With the exception of the real
property adjudicated to Pacita Jarantilla, the
heirs also agreed to allot the produce of the
said real properties for the years 1947-1949
for the studies of Rafael and Antonieta
Jarantilla.
In the same year, the spouses Rosita
Jarantilla and Vivencio Deocampo entered
into an agreement with the spouses
Buenaventura Remotigue and Conchita
Jarantilla to provide mutual assistance to
each other by way of financial support to
any commercial and agricultural activity on
a joint business arrangement. This
business relationship proved to be
successful as they were able to establish a
manufacturing and trading business,
acquire real properties, and construct
buildings, among other things.[9] This
partnership ended in 1973 when the
parties, in an "Agreement,"[10] voluntarily
agreed to completely dissolve their "joint
business relationship/arrangement."[11]
On April 29, 1957, the spouses
Buenaventura and Conchita Remotigue
executed a document wherein they
acknowledged that while registered only in
Buenaventura Remotigue's name, they were
not the only owners of the capital of the
businesses Manila Athletic Supply (712
Raon Street, Manila), Remotigue Trading
(Calle Real, Iloilo City) and Remotigue
Trading (Cotabato City). In this same
"Acknowledgement of Participating Capital,"
they stated the participating capital of their
co-owners as of the year 1952, with
Antonieta Jarantilla's stated as eight
thousand pesos (P8,000.00) and Federico
Jarantilla, Jr.'s as five thousand pesos
(P5,000.00).[12]
The present case stems from the amended
complaint[13] dated April 22, 1987 filed by
Antonieta Jarantilla against Buenaventura
Remotigue, Cynthia Remotigue, Federico
Jarantilla, Jr., Doroteo Jarantilla and Tomas
Jarantilla, for the accounting of the assets
and income of the co-ownership, for its
partition and the delivery of her share
corresponding to eight percent (8%), and
for damages. Antonieta claimed that in
1946, she had entered into an agreement
with Conchita and Buenaventura
Remotigue, Rafael Jarantilla, and Rosita and
Vivencio Deocampo to engage in
business. Antonieta alleged that the initial
contribution of property and money came
from the heirs' inheritance, and her
subsequent annual investment of seven
thousand five hundred pesos (P7,500.00) as
additional capital came from the proceeds
of her farm. Antonieta also alleged that
from 1946-1969, she had helped in the
management of the business they co-owned
without receiving any salary. Her salary
was supposedly rolled back into the
business as additional investments in her
behalf. Antonieta further claimed co-
ownership of certain properties[14] (the
subject real properties) in the name of the
defendants since the only way the
defendants could have purchased these
properties were through the partnership as
they had no other source of income.
The respondents, including petitioner
herein, in their Answer,[15] denied having
formed a partnership with Antonieta in
1946. They claimed that she was in no
position to do so as she was still in school at
that time. In fact, the proceeds of the lands
they partitioned were devoted to her
studies. They also averred that while she
may have helped in the businesses that her
older sister Conchita had formed with
Buenaventura Remotigue, she was paid her
due salary. They did not deny the existence
and validity of the "Acknowledgement of
Participating Capital" and in fact used this
as evidence to support their claim that
Antonieta's 8% share was limited to the
businesses enumerated therein. With
regard to Antonieta's claim in their other
corporations and businesses, the
respondents said these should also be
limited to the number of her shares as
specified in the respective articles of
incorporation. The respondents denied
using the partnership's income to purchase
the subject real properties and said that the
certificates of title should be binding on
her.[16]
During the course of the trial at the RTC,
petitioner Federico Jarantilla, Jr., who was
one of the original defendants, entered into
a compromise agreement[17] with Antonieta
Jarantilla wherein he supported Antonieta's
claims and asserted that he too was entitled
to six percent (6%) of the supposed
partnership in the same manner as
Antonieta was. He prayed for a favorable
judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby
joins in plaintiff's prayer for an accounting
from the other defendants, and the partition
of the properties of the co-ownership and
the delivery to the plaintiff and to defendant
Federico Jarantilla, Jr. of their rightful share
of the assets and properties in the co-
ownership.[18]
The RTC, in an Order[19] dated March 25,
1992, approved the Joint Motion to Approve
Compromise Agreement[20] and on
December 18, 1992, decided in favor of
Antonieta, to wit:
WHEREFORE, premises above-considered,
the Court renders judgment in favor of the
plaintiff Antonieta Jarantilla and against
defendants Cynthia Remotigue, Doroteo
Jarantilla and Tomas Jarantilla ordering the
latter:
1. to deliver to the plaintiff her 8% share
or its equivalent amount on the real
properties covered by TCT Nos.
35655, 338398, 338399 & 335395, all
of the Registry of Deeds of Quezon
City; TCT Nos. (18303)23341,
142882 & 490007(4615), all of the
Registry of Deeds of Rizal; and TCT
No. T-6309 of the Registry of Deeds
of Cotabato based on their present
market value;
2. to deliver to the plaintiff her 8% share
or its equivalent amount on the
Remotigue Agro-Industrial
Corporation, Manila Athletic Supply,
Inc., MAS Rubber Products, Inc. and
Buendia Recapping Corporation based
on the shares of stocks present book
value;
3. to account for the assets and income
of the co-ownership and deliver to
plaintiff her rightful share thereof
equivalent to 8%;
4. to pay plaintiff, jointly and severally,
the sum of P50,000.00 as moral
damages;
5. to pay, jointly and severally, the sum
of P50,000.00 as attorney's fees; and
6. to pay, jointly and severally, the costs
of the suit.[21]
Both the petitioner and the respondents
appealed this decision to the Court of
Appeals. The petitioner claimed that the
RTC "erred in not rendering a complete
judgment and ordering the partition of the
co-ownership and giving to [him] six per
centum (6%) of the properties."[22]
While the Court of Appeals agreed to some
of the RTC's factual findings, it also
established that Antonieta Jarantilla was
not part of the partnership formed in 1946,
and that her 8% share was limited to the
businesses enumerated in the
Acknowledgement of Participating
Capital. On July 30, 2002, the Court of
Appeals rendered the herein challenged
decision setting aside the RTC's decision, as
follows:
WHEREFORE, the decision of the trial
court, dated 18 December 1992 is SET
ASIDE and a new one is hereby entered
ordering that:
(1) after accounting, plaintiff Antonieta
Jarantilla be given her share of 8% in the
assets and profits of Manila Athletic Supply,
Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico
Jarantilla, Jr. be given his share of 6% of
the assets and profits of the above-
mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a
stockholder in the following corporations to
the extent stated in their Articles of
Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial
Development Corp.
(4) No costs.[23]
The respondents, on August 20, 2002, filed
a Motion for Partial Reconsideration but the
Court of Appeals denied this in a
Resolution[24] dated March 21, 2003.
Antonieta Jarantilla filed before this Court
her own petition for review on certiorari[25]
dated September 16, 2002, assailing the
Court of Appeals' decision on "similar
grounds and similar assignments of errors
as this present case"[26] but it was
dismissed on November 20, 2002 for failure
to file the appeal within the reglementary
period of fifteen (15) days in accordance
with Section 2, Rule 45 of the Rules of
Court.[27]
Petitioner filed before us this petition for
review on the sole ground that:
THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN NOT RULING
THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX
PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES
ACQUIRED BY THE OTHER
DEFENDANTS USING COMMON FUNDS
FROM THE BUSINESSES WHERE HE HAD
OWNED SUCH SHARE.[28]
Petitioner asserts that he was in a
partnership with the Remotigue spouses,
the Deocampo spouses, Rosita Jarantilla,
Rafael Jarantilla, Antonieta Jarantilla and
Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital
the Remotigue spouses executed in
1957. He contends that from this
partnership, several other corporations and
businesses were established and several
real properties were acquired. In this
petition, he is essentially asking for his 6%
share in the subject real properties. He is
relying on the Acknowledgement of
Participating Capital, on his own testimony,
and Antonieta Jarantilla's testimony to
support this contention.
The core issue is whether or not the
partnership subject of the
Acknowledgement of Participating Capital
funded the subject real properties. In other
words, what is the petitioner's right over
these real properties?
It is a settled rule that in a petition for
review on certiorari under Rule 45 of the
Rules of Civil Procedure, only questions of
law may be raised by the parties and
passed upon by this Court.[29]
A question of law arises when there is doubt
as to what the law is on a certain state of
facts, while there is a question of fact when
the doubt arises as to the truth or falsity of
the alleged facts. For a question to be one
of law, the same must not involve an
examination of the probative value of the
evidence presented by the litigants or any
of them. The resolution of the issue must
rest solely on what the law provides on the
given set of circumstances. Once it is clear
that the issue invites a review of the
evidence presented, the question posed is
one of fact. Thus, the test of whether a
question is one of law or of fact is not the
appellation given to such question by the
party raising the same; rather, it is whether
the appellate court can determine the issue
raised without reviewing or evaluating the
evidence, in which case, it is a question of
law; otherwise it is a question of fact.[30]
Since the Court of Appeals did not fully
adopt the factual findings of the RTC, this
Court, in resolving the questions of law that
are now in issue, shall look into the facts
only in so far as the two courts a quo
differed in their appreciation thereof.
The RTC found that an unregistered
partnership existed since 1946 which was
affirmed in the 1957 document, the
"Acknowledgement of Participating
Capital." The RTC used this as its basis for
giving Antonieta Jarantilla an 8% share in
the three businesses listed therein and in
the other businesses and real properties of
the respondents as they had supposedly
acquired these through funds from the
partnership.[31]
The Court of Appeals, on the other hand,
agreed with the RTC as to Antonieta's 8%
share in the business enumerated in the
Acknowledgement of Participating Capital,
but not as to her share in the other
corporations and real properties. The Court
of Appeals ruled that Antonieta's claim of
8% is based on the "Acknowledgement of
Participating Capital," a duly notarized
document which was specific as to the
subject of its coverage. Hence, there was
no reason to pattern her share in the other
corporations from her share in the
partnership's businesses. The Court of
Appeals also said that her claim in the
respondents' real properties was more
"precarious" as these were all covered by
certificates of title which served as the best
evidence as to all the matters contained
therein.[32] Since petitioner's claim was
essentially the same as Antonieta's, the
Court of Appeals also ruled that petitioner
be given his 6% share in the same
businesses listed in the Acknowledgement
of Participating Capital.
Factual findings of the trial court, when
confirmed by the Court of Appeals, are final
and conclusive except in the following
cases: (1) when the inference made is
manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of
discretion; (3) when the finding is grounded
entirely on speculations, surmises or
conjectures; (4) when the judgment of the
Court of Appeals is based on
misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings,
went beyond the issues of the case and the
same is contrary to the admissions of both
appellant and appellee; (7) when the
findings of the Court of Appeals are
contrary to those of the trial court; (8)
when the findings of fact are conclusions
without citation of specific evidence on
which they are based; (9) when the Court
of Appeals manifestly overlooked certain
relevant facts not disputed by the parties
and which, if properly considered, would
justify a different conclusion; and (10)
when the findings of fact of the Court of
Appeals are premised on the absence of
evidence and are contradicted by the
evidence on record.[33]
In this case, we find no error in the ruling of
the Court of Appeals.
Both the petitioner and Antonieta Jarantilla
characterize their relationship with the
respondents as a co-ownership, but in the
same breath, assert that a verbal
partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of
Participating Capital.
There is a co-ownership when an undivided
thing or right belongs to different
persons.[34] It is a partnership when 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.[35] The Court, in
Pascual v. The Commissioner of Internal
Revenue,[36] quoted the concurring opinion
of Mr. Justice Angelo Bautista in Evangelista
v. The Collector of Internal Revenue[37] to
further elucidate on the distinctions
between a co-ownership and a partnership,
to wit:
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.
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.
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.
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 plaintiff's commission, no
partnership existed as between the three
parties, whatever their relation may have
been as to third parties.
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. x x x.
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.[38] (Citations omitted.)
Under Article 1767 of the Civil Code, there
are two essential elements in a contract of
partnership: (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, all the parties in this
case have agreed to, and did, contribute
money and property to a common
fund. Hence, the issue narrows down to
their intent in acting as they did.[39] It is
not denied that all the parties in this case
have agreed to contribute capital to a
common fund to be able to later on share
its profits. They have admitted this fact,
agreed to its veracity, and even submitted
one common documentary evidence to
prove such partnership - the
Acknowledgement of Participating Capital.
As this case revolves around the legal
effects of the Acknowledgement of
Participating Capital, it would be instructive
to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura
Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and
residents of Loyola Heights, Quezon City,
P.I. hereby state:
That the Manila Athletic Supply at 712
Raon, Manila, the Remotigue Trading of
Calle Real, Iloilo City and the Remotigue
Trading, Cotabato Branch, Cotabato, P.I.,
all dealing in athletic goods and
equipments, and general merchandise are
recorded in their respective books with
Buenaventura Remotigue as the registered
owner and are being operated by them as
such:
That they are not the only owners of the
capital of the three establishments and their
participation in the capital of the three
establishments together with the other co-
owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue P25,000.0
(TWENTY-FIVE THOUSAND) 0 may have contributed, but the industrial
2. Conchita Jarantilla de 25,000.0
Remotigue (TWENTY-FIVE 0
THOUSAND)...........
3. Vicencio Deocampo (FIFTEEN 15,000.0
THOUSAND).................... 0
4. Rosita J. Deocampo (FIFTEEN 15,000.0
THOUSAND).................... 0
5. Antonieta Jarantilla (EIGHT 8,000.00
THOUSAND)...........................
6. Rafael Jarantilla (SIX 6,000.00
THOUSAND)..............................
......
7. Federico Jarantilla, Jr. (FIVE 5,000.00
THOUSAND)......................
8. Quintin Vismanos (TWO 2,000.00
THOUSAND)............................
That aside from the persons mentioned in
the next preceding paragraph, no other
person has any interest in the above-
mentioned three establishments.
IN WITNESS WHEREOF, they sign this
instrument in the City of Manila, P.I., this
29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE[40]
The Acknowledgement of Participating
Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-
Remotigue and Buenaventura Remotigue in
1957. Petitioner does not dispute its
contents and is actually relying on it to
prove his participation in the
partnership. Article 1797 of the Civil Code
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.
In the absence of stipulation, the share
of each partner in the profits and
losses shall be in proportion to what he
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. (Emphases supplied.)
It is clear from the foregoing that a partner
is entitled only to his share as agreed upon,
or in the absence of any such stipulations,
then to his share in proportion to his
contribution to the partnership. The
petitioner himself claims his share to be
6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner
fails to realize that this document
specifically enumerated the businesses
covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since
there was a clear agreement that the
capital the partners contributed went to the
three businesses, then there is no reason to
deviate from such agreement and go
beyond the stipulations in the document.
Therefore, the Court of Appeals did not
err in limiting petitioner's share to the
assets of the businesses enumerated in
the Acknowledgement of Participating
Capital.
In Villareal v. Ramirez,[41] the Court held
that since a partnership is a separate
juridical entity, the shares to be paid out to
the partners is necessarily limited only to its
total resources, to wit:
Since it is the partnership, as a separate
and distinct entity, that must refund the
shares of the partners, the amount to be
refunded is necessarily limited to its total
resources. In other words, it can only pay
out what it has in its coffers, which consists
of all its assets. However, before the
partners can be paid their shares, the
creditors of the partnership must first be
compensated. After all the creditors have
been paid, whatever is left of the
partnership assets becomes available for
the payment of the partners' shares.[42]
There is no evidence that the subject real
properties were assets of the partnership
referred to in the Acknowledgement of
Participating Capital.
The petitioner further asserts that he is
entitled to respondents' properties based on
the concept of trust. He claims that since
the subject real properties were purchased
using funds of the partnership, wherein he
has a 6% share, then "law and equity
mandates that he should be considered as a
co-owner of those properties in such
proportion."[43] In Pigao v. Rabanillo,[44]
this Court explained the concept of trusts,
to wit:
Express trusts are created by the intention
of the trustor or of the parties, while
implied trusts come into being by operation
of law, either through implication of an
intention to create a trust as a matter of
law or through the imposition of the trust
irrespective of, and even contrary to, any
such intention. In turn, implied trusts are
either resulting or constructive trusts.
Resulting trusts are based on the equitable
doctrine that valuable consideration and not
legal title determines the equitable title or
interest and are presumed always to have
been contemplated by the parties. They
arise from the nature or circumstances of
the consideration involved in a transaction
whereby one person thereby becomes
invested with legal title but is obligated in
equity to hold his legal title for the benefit
of another.[45]
On proving the existence of a trust, this
Court held that:
Respondent has presented only bare
assertions that a trust was created. Noting
the need to prove the existence of a trust,
this Court has held thus:
"As a rule, the burden of proving the
existence of a trust is on the party asserting
its existence, and such proof must be clear
and satisfactorily show the existence of the
trust and its elements. While implied trusts
may be proved by oral evidence, the
evidence must be trustworthy and received
by the courts with extreme caution, and
should not be made to rest on loose,
equivocal or indefinite declarations.
Trustworthy evidence is required because
oral evidence can easily be fabricated." [46]
The petitioner has failed to prove that there
exists a trust over the subject real
properties. Aside from his bare allegations,
he has failed to show that the respondents
used the partnership's money to purchase
the said properties. Even assuming
arguendo that some partnership income
was used to acquire these properties, the
petitioner should have successfully shown
that these funds came from his share in the
partnership profits. After all, by his own
admission, and as stated in the
Acknowledgement of Participating Capital,
he owned a mere 6% equity in the
partnership.
In essence, the petitioner is claiming his 6%
share in the subject real properties, by
relying on his own self-serving testimony
and the equally biased testimony of
Antonieta Jarantilla. Petitioner has not
presented evidence, other than these
unsubstantiated testimonies, to prove that
the respondents did not have the means to
fund their other businesses and real
properties without the partnership's
income. On the other hand, the
respondents have not only, by testimonial
evidence, proven their case against the
petitioner, but have also presented
sufficient documentary evidence to
substantiate their claims, allegations and
defenses. They presented preponderant
proof on how they acquired and funded
such properties in addition to tax receipts
and tax declarations.[47] It has been held
that "while tax declarations and realty tax
receipts do not conclusively prove
ownership, they may constitute strong
evidence of ownership when accompanied
by possession for a period sufficient for
prescription."[48] Moreover, it is a rule in
this jurisdiction that testimonial evidence
cannot prevail over documentary
evidence.[49] This Court had on several
occasions, expressed our disapproval on
using mere self-serving testimonies to
support one's claim. In Ocampo v.
Ocampo,[50] a case on partition of a co-
ownership, we held that:
Petitioners assert that their claim of co-
ownership of the property was sufficiently
proved by their witnesses -- Luisa Ocampo-
Llorin and Melita Ocampo. We disagree.
Their testimonies cannot prevail over the
array of documents presented by Belen. A
claim of ownership cannot be based simply
on the testimonies of witnesses; much less
on those of interested parties, self-serving
as they are.[51]
It is true that a certificate of title is merely
an evidence of ownership or title over the
particular property described therein.
Registration in the Torrens system does not
create or vest title as registration is not a
mode of acquiring ownership; hence, this
cannot deprive an aggrieved party of a
remedy in law.[52] However, petitioner
asserts ownership over portions of the
subject real properties on the strength of
his own admissions and on the testimony of
Antonieta Jarantilla. As held by this Court in
Republic of the Philippines v. Orfinada,
Sr.[53]:
Indeed, a Torrens title is generally
conclusive evidence of ownership of the
land referred to therein, and a strong
presumption exists that a Torrens title was
regularly issued and valid. A Torrens title is
incontrovertible against any informacion
possessoria, of other title existing prior to
the issuance thereof not annotated on the
Torrens title. Moreover, persons dealing
with property covered by a Torrens
certificate of title are not required to go
beyond what appears on its face.[54]
As we have settled that this action never
really was for partition of a co-ownership, to
permit petitioner's claim on these properties
is to allow a collateral, indirect attack on
respondents' admitted titles. In the words
of the Court of Appeals, "such evidence
cannot overpower the conclusiveness of
these certificates of title, more so since
plaintiff's [petitioner's] claims amount to a
collateral attack, which is prohibited under
Section 48 of Presidential Decree No. 1529,
the Property Registration Decree."[55]
SEC. 48. Certificate not subject to collateral
attack. - A certificate of title shall not be
subject to collateral attack. It cannot be
altered, modified, or cancelled except in a
direct proceeding in accordance with law.
This Court has deemed an action or
proceeding to be "an attack on a title when
its objective is to nullify the title, thereby
challenging the judgment pursuant to which
the title was decreed."[56] In Aguilar v.
Alfaro,[57] this Court further distinguished
between a direct and an indirect or
collateral attack, as follows:
A collateral attack transpires when, in
another action to obtain a different relief
and as an incident to the present action, an
attack is made against the judgment
granting the title. This manner of attack is
to be distinguished from a direct attack
against a judgment granting the title,
through an action whose main objective is
to annul, set aside, or enjoin the
enforcement of such judgment if not yet
implemented, or to seek recovery if the
property titled under the judgment had
been disposed of. x x x.

Petitioner's only piece of documentary

evidence is the Acknowledgement of
Participating Capital, which as discussed
above, failed to prove that the real
properties he is claiming co-ownership of
were acquired out of the proceeds of the
businesses covered by such document.
Therefore, petitioner's theory has no factual
or legal leg to stand on.

WHEREFORE, the Petition is hereby

DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated
July 30, 2002 is AFFIRMED.

SO ORDERED.
SECOND DIVISION
G.R. No. 142293, February 27, 2003
VICENTE SY, TRINIDAD PAULINO, 6B’S
TRUCKING CORPORATION, AND SBT[1]
TRUCKING CORPORATION,
PETITIONERS, VS. HON. COURT OF
APPEALS AND JAIME SAHOT,
RESPONDENTS.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal
of the decision[2] of the Court of Appeals
dated February 29, 2000, in CA-G.R. SP No.
52671, affirming with modification the
decision[3] of the National Labor Relations
Commission promulgated on June 20, 1996
in NLRC NCR CA No. 010526-96. Petitioners
also pray for the reinstatement of the
decision[4] of the Labor Arbiter in NLRC NCR
Case No. 00-09-06717-94.
Culled from the records are the following
facts of this case:
Sometime in 1958, private respondent
Jaime Sahot[5] started working as a truck
helper for petitioners’ family-owned
trucking business named Vicente Sy
Trucking. In 1965, he became a truck driver
of the same family business, renamed T.
Paulino Trucking Service, later 6B’s
Trucking Corporation in 1985, and
thereafter known as SBT Trucking
Corporation since 1994. Throughout all
these changes in names and for 36 years,
private respondent continuously served the
trucking business of petitioners.
In April 1994, Sahot was already 59 years
old. He had been incurring absences as he
was suffering from various ailments.
Particularly causing him pain was his left
thigh, which greatly affected the
performance of his task as a driver. He
inquired about his medical and retirement
benefits with the Social Security System
(SSS) on April 25, 1994, but discovered
that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave sometime
in May 1994. On May 27th, he was medically
examined and treated for EOR, presleyopia,
hypertensive retinopathy G II (Annexes “G-
5” and “G-3”, pp. 48, 104, respectively),[6]
HPM, UTI, Osteoarthritis (Annex “G-4”, p.
105),[7] and heart enlargement (Annex G,
p. 107).[8] On said grounds, Belen Paulino
of the SBT Trucking Service management
told him to file a formal request for
extension of his leave. At the end of his
week-long absence, Sahot applied for
extension of his leave for the whole month
of June, 1994. It was at this time when
petitioners allegedly threatened to
terminate his employment should he refuse
to go back to work.
At this point, Sahot found himself in a
dilemma. He was facing dismissal if he
refused to work, But he could not retire on
pension because petitioners never paid his
correct SSS premiums. The fact remained
he could no longer work as his left thigh
hurt abominably. Petitioners ended his
dilemma. They carried out their threat and
dismissed him from work, effective June 30,
1994. He ended up sick, jobless and
penniless.
On September 13, 1994, Sahot filed with
the NLRC NCR Arbitration Branch, a
complaint for illegal dismissal, docketed as
NLRC NCR Case No. 00-09-06717-94. He
prayed for the recovery of separation pay
and attorneys fees against Vicente Sy and
Trinidad Paulino-Sy, Belen Paulino, Vicente
Sy Trucking, T. Paulino Trucking Service,
6B’s Trucking and SBT Trucking, herein
petitioners.
For their part, petitioners admitted they had
a trucking business in the 1950s but denied
employing helpers and drivers. They
contend that private respondent was not
illegally dismissed as a driver because he
was in fact petitioner’s industrial partner.
They add that it was not until the year
1994, when SBT Trucking Corporation was
established, and only then did respondent
Sahot become an employee of the
company, with a monthly salary that
reached P4,160.00 at the time of his
separation.
Petitioners further claimed that sometime
prior to June 1, 1994, Sahot went on leave
and was not able to report for work for
almost seven days. On June 1, 1994, Sahot
asked permission to extend his leave of
absence until June 30, 1994. It appeared
that from the expiration of his leave, private
respondent never reported back to work nor
did he file an extension of his leave.
Instead, he filed the complaint for illegal
dismissal against the trucking company and
its owners.
Petitioners add that due to Sahot’s refusal
to work after the expiration of his
authorized leave of absence, he should be
deemed to have voluntarily resigned from
his work. They contended that Sahot had all
the time to extend his leave or at least
inform petitioners of his health condition.
Lastly, they cited NLRC Case No. RE-4997-
76, entitled “Manuelito Jimenez et al. vs. T.
Paulino Trucking Service,” as a defense in
view of the alleged similarity in the factual
milieu and issues of said case to that of
Sahot’s, hence they are in pari materia and
Sahot’s complaint ought also to be
dismissed.
The NLRC NCR Arbitration Branch, through
Labor Arbiter Ariel Cadiente Santos, ruled
that there was no illegal dismissal in Sahot’s
case. Private respondent had failed to
report to work. Moreover, said the Labor
Arbiter, petitioners and private respondent
were industrial partners before January
1994. The Labor Arbiter concluded by
ordering petitioners to pay “financial
assistance” of P15,000 to Sahot for having
served the company as a regular employee
since January 1994 only.
On appeal, the National Labor Relations
Commission modified the judgment of the
Labor Arbiter. It declared that private
respondent was an employee, not an
industrial partner, since the start. Private
respondent Sahot did not abandon his job
but his employment was terminated on
account of his illness, pursuant to Article
284[9] of the Labor Code. Accordingly, the
NLRC ordered petitioners to pay private
respondent separation pay in the amount of
P60,320.00, at the rate of P2,080.00 per
year for 29 years of service.
Petitioners assailed the decision of the NLRC
before the Court of Appeals. In its decision
dated February 29, 2000, the appellate
court affirmed with modification the
judgment of the NLRC. It held that private
respondent was indeed an employee of
petitioners since 1958. It also increased the
amount of separation pay awarded to
private respondent to P74,880, computed at
the rate of P2,080 per year for 36 years of
service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is
hereby AFFIRMED with MODIFICATION. SB
Trucking Corporation is hereby directed to
pay complainant Jaime Sahot the sum of
SEVENTY-FOUR THOUSAND EIGHT
HUNDRED EIGHTY (P74,880.00) PESOS as
and for his separation pay.[10]
Hence, the instant petition anchored on the
following contentions:
I
RESPONDENT COURT OF APPEALS IN
PROMULGATING THE QUESTION[ED]
DECISION AFFIRMING WITH
MODIFICATION THE DECISION OF
NATIONAL LABOR RELATIONS
COMMISSION DECIDED NOT IN ACCORD
WITH LAW AND PUT AT NAUGHT ARTICLE
402 OF THE CIVIL CODE.[11]
II
RESPONDENT COURT OF APPEALS
VIOLATED SUPREME COURT RULING THAT
THE NATIONAL LABOR RELATIONS
COMMISSION IS BOUND BY THE FACTUAL
FINDINGS OF THE LABOR ARBITER AS THE
LATTER WAS IN A BETTER POSITION TO
OBSERVE THE DEMEANOR AND
DEPORTMENT OF THE WITNESSES IN THE
CASE OF ASSOCIATION OF INDEPENDENT
UNIONS IN THE PHILIPPINES VERSUS
NATIONAL CAPITAL REGION (305 SCRA
233).[12]
III
PRIVATE RESPONDENT WAS NOT
DISMISS[ED] BY RESPONDENT SBT
TRUCKING CORPORATION.[13]
Three issues are to be resolved: (1)
Whether or not an employer-employee
relationship existed between petitioners and
respondent Sahot; (2) Whether or not there
was valid dismissal; and (3) Whether or not
respondent Sahot is entitled to separation
pay.
Crucial to the resolution of this case is the
determination of the first issue. Before a
case for illegal dismissal can prosper, an
employer-employee relationship must first
be established.[14]
Petitioners invoke the decision of the Labor
Arbiter Ariel Cadiente Santos which found
that respondent Sahot was not an employee
but was in fact, petitioners’ industrial
partner.[15] It is contended that it was the
Labor Arbiter who heard the case and had
the opportunity to observe the demeanor
and deportment of the parties. The same
conclusion, aver petitioners, is supported by
substantial evidence.[16] Moreover, it is
argued that the findings of fact of the Labor
Arbiter was wrongly overturned by the
NLRC when the latter made the following
pronouncement:
We agree with complainant that there was
error committed by the Labor Arbiter when
he concluded that complainant was an
industrial partner prior to 1994. A
computation of the age of complainant
shows that he was only twenty-three (23)
years when he started working with
respondent as truck helper. How can we
entertain in our mind that a twenty-three
(23) year old man, working as a truck
helper, be considered an industrial partner.
Hence we rule that complainant was only an
employee, not a partner of respondents
from the time complainant started working
for respondent.[17]
Because the Court of Appeals also found
that an employer-employee relationship
existed, petitioners aver that the appellate
court’s decision gives an “imprimatur” to
the “illegal” finding and conclusion of the
NLRC.
Private respondent, for his part, denies that
he was ever an industrial partner of
petitioners. There was no written
agreement, no proof that he received a
share in petitioners’ profits, nor was there
anything to show he had any participation
with respect to the running of the
business.[18]
The elements to determine the existence of
an employment relationship are: (a) the
selection and engagement of the employee;
(b) the payment of wages; (c) the power of
dismissal; and (d) the employer’s power to
control the employee’s conduct. The most
important element is the employer’s control
of the employee’s conduct, not only as to
the result of the work to be done, but also
as to the means and methods to accomplish
it.[19]
As found by the appellate court, petitioners
owned and operated a trucking business
since the 1950s and by their own
allegations, they determined private
respondent’s wages and rest day.[20]
Records of the case show that private
respondent actually engaged in work as an
employee. During the entire course of his
employment he did not have the freedom to
determine where he would go, what he
would do, and how he would do it. He
merely followed instructions of petitioners
and was content to do so, as long as he was
paid his wages. Indeed, said the CA, private
respondent had worked as a truck helper
and driver of petitioners not for his own
pleasure but under the latter’s control.
Article 1767[21] of the Civil Code states that
in a contract of partnership two or more
persons bind themselves to contribute
money, property or industry to a common
fund, with the intention of dividing the
profits among themselves.[22] Not one of
these circumstances is present in this case.
No written agreement exists to prove the
partnership between the parties. Private
respondent did not contribute money,
property or industry for the purpose of
engaging in the supposed business. There is
no proof that he was receiving a share in
the profits as a matter of course, during the
period when the trucking business was
under operation. Neither is there any proof
that he had actively participated in the
management, administration and adoption
of policies of the business. Thus, the NLRC
and the CA did not err in reversing the
finding of the Labor Arbiter that private
respondent was an industrial partner from
1958 to 1994.
On this point, we affirm the findings of the
appellate court and the NLRC. Private
respondent Jaime Sahot was not an
industrial partner but an employee of
petitioners from 1958 to 1994. The
existence of an employer-employee
relationship is ultimately a question of
fact[23] and the findings thereon by the
NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when
supported by substantial evidence.
Substantial evidence is such amount of
relevant evidence which a reasonable mind
might accept as adequate to justify a
conclusion.[24]
Time and again this Court has said that “if
doubt exists between the evidence
presented by the employer and the
employee, the scales of justice must be
tilted in favor of the latter.”[25] Here, we
entertain no doubt. Private respondent
since the beginning was an employee of,
not an industrial partner in, the trucking
business.
Coming now to the second issue, was
private respondent validly dismissed by
petitioners?
Petitioners contend that it was private
respondent who refused to go back to work.
The decision of the Labor Arbiter pointed
out that during the conciliation proceedings,
petitioners requested respondent Sahot to
report back for work. However, in the same
proceedings, Sahot stated that he was no
longer fit to continue working, and instead
he demanded separation pay. Petitioners
then retorted that if Sahot did not like to
work as a driver anymore, then he could be
given a job that was less strenuous, such as
working as a checker. However, Sahot
declined that suggestion. Based on the
foregoing recitals, petitioners assert that it
is clear that Sahot was not dismissed but it
was of his own volition that he did not
report for work anymore.
In his decision, the Labor Arbiter concluded
that:
While it may be true that respondents
insisted that complainant continue working
with respondents despite his alleged illness,
there is no direct evidence that will prove
that complainant’s illness prevents or
incapacitates him from performing the
function of a driver. The fact remains that
complainant suddenly stopped working due
to boredom or otherwise when he refused
to work as a checker which certainly is a
much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on
this score the NLRC, concurred in by the
Court of Appeals, held that:
While it was very obvious that complainant
did not have any intention to report back to
work due to his illness which incapacitated
him to perform his job, such intention
cannot be construed to be an abandonment.
Instead, the same should have been
considered as one of those falling under the
just causes of terminating an employment.
The insistence of respondent in making
complainant work did not change the
scenario.
It is worthy to note that respondent is
engaged in the trucking business where
physical strength is of utmost requirement
(sic). Complainant started working with
respondent as truck helper at age twenty-
three (23), then as truck driver since 1965.
Complainant was already fifty-nine (59)
when the complaint was filed and suffering
from various illness triggered by his work
and age.
x x x [27]
In termination cases, the burden is upon
the employer to show by substantial
evidence that the termination was for lawful
cause and validly made.[28] Article 277(b) of
the Labor Code puts the burden of proving
that the dismissal of an employee was for a
valid or authorized cause on the employer,
without distinction whether the employer
admits or does not admit the dismissal.[29]
For an employee’s dismissal to be valid, (a)
the dismissal must be for a valid cause and
(b) the employee must be afforded due
process.[30]
Article 284 of the Labor Code authorizes an
employer to terminate an employee on the
ground of disease, viz:
Art. 284. Disease as a ground for
termination- An employer may terminate
the services of an employee who has been
found to be suffering from any disease and
whose continued employment is prohibited
by law or prejudicial to his health as well as
the health of his co-employees: xxx
However, in order to validly terminate
employment on this ground, Book VI, Rule
I, Section 8 of the Omnibus Implementing
Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal-
Where the employee suffers from a disease
and his continued employment is prohibited
by law or prejudicial to his health or to the
health of his co-employees, the employer
shall not terminate his employment unless
there is a certification by competent public
health authority that the disease is of such
nature or at such a stage that it cannot be
cured within a period of six (6) months
even with proper medical treatment. If the
disease or ailment can be cured within the
period, the employer shall not terminate the
employee but shall ask the employee to
take a leave. The employer shall reinstate
such employee to his former position
immediately upon the restoration of his
normal health. (Italics supplied).
As this Court stated in Triple Eight
integrated Services, Inc. vs. NLRC,[31] the
requirement for a medical certificate under
Article 284 of the Labor Code cannot be
dispensed with; otherwise, it would sanction
the unilateral and arbitrary determination
by the employer of the gravity or extent of
the employee’s illness and thus defeat the
public policy in the protection of labor.
In the case at bar, the employer clearly did
not comply with the medical certificate
requirement before Sahot’s dismissal was
effected. In the same case of Sevillana vs.
I.T. (International) Corp., we ruled:
Since the burden of proving the validity of
the dismissal of the employee rests on the
employer, the latter should likewise bear
the burden of showing that the requisites
for a valid dismissal due to a disease have
been complied with. In the absence of the
required certification by a competent public
health authority, this Court has ruled
against the validity of the employee’s
dismissal. It is therefore incumbent upon
the private respondents to prove by the
quantum of evidence required by law that
petitioner was not dismissed, or if
dismissed, that the dismissal was not
illegal; otherwise, the dismissal would be
unjustified. This Court will not sanction a
dismissal premised on mere conjectures
and suspicions, the evidence must be
substantial and not arbitrary and must be
founded on clearly established facts
sufficient to warrant his separation from
work.[32]
In addition, we must likewise determine if
the procedural aspect of due process had
been complied with by the employer.
From the records, it clearly appears that
procedural due process was not observed in
the separation of private respondent by the
management of the trucking company. The
employer is required to furnish an employee
with two written notices before the latter is
dismissed: (1) the notice to apprise the
employee of the particular acts or omissions
for which his dismissal is sought, which is
the equivalent of a charge; and (2) the
notice informing the employee of his
dismissal, to be issued after the employee
has been given reasonable opportunity to
answer and to be heard on his defense.[33]
These, the petitioners failed to do, even
only for record purposes. What
management did was to threaten the
employee with dismissal, then actually
implement the threat when the occasion
presented itself because of private
respondent’s painful left thigh.
All told, both the substantive and
procedural aspects of due process were
violated. Clearly, therefore, Sahot’s
dismissal is tainted with invalidity.
On the last issue, as held by the Court of
Appeals, respondent Jaime Sahot is entitled
to separation pay. The law is clear on the
matter. An employee who is terminated
because of disease is entitled to “separation
pay equivalent to at least one month salary
or to one-half month salary for every year
of service, whichever is greater xxx.”[34]
Following the formula set in Art. 284 of the
Labor Code, his separation pay was
computed by the appellate court at P2,080
times 36 years (1958 to 1994) or P74,880.
We agree with the computation, after
noting that his last monthly salary was
P4,160.00 so that one-half thereof is
P2,080.00. Finding no reversible error nor
grave abuse of discretion on the part of
appellate court, we are constrained to
sustain its decision. To avoid further delay
in the payment due the separated worker,
whose claim was filed way back in 1994,
this decision is immediately executory.
Otherwise, six percent (6%) interest per
annum should be charged thereon, for any
delay, pursuant to provisions of the Civil
Code.

WHEREFORE, the petition is DENIED and

the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED.
Petitioners must pay private respondent
Jaime Sahot his separation pay for 36 years
of service at the rate of one-half monthly
pay for every year of service, amounting to
P74,880.00, with interest of six per centum
(6%) per annum from finality of this
decision until fully paid.

Costs against petitioners.

SO ORDERED.
THIRD DIVISION
G.R. No. 134559, December 09, 1999
ANTONIA TORRES, ASSISTED BY HER
HUSBAND, ANGELO TORRES; AND
EMETERIA BARING, PETITIONERS, VS.
COURT OF APPEALS AND MANUEL
TORRES, RESPONDENTS.
DECISION
PANGANIBAN, J.:
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]
Second Division 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 plaintiff's
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:
"Article 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:
"x x x [The] Court of Appeals erred in
concluding that the transaction x x x
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, x x x the FIRST
PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, x x
x the SECOND PARTY:
W I T N E S S E T H:
"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 x x x 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 x x x 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. x x x 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 respondent 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 Petition is hereby DENIED

and the challenged Decision AFFIRMED.
Costs against petitioners.

SO ORDERED.
THIRD DIVISION
G.R. No. 136448, November 03, 1999
LIM TONG LIM, PETITIONER, VS.
PHILIPPINE FISHING GEAR
INDUSTRIES, INC., RESPONDENT.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist
among parties who agree to borrow money
to pursue a business and to divide the
profits or losses that may arise therefrom,
even if it is shown that they have not
contributed any capital of their own to a
"common fund." Their contribution may be
in the form of credit or industry, not
necessarily cash or fixed assets. Being
partners, they are all liable for debts
incurred by or on behalf of the partnership.
The liability for a contract entered into on
behalf of an unincorporated association or
ostensible corporation may lie in a person
who may not have directly transacted on its
behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari
before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477,[1] which
disposed as follows:
"WHEREFORE, [there being] no reversible
error in the appealed decision, the same is
hereby affirmed."[2]
The decretal portion of the Quezon City
Regional Trial Court (RTC) ruling, which was
affirmed by the CA, reads as follows:
"WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of
preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to
plaintiff for the following amounts, subject
to the modifications as hereinafter made by
reason of the special and unique facts and
circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid
purchase price of the fishing nets covered
by the Agreement plus P68,000.00
representing the unpaid price of the floats
not covered by said Agreement;
b. 12% interest per annum counted from
date of plaintiff's invoices and computed on
their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice
No. 14407 for P385,377.80 dated February
9, 1990;
ii. Accrued interest of P27,904.02 on
Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on
Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorney's fees,
plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00
monthly rental for storage charges on the
nets counted from September 20, 1990
(date of attachment) to September 12,
1991 (date of auction sale);
e. Cost of suit.
"With respect to the joint liability of
defendants for the principal obligation or for
the unpaid price of nets and floats in the
amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of
P600,045.00, this Court noted that these
items were attached to guarantee any
judgment that may be rendered in favor of
the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration
of the nets during the pendency of this
case, it was ordered sold at public auction
for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder.
The proceeds of the sale paid for by plaintiff
was deposited in court. In effect, the
amount of P900,000.00 replaced the
attached property as a guaranty for any
judgment that plaintiff may be able to
secure in this case with the ownership and
possession of the nets and floats awarded
and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale.
It has also been noted that ownership of the
nets [was] retained by the plaintiff until full
payment [was] made as stipulated in the
invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this
reason also that this Court earlier ordered
the attachment bond filed by plaintiff to
guaranty damages to defendants to be
cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
"From the foregoing, it would appear
therefore that whatever judgment the
plaintiff may be entitled to in this case will
have to be satisfied from the amount of
P900,000.00 as this amount replaced the
attached nets and floats. Considering,
however, that the total judgment obligation
as computed above would amount to only
P840,216.92, it would be inequitable, unfair
and unjust to award the excess to the
defendants who are not entitled to damages
and who did not put up a single centavo to
raise the amount of P900,000.00 aside from
the fact that they are not the owners of the
nets and floats. For this reason, the
defendants are hereby relieved from any
and all liabilities arising from the monetary
judgment obligation enumerated above and
for plaintiff to retain possession and
ownership of the nets and floats and for the
reimbursement of the P900,000.00
deposited by it with the Clerk of Court.
SO ORDERED."[3]
The Facts
On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7,
1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a
business venture with Petitioner Lim Tong
Lim, who however was not a signatory to
the agreement. The total price of the nets
amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also
sold to the Corporation.[4]
The buyers, however, failed to pay for the
fishing nets and the floats; hence, private
respondent filed a collection suit against
Chua, Yao and Petitioner Lim Tong Lim with
a prayer for a writ of preliminary
attachment. The suit was brought against
the three in their capacities as general
partners, on the allegation that "Ocean
Quest Fishing Corporation" was a
nonexistent corporation as shown by a
Certification from the Securities and
Exchange Commission.[5] On September 20,
1990, the lower court issued a Writ of
Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on
board F/B Lourdes which was then docked
at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua
filed a Manifestation admitting his liability
and requesting a reasonable time within
which to pay. He also turned over to
respondent some of the nets which were in
his possession. Peter Yao filed an Answer,
after which he was deemed to have waived
his right to cross-examine witnesses and to
present evidence on his behalf, because of
his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the
Writ of Attachment.[6] The trial court
maintained the Writ, and upon motion of
private respondent, ordered the sale of the
fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and
deposited with the said court the sales
proceeds of P900,000.[7]
On November 18, 1992, the trial court
rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and
Lim, as general partners, were jointly liable
to pay respondent.[8]
The trial court ruled that a partnership
among Lim, Chua and Yao existed based (1)
on the testimonies of the witnesses
presented and (2) on a Compromise
Agreement executed by the three[9] in Civil
Case No. 1492-MN which Chua and Yao had
brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation
of contracts; (c) a declaration of ownership
of fishing boats; (d) an injunction and (e)
damages.[10] The Compromise Agreement
provided:
"a)That the parties plaintiffs & Lim Tong Lim
agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including
the fishing net. This P5,750,000.00 shall
be applied as full payment for
P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
"b)If the four (4) vessel[s] and the fishing
net will be sold at a higher price than
P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao;
"c) If the proceeds of the sale the vessels
will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and
paid to JL Holding Corporation by 1/3
Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao."[11]
The trial court noted that the Compromise
Agreement was silent as to the nature of
their obligations, but that joint liability could
be presumed from the equal distribution of
the profit and loss.[12]
Lim appealed to the Court of Appeals (CA)
which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that
petitioner was a partner of Chua and Yao in
a fishing business and may thus be held
liable as a such for the fishing nets and
floats purchased by and for the use of the
partnership. The appellate court ruled:
"The evidence establishes that all the
defendants including herein appellant Lim
Tong Lim undertook a partnership for a
specific undertaking, that is for commercial
fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide
the profits among themselves which is what
a partnership essentially is x x x. By a
contract of partnership, two or more
persons bind themselves to contribute
money, property or industry to a common
fund with the intention of dividing the
profits among themselves (Article 1767,
New Civil Code)."[13]
Hence, petitioner brought this recourse
before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks
this Court to reverse the assailed Decision
on the following grounds:
"I THE COURT OF APPEALS ERRED IN
HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
"II SINCE IT WAS ONLY CHUA WHO
REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
"III THE TRIAL COURT IMPROPERLY
ORDERED THE SEIZURE AND ATTACHMENT
OF PETITIONER LIM'S GOODS."
In determining whether petitioner may be
held liable for the fishing nets and floats
purchased from respondent, the Court must
resolve this key issue: whether by their
acts, Lim, Chua and Yao could be deemed
to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership and Petitioner's
Liability
In arguing that he should not be held liable
for the equipment purchased from
respondent, petitioner controverts the CA
finding that a partnership existed between
him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the
Compromise Agreement alone.
Furthermore, he disclaims any direct
participation in the purchase of the nets,
alleging that the negotiations were
conducted by Chua and Yao only, and that
he has not even met the representatives of
the respondent company. Petitioner further
argues that he was a lessor, not a partner,
of Chua and Yao, for the "Contract of Lease"
dated February 1, 1990, showed that he
had merely leased to the two the main
asset of the purported partnership -- the
fishing boat F/B Lourdes. The lease was for
six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch
of the boat.
We are not persuaded by the arguments of
petitioner. The facts as found by the two
lower courts clearly showed that there
existed a partnership among Chua, Yao and
him, pursuant to Article 1767 of the Civil
Code which provides:
"Article 1767 - By the contract of
partnership, two or more persons bind
themselves to contribute money, property,
or industry to a common fund, with the
intention of dividing the profits among
themselves."
Specifically, both lower courts ruled that a
partnership among the three existed based
on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested
Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was
already Yao's partner;
(2) That after convening for a few times,
Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes
and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from
Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF
Fishing Corporation, which executed a Deed
of Sale over these two (2) boats in favor of
Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the
refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats
would be shouldered by Chua and Yao;
(6) That because of the "unavailability of
funds," Jesus Lim again extended a loan to
the partnership in the amount of P1 million
secured by a check, because of which, Yao
and Chua entrusted the ownership papers
of two other boats, Chua's FB Lady Anne
Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business
agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-
MN was filed in the Malabon RTC, Branch 72
by Antonio Chua and Peter Yao against Lim
Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of
contracts; (c) declaration of ownership of
fishing boats; (4) injunction; and (e)
damages.
(9) That the case was amicably settled
through a Compromise Agreement executed
between the parties-litigants the terms of
which are already enumerated above.
From the factual findings of both lower
courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business,
which they started by buying boats worth
P3.35 million, financed by a loan secured
from Jesus Lim who was petitioner's
brother. In their Compromise Agreement,
they subsequently revealed their intention
to pay the loan with the proceeds of the
sale of the boats, and to divide equally
among them the excess or loss. These
boats, the purchase and the repair of which
were financed with borrowed money, fell
under the term "common fund" under
Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be
an intangible like credit or industry. That
the parties agreed that any loss or profit
from the sale and operation of the boats
would be divided equally among them also
shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership
extended not only to the purchase of the
boat, but also to that of the nets and the
floats. The fishing nets and the floats, both
essential to fishing, were obviously acquired
in furtherance of their business. It would
have been inconceivable for Lim to involve
himself so much in buying the boat but not
in the acquisition of the aforesaid
equipment, without which the business
could not have proceeded.
Given the preceding facts, it is clear that
there was, among petitioner, Chua and Yao,
a partnership engaged in the fishing
business. They purchased the boats, which
constituted the main assets of the
partnership, and they agreed that the
proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for
review like the present case should involve
only questions of law. Thus, the foregoing
factual findings of the RTC and the CA are
binding on this Court, absent any cogent
proof that the present action is embraced
by one of the exceptions to the rule.[16] In
assailing the factual findings of the two
lower courts, petitioner effectively goes
beyond the bounds of a petition for review
under Rule 45.
Compromise Agreement Not the Sole Basis
of Partnership
Petitioner argues that the appellate court's
sole basis for assuming the existence of a
partnership was the Compromise
Agreement. He also claims that the
settlement was entered into only to end the
dispute among them, but not to adjudicate
their preexisting rights and obligations. His
arguments are baseless. The Agreement
was but an embodiment of the relationship
extant among the parties prior to its
execution.
A proper adjudication of claimants' rights
mandates that courts must review and
thoroughly appraise all relevant facts. Both
lower courts have done so and have found,
correctly, a preexisting partnership among
the parties. In implying that the lower
courts have decided on the basis of one
piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved
into the history of the document and
explored all the possible consequential
combinations in harmony with law, logic
and fairness. Verily, the two lower courts'
factual findings mentioned above nullified
petitioner's argument that the existence of
a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioner's
argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in
the fishing venture. His argument allegedly
finds support in the Contract of Lease and
the registration papers showing that he was
the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he
would like this Court to believe that he
consented to the sale of his own boats to
pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among
the three of them. No lessor would do what
petitioner did. Indeed, his consent to the
sale proved that there was a preexisting
partnership among all three.
Verily, as found by the lower courts,
petitioner entered into a business
agreement with Chua and Yao, in which
debts were undertaken in order to finance
the acquisition and the upgrading of the
vessels which would be used in their fishing
business. The sale of the boats, as well as
the division among the three of the balance
remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes,
though registered in his name, was not his
own property but an asset of the
partnership. It is not uncommon to register
the properties acquired from a loan in the
name of the person the lender trusts, who
in this case is the petitioner himself. After
all, he is the brother of the creditor, Jesus
Lim.
We stress that it is unreasonable - indeed,
it is absurd -- for petitioner to sell his
property to pay a debt he did not incur, if
the relationship among the three of them
was merely that of lessor-lessee, instead of
partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of
corporation by estoppel, liability can be
imputed only to Chua and Yao, and not to
him. Again, we disagree.
Section 21 of the Corporation Code of the
Philippines provides:
"Sec. 21. Corporation by estoppel. - All
persons who assume to act as a corporation
knowing it to be without authority to do so
shall be liable as general partners for all
debts, liabilities and damages incurred or
arising as a result thereof: Provided
however, That when any such ostensible
corporation is sued on any transaction
entered by it as a corporation or on any tort
committed by it as such, it shall not be
allowed to use as a defense its lack of
corporate personality.
"One who assumes an obligation to an
ostensible corporation as such, cannot
resist performance thereof on the ground
that there was in fact no corporation."
Thus, even if the ostensible corporate entity
is proven to be legally nonexistent, a party
may be estopped from denying its corporate
existence. "The reason behind this doctrine
is obvious - an unincorporated association
has no personality and would be
incompetent to act and appropriate for itself
the power and attributes of a corporation as
provided by law; it cannot create agents or
confer authority on another to act in its
behalf; thus, those who act or purport to
act as its representatives or agents do so
without authority and at their own risk. And
as it is an elementary principle of law that a
person who acts as an agent without
authority or without a principal is himself
regarded as the principal, possessed of all
the right and subject to all the liabilities of a
principal, a person acting or purporting to
act on behalf of a corporation which has no
valid existence assumes such privileges and
obligations and becomes personally liable
for contracts entered into or for other acts
performed as such agent."[17]
The doctrine of corporation by estoppel may
apply to the alleged corporation and to a
third party. In the first instance, an
unincorporated association, which
represented itself to be a corporation, will
be estopped from denying its corporate
capacity in a suit against it by a third
person who relied in good faith on such
representation. It cannot allege lack of
personality to be sued to evade its
responsibility for a contract it entered into
and by virtue of which it received
advantages and benefits.
On the other hand, a third party who,
knowing an association to be
unincorporated, nonetheless treated it as a
corporation and received benefits from it,
may be barred from denying its corporate
existence in a suit brought against the
alleged corporation. In such case, all those
who benefited from the transaction made
by the ostensible corporation, despite
knowledge of its legal defects, may be held
liable for contracts they impliedly assented
to or took advantage of.
There is no dispute that the respondent,
Philippine Fishing Gear Industries, is
entitled to be paid for the nets it sold. The
only question here is whether petitioner
should be held jointly[18] liable with Chua
and Yao. Petitioner contests such liability,
insisting that only those who dealt in the
name of the ostensible corporation should
be held liable. Since his name does not
appear on any of the contracts and since he
never directly transacted with the
respondent corporation, ergo, he cannot be
held liable.
Unquestionably, petitioner benefited from
the use of the nets found inside F/B
Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He
in fact questions the attachment of the
nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and
the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never
legally formed for unknown reasons, this
fact alone does not preclude the liabilities of
the three as contracting parties in
representation of it. Clearly, under the law
on estoppel, those acting on behalf of a
corporation and those benefited by it,
knowing it to be without valid existence, are
held liable as general partners.
Technically, it is true that petitioner did not
directly act on behalf of the corporation.
However, having reaped the benefits of the
contract entered into by persons with whom
he previously had an existing relationship,
he is deemed to be part of said association
and is covered by the scope of the doctrine
of corporation by estoppel. We reiterate the
ruling of the Court in Alonso v. Villamor:[19]
"A litigation is not a game of technicalities
in which one, more deeply schooled and
skilled in the subtle art of movement and
position , entraps and destroys the other. It
is, rather, a contest in which each
contending party fully and fairly lays before
the court the facts in issue and then,
brushing aside as wholly trivial and
indecisive all imperfections of form and
technicalities of procedure, asks that justice
be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's
thrust. Technicality, when it deserts its
proper office as an aid to justice and
becomes its great hindrance and chief
enemy, deserves scant consideration from
courts. There should be no vested rights in
technicalities."

Third Issue:
Validity of Attachment

Finally, petitioner claims that the Writ of

Attachment was improperly issued against
the nets. We agree with the Court of
Appeals that this issue is now moot and
academic. As previously discussed, F/B
Lourdes was an asset of the partnership and
that it was placed in the name of petitioner,
only to assure payment of the debt he and
his partners owed. The nets and the floats
were specifically manufactured and tailor-
made according to their own design, and
were bought and used in the fishing venture
they agreed upon. Hence, the issuance of
the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides,
by specific agreement, ownership of the
nets remained with Respondent Philippine
Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and

the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.
G.R. No. 11267, August 31, 1916
SEE CHIAT AND SEE HUAN,
PETITIONERS AND APPELLANTS, VS.
THE INSULAR COLLECTOR OF
CUSTOMS, RESPONDENT AND
APPELLEE.
DECISION
JOHNSON, J.:
The question presented by this appeal is
whether or not the Insular Collector of
Customs abused his power, discretion, and
authority in refusing the appellants the right
to enter the Philippine Islands.
The record shows that the appellants
arrived at the port of Manila on the
steamship Linan on the 26th of April, 1915,
and requested permission to enter the
Philippine islands. They alleged that they
were citizens of the Philippine Islands; that
their mother was a Filipina and that their
father was a Chinaman. They admitted that
they had been born in China and had never
been in the Philippine Islands
before. Several witnesses appeared in their
behalf. Their alleged mother appeared and
swore that she had gone to China about
twenty-eight or thirty years ago and had
lived there with a Chinaman by the name of
See Lo; that the two appellants were her
children and that See Lo was their father.
An examination of the testimony shows
some very important conflicts; for example,
each of the appellants swears that they
lived in their own house and that said house
had three rooms; while the mother testified
that they lived in a rented house with two
rooms. See Chiat swore that he was
twenty-two years of age. See Huan that he
was twenty-four years of age. It does not
seem probable, if the appellants are the
persons whom they claim to be, that they
could have lived there with their mother, as
they allege, during their entire life, without
knowing the number of rooms which the
house contained in which they lived. It does
not seem probable either that the mother
could have been mistaken upon that
question, providing they had lived together
as they allege. That conflict in this
testimony, together with others, evidently
caused the board of special inquiry to
disbelieve their testimony. The board of
special inquiry in its decision said: "The
board does not believe their testimony."
The board believed that they were full-
blooded Chinamen and laborers, coming to
the Philippine Islands without the required
certificates, and refused them the right to
land.
From that decision an appeal was taken to
the Collector of Customs who found that the
appellants were not citizens of the
Philippine Islands, but were Chinese
persons not entitled by law to admission
into the Philippine Islands.
Later a petition for the writ of habeas
corpus was presented in the Court of First
Instance of the city of Manila, and after
hearing the respective parties the
Honorable Simplicio del Rosario, judge, in a
carefully prepared opinion reached the
conclusion that the Collector of Customs
had not abused the power or discretion
which the law conferred upon him and
denied the writ of habeas corpus, and
ordered the appellants returned to the
custody of the Collector of Customs for
deportation.
From that judgment the appellants
appealed to this court and made the
following assignments of error:
"1. The court erred in failing to find that the
failure of the Collector on appeal to see and
weigh the evidence on which the excluding
decision of the board of special inquiry was
based, constituted abuse of his power and
discretion and deprived the petitioners of
their right to a full and fair hearing of their
claim of right to enter the Philippine
Islands.
"2. The court erred in finding that there was
anything improbable or suspicious in the
story that a woman who was born in the
Philippine Islands, lived therein for 20
years, speaking the Tagalog language, then
removed to China, where she lived for 30
years speaking Chinese, then returned and
on April 26 entering into her old
associations among people talking Tagalog,
was able by July 14th next following such
return, to recall her knowledge of, and be
able correctly to testify in, her native
language.
"3. The court erred in failing to find
specifically as a fact that the petitioners
have the appearance of mestizos and do not
have the appearance of persons of the
Chinese race.
"4. The court erred in failing to pass upon
the question of whether as a matter of fact
the petitioners or either of them do or do
not resemble the person claiming to be
their mother.
"6. That said board of special inquiry was
not duly constituted and had no jurisdiction
to exclude from the Philippine Islands these
petitioners in a decision based wholly upon
the provisions of the Chinese exclusion laws
(Act of April 29th, 1902). Nor had the
Collector jurisdiction to review said decision
on appeal.
"6. The court erred in refusing to set the
petitioners at liberty and in remanding them
to the custody of the Collector of Customs."
With reference to the first assignment of
error above noted, we have held in several
cases that it was not necessary for the
Collector of Customs, in an appeal from a
decision of the board of special inquiry, to
see and hear the witnesses, even though
the board found from a personal
examination of the alien that he belonged to
the class of aliens who were not permitted
to enter territory of the United States
without the "section six certificate." (Que
Quay vs. Collector of Customs, 33 Phil.
Rep., 128; Go Paw vs. Collector of Customs,
33 Phil. Rep., 278; Valdezco Sy Chiok vs.
Collector of Customs, 33 Phil. Rep., 406;
See also Co Pian vs. Collector of Customs,
34 Phil. Rep., 310; Obera vs. Collector of
Customs, R. G. No. 11087 [decided Jan. 8,
1916, not published.])
The rule is not only well established here in
this jurisdiction, but also in the United
States, in cases like the present, that where
a board of special inquiry refuses a
Chinaman the right to enter territory of the
United States, even on the personal
appearance, racial characteristics,
language, dress, and manner of said alien,
it is not necessary for the Collector of
Customs, in his review of the proceedings of
said board on appeal, to have before him
the person of the alien nor to hear the
witnesses again who testified before said
board of special inquiry. The Collector of
Customs is authorized to review the
evidence and to pass upon its sufficiency
without again hearing or seeing the
witnesses.
With reference to the second assignment of
error above-noted, an examination of the
record shows that the alleged mother of the
appellants, in her examination before the
board of special inquiry, had some difficulty
in understanding Tagalog. She stated, "I
forgot Tagalog; I was in China so long." In
the Court of First Instance, according to the
finding of Judge Del Rosario, she spoke
Tagalog very fluently and perfectly. Taking
into consideration her own statement before
the board of special inquiry with reference
to her ability to speak Tagalog. in relation
with the fluent manner in which she spoke
it before the Court of First Instance, Judge
Del Rosario did not believe that she had
been in China for a period of 30 years.
Judge Del Rosario believed that during a
period of 30 years, without having an
opportunity to speak her native tongue, she
would have forgotten it more or less. That
conclusion of the judge was in accordance
with her own conclusion before the board of
special inquiry. Evidently Judge Del Rosario
referred to that fact, as he referred to other
facts, simply for the purpose of indicating
the reason why he did not believe her
statements. Judge Del Rosario believed that
she had only gone to China for the purpose
of learning to speak Chinese, in order that
she might falsely represent that she was
the mother of the appellants. It was simply
Judge Del Rosario's appreciation of the facts
which influenced his conclusion.
The third and fourth assignments of error
may be discussed together. The board of
special inquiry found as a fact that the
plaintiffs did not resemble, in their facial
appearance, their alleged mother; that they
were not Filipino mestizos, but that they
were full-blooded Chinamen. Alien Chinese
seeking admission into territory of the
United States are themselves exhibits. The
board of special inquiry has a right to
examine them and to determine from their
personal appearance whether they are
Chinamen or not. (Leong Guen vs. Collector
of Customs, 31 Phil. Rep.» 417; Go Paw vs.
Collector of Customs, 3a Phil. Rep., 278.)
With reference to the fifth assignment of
error, that question has been decided
against the contention of the appellants in
so many cases that we will not now discuss
it again. (Chieng Ah Sui vs. Collector of
Customs, 22 Phil. Rep; 361; 239 U. S.,
139; Tin Lio vs. Collector of Customs, 32
Phil. Rep., 32; Que Quay vs. Collector of
Customs, 33 Phil. Rep., 128.)
In the case of ex parte Momo Tomimatsu
(232 Fed. Rep., 376), it was held that a
clerk in the immigration service may serve
on the board of special inquiry.
For all of the foregoing reasons, we are of
the opinion and so hold that there was no
abuse of authority on the part of the
department of customs. The decision of the
Court of First Instance is therefore hereby
affirmed with costs and it is hereby ordered
and decreed that the appellants be returned
to the Collector of Customs, in order that
the judgment heretofore dictated by him
may be enforced. So ordered.
THIRD DIVISION
G.R. No. 148187, April 16, 2008
PHILEX MINING CORPORATION,
Petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
YNARES-SATIAGO, J.:
This is a petition for review on certiorari of
the June 30, 2000 Decision[1] of the Court
of Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision[2] of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also
assailed is the April 3, 2001 Resolution[3]
denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining
Corporation (Philex Mining), entered into an
agreement[4] with Baguio Gold Mining
Company ("Baguio Gold") for the former to
manage and operate the latter's mining
claim, known as the Sto. Nino mine, located
in Atok and Tublay, Benguet Province. The
parties' agreement was denominated as
"Power of Attorney" and provided for the
following terms:
4. Within three (3) years from date
thereof, the PRINCIPAL (Baguio Gold) shall
make available to the MANAGERS (Philex
Mining) up to ELEVEN MILLION PESOS
(P11,000,000.00), in such amounts as from
time to time may be required by the
MANAGERS within the said 3-year period,
for use in the MANAGEMENT of the STO.
NINO MINE. The said ELEVEN MILLION
PESOS (P11,000,000.00) shall be deemed,
for internal audit purposes, as the owner's
account in the Sto. Nino PROJECT. Any part
of any income of the PRINCIPAL from the
STO. NINO MINE, which is left with the Sto.
Nino PROJECT, shall be added to such
owner's account.
5. Whenever the MANAGERS shall
deem it necessary and convenient in
connection with the MANAGEMENT of the
STO. NINO MINE, they may transfer their
own funds or property to the Sto. Nino
PROJECT, in accordance with the following
arrangements:
(a) The properties shall be appraised
and, together with the cash, shall be carried
by the Sto. Nino PROJECT as a special fund
to be known as the MANAGERS' account.
(b) The total of the MANAGERS'
account shall not exceed P11,000,000.00,
except with prior approval of the
PRINCIPAL; provided, however, that if the
compensation of the MANAGERS as herein
provided cannot be paid in cash from the
Sto. Nino PROJECT, the amount not so paid
in cash shall be added to the MANAGERS'
account.
(c) The cash and property shall not
thereafter be withdrawn from the Sto. Nino
PROJECT until termination of this Agency.
(d) The MANAGERS' account shall not
accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of
property, upon a projected termination of
this Agency, the ratio which the MANAGERS'
account has to the owner's account will be
determined, and the corresponding
proportion of the entire assets of the STO.
NINO MINE, excluding the claims, shall be
transferred to the MANAGERS, except that
such transferred assets shall not include
mine development, roads, buildings, and
similar property which will be valueless, or
of slight value, to the MANAGERS. The
MANAGERS can, on the other hand, require
at their option that property originally
transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Until
such assets are transferred to the
MANAGERS, this Agency shall remain
subsisting.
xxxx
12. The compensation of the MANAGER
shall be fifty per cent (50%) of the net
profit of the Sto. Nino PROJECT before
income tax. It is understood that the
MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall
pay income tax on the net profit of the Sto.
Nino PROJECT after deduction therefrom of
the MANAGERS' compensation.
xxxx
16. The PRINCIPAL has current
pecuniary obligation in favor of the
MANAGERS and, in the future, may incur
other obligations in favor of the MANAGERS.
This Power of Attorney has been executed
as security for the payment and satisfaction
of all such obligations of the PRINCIPAL in
favor of the MANAGERS and as a means to
fulfill the same. Therefore, this Agency shall
be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS'
account. After all obligations of the
PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency
shall be revocable by the PRINCIPAL upon
36-month notice to the MANAGERS.
17. Notwithstanding any agreement or
understanding between the PRINCIPAL and
the MANAGERS to the contrary, the
MANAGERS may withdraw from this Agency
by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be
held liable to the PRINCIPAL by reason
alone of such withdrawal. Paragraph 5(d)
hereof shall be operative in case of the
MANAGERS' withdrawal.
x x x x[5]
In the course of managing and operating
the project, Philex Mining made advances of
cash and property in accordance with
paragraph 5 of the agreement. However,
the mine suffered continuing losses over the
years which resulted to petitioner's
withdrawal as manager of the mine on
January 28, 1982 and in the eventual
cessation of mine operations on February
20, 1982.[6]
Thereafter, on September 27, 1982, the
parties executed a "Compromise with
Dation in Payment"[7] wherein Baguio Gold
admitted an indebtedness to petitioner in
the amount of P179,394,000.00 and agreed
to pay the same in three segments by first
assigning Baguio Gold's tangible assets to
petitioner, transferring to the latter Baguio
Gold's equitable title in its Philodrill assets
and finally settling the remaining liability
through properties that Baguio Gold may
acquire in the future.
On December 31, 1982, the parties
executed an "Amendment to Compromise
with Dation in Payment"[8] where the parties
determined that Baguio Gold's indebtedness
to petitioner actually amounted to
P259,137,245.00, which sum included
liabilities of Baguio Gold to other creditors
that petitioner had assumed as
guarantor. These liabilities pertained to
long-term loans amounting to
US$11,000,000.00 contracted by Baguio
Gold from the Bank of America NT & SA and
Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two
segments by first assigning its tangible
assets for P127,838,051.00 and then
transferring its equitable title in its Philodrill
assets for P16,302,426.00. The parties
then ascertained that Baguio Gold had a
remaining outstanding indebtedness to
petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its
1982 books of account the remaining
outstanding indebtedness of Baguio Gold by
charging P112,136,000.00 to allowances
and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return,
petitioner deducted from its gross income
the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold
against reserves and
allowances."[9] However, the Bureau of
Internal Revenue (BIR) disallowed the
amount as deduction for bad debt and
assessed petitioner a deficiency income tax
of P62,811,161.39.
Petitioner protested before the BIR arguing
that the deduction must be allowed since all
requisites for a bad debt deduction were
satisfied, to wit: (a) there was a valid and
existing debt; (b) the debt was ascertained
to be worthless; and (c) it was charged off
within the taxable year when it was
determined to be worthless.
Petitioner emphasized that the debt arose
out of a valid management contract it
entered into with Baguio Gold. The bad
debt deduction represented advances made
by petitioner which, pursuant to the
management contract, formed part of
Baguio Gold's "pecuniary obligations" to
petitioner. It also included payments made
by petitioner as guarantor of Baguio Gold's
long-term loans which legally entitled
petitioner to be subrogated to the rights of
the original creditor.
Petitioner also asserted that due to Baguio
Gold's irreversible losses, it became evident
that it would not be able to recover the
advances and payments it had made in
behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed
that it was neither required to institute a
judicial action for collection against the
debtor nor to sell or dispose of collateral
assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent
efforts to enforce collection and exhausted
all reasonable means to collect.
On October 28, 1994, the BIR denied
petitioner's protest for lack of legal and
factual basis. It held that the alleged debt
was not ascertained to be worthless since
Baguio Gold remained existing and had not
filed a petition for bankruptcy; and that the
deduction did not consist of a valid and
subsisting debt considering that, under the
management contract, petitioner was to be
paid fifty percent (50%) of the project's net
profit.[10]
Petitioner appealed before the Court of Tax
Appeals (CTA) which rendered judgment, as
follows:
WHEREFORE, in view of the foregoing, the
instant Petition for Review is hereby
DENIED for lack of merit. The assessment in
question, viz: FAS-1-82-88-003067 for
deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining
Corporation is hereby ORDERED to PAY
respondent Commissioner of Internal
Revenue the amount of P62,811,161.39,
plus, 20% delinquency interest due
computed from February 10, 1995, which is
the date after the 20-day grace period
given by the respondent within which
petitioner has to pay the deficiency amount
x x x up to actual date of payment.
SO ORDERED.[11]
The CTA rejected petitioner's assertion that
the advances it made for the Sto. Nino mine
were in the nature of a loan. It instead
characterized the advances as petitioner's
investment in a partnership with Baguio
Gold for the development and exploitation
of the Sto. Nino mine. The CTA held that
the "Power of Attorney" executed by
petitioner and Baguio Gold was actually a
partnership agreement. Since the
advanced amount partook of the nature of
an investment, it could not be deducted as
a bad debt from petitioner's gross income.
The CTA likewise held that the amount paid
by petitioner for the long-term loan
obligations of Baguio Gold could not be
allowed as a bad debt deduction. At the
time the payments were made, Baguio Gold
was not in default since its loans were not
yet due and demandable. What petitioner
did was to pre-pay the loans as evidenced
by the notice sent by Bank of America
showing that it was merely demanding
payment of the installment and interests
due. Moreover, Citibank imposed and
collected a "pre-termination penalty" for the
pre-payment.
The Court of Appeals affirmed the decision
of the CTA.[12] Hence, upon denial of its
motion for reconsideration,[13] petitioner
took this recourse under Rule 45 of the
Rules of Court, alleging that:
I.
The Court of Appeals erred in construing
that the advances made by Philex in the
management of the Sto. Nino Mine
pursuant to the Power of Attorney partook
of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the
50%-50% sharing in the net profits of the
Sto. Nino Mine indicates that Philex is a
partner of Baguio Gold in the development
of the Sto. Nino Mine notwithstanding the
clear absence of any intent on the part of
Philex and Baguio Gold to form a
partnership.
III.
The Court of Appeals erred in relying only
on the Power of Attorney and in completely
disregarding the Compromise Agreement
and the Amended Compromise Agreement
when it construed the nature of the
advances made by Philex.
IV.
The Court of Appeals erred in refusing to
delve upon the issue of the propriety of the
bad debts write-off.[14]
Petitioner insists that in determining the
nature of its business relationship with
Baguio Gold, we should not only rely on the
"Power of Attorney", but also on the
subsequent "Compromise with Dation in
Payment" and "Amended Compromise with
Dation in Payment" that the parties
executed in 1982. These documents,
allegedly evinced the parties' intent to treat
the advances and payments as a loan and
establish a creditor-debtor relationship
between them.
The petition lacks merit.
The lower courts correctly held that the
"Power of Attorney" is the instrument that
is material in determining the true nature of
the business relationship between petitioner
and Baguio Gold. Before resort may be had
to the two compromise agreements, the
parties' contractual intent must first be
discovered from the expressed language of
the primary contract under which the
parties' business relations were founded. It
should be noted that the compromise
agreements were mere collateral
documents executed by the parties
pursuant to the termination of their
business relationship created under the
"Power of Attorney". On the other hand, it
is the latter which established the juridical
relation of the parties and defined the
parameters of their dealings with one
another.
The execution of the two compromise
agreements can hardly be considered as a
subsequent or contemporaneous act that is
reflective of the parties' true intent. The
compromise agreements were executed
eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by
which petitioner could recover the advances
and payments it made under the "Power of
Attorney". The parties entered into the
compromise agreements as a consequence
of the dissolution of their business
relationship. It did not define that
relationship or indicate its real character.
An examination of the "Power of Attorney"
reveals that a partnership or joint venture
was indeed intended by the parties. Under
a contract of partnership, two or more
persons bind themselves to contribute
money, property, or industry to a common
fund, with the intention of dividing the
profits among themselves.[15] While a
corporation, like petitioner, cannot generally
enter into a contract of partnership unless
authorized by law or its charter, it has been
held that it may enter into a joint venture
which is akin to a particular partnership:
The legal concept of a joint venture is of
common law origin. It has no precise legal
definition, but it has been generally
understood to mean an organization formed
for some temporary purpose. x x x It is in
fact hardly distinguishable from the
partnership, since their elements are similar
- community of interest in the business,
sharing of profits and losses, and a mutual
right of control. x x x The main distinction
cited by most opinions in common law
jurisdictions is that the partnership
contemplates a general business with some
degree of continuity, while the joint venture
is formed for the execution of a single
transaction, and is thus of a temporary
nature. x x x This observation is not entirely
accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular
or universal, and a particular partnership
may have for its object a specific
undertaking. x x x It would seem therefore
that under Philippine law, a joint venture is
a form of partnership and should be
governed by the law of partnerships. The
Supreme Court has however recognized a
distinction between these two business
forms, and has held that although a
corporation cannot enter into a partnership
contract, it may however engage in a joint
venture with others. x x x (Citations
omitted) [16]
Perusal of the agreement denominated as
the "Power of Attorney" indicates that the
parties had intended to create a partnership
and establish a common fund for the
purpose. They also had a joint interest in
the profits of the business as shown by a
50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner
and Baguio Gold undertook to contribute
money, property and industry to the
common fund known as the Sto. Niño
mine.[17] In this regard, we note that there
is a substantive equivalence in the
respective contributions of the parties to
the development and operation of the
mine. Pursuant to paragraphs 4 and 5 of
the agreement, petitioner and Baguio Gold
were to contribute equally to the joint
venture assets under their respective
accounts. Baguio Gold would contribute
P11M under its owner's account plus any of
its income that is left in the project, in
addition to its actual mining
claim. Meanwhile, petitioner's contribution
would consist of its expertise in the
management and operation of mines, as
well as the manager's account which is
comprised of P11M in funds and property
and petitioner's "compensation" as
manager that cannot be paid in cash.
However, petitioner asserts that it could not
have entered into a partnership agreement
with Baguio Gold because it did not "bind"
itself to contribute money or property to the
project; that under paragraph 5 of the
agreement, it was only optional for
petitioner to transfer funds or property to
the Sto. Niño project "(w)henever the
MANAGERS shall deem it necessary and
convenient in connection with the
MANAGEMENT of the STO. NIÑO MINE."[18]
The wording of the parties' agreement as to
petitioner's contribution to the common
fund does not detract from the fact that
petitioner transferred its funds and property
to the project as specified in paragraph 5,
thus rendering effective the other
stipulations of the contract, particularly
paragraph 5(c) which prohibits petitioner
from withdrawing the advances until
termination of the parties' business
relations. As can be seen, petitioner
became bound by its contributions once the
transfers were made. The contributions
acquired an obligatory nature as soon as
petitioner had chosen to exercise its option
under paragraph 5.
There is no merit to petitioner's claim that
the prohibition in paragraph 5(c) against
withdrawal of advances should not be taken
as an indication that it had entered into a
partnership with Baguio Gold; that the
stipulation only showed that what the
parties entered into was actually a contract
of agency coupled with an interest which is
not revocable at will and not a partnership.
In an agency coupled with interest, it is the
agency that cannot be revoked or
withdrawn by the principal due to an
interest of a third party that depends upon
it, or the mutual interest of both principal
and agent.[19] In this case, the non-
revocation or non-withdrawal under
paragraph 5(c) applies to the advances
made by petitioner who is supposedly the
agent and not the principal under the
contract. Thus, it cannot be inferred from
the stipulation that the parties' relation
under the agreement is one of agency
coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement
be taken as an indication that the
relationship of the parties was one of
agency and not a partnership. Although the
said provision states that "this Agency shall
be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS'
account," it does not necessarily follow that
the parties entered into an agency contract
coupled with an interest that cannot be
withdrawn by Baguio Gold.
It should be stressed that the main object
of the "Power of Attorney" was not to confer
a power in favor of petitioner to contract
with third persons on behalf of Baguio Gold
but to create a business relationship
between petitioner and Baguio Gold, in
which the former was to manage and
operate the latter's mine through the
parties' mutual contribution of material
resources and industry. The essence of an
agency, even one that is coupled with
interest, is the agent's ability
to represent his principal and bring about
business relations between the latter and
third persons.[20] Where representation for
and in behalf of the principal is merely
incidental or necessary for the proper
discharge of one's paramount undertaking
under a contract, the latter may not
necessarily be a contract of agency, but
some other agreement depending on the
ultimate undertaking of the parties.[21]
In this case, the totality of the
circumstances and the stipulations in the
parties' agreement indubitably lead to the
conclusion that a partnership was formed
between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold
was unconditionally obligated to return the
advances made by petitioner under the
agreement. Paragraph 5 (d) thereof
provides that upon termination of the
parties' business relations, "the ratio which
the MANAGER'S account has to the owner's
account will be determined, and the
corresponding proportion of the entire
assets of the STO. NINO MINE, excluding
the claims" shall be transferred to
petitioner.[22] As pointed out by the Court
of Tax Appeals, petitioner was merely
entitled to a proportionate return of the
mine's assets upon dissolution of the
parties' business relations. There was
nothing in the agreement that would
require Baguio Gold to make payments of
the advances to petitioner as would be
recognized as an item of obligation or
"accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that
the agreement provided for a distribution of
assets of the Sto. Niño mine upon
termination, a provision that is more
consistent with a partnership than a
creditor-debtor relationship. It should be
pointed out that in a contract of loan, a
person who receives a loan or money or any
fungible thing acquires ownership thereof
and is bound to pay the creditor an equal
amount of the same kind and quality.[23] In
this case, however, there was no stipulation
for Baguio Gold to actually repay petitioner
the cash and property that it had advanced,
but only the return of an amount pegged at
a ratio which the manager's account had to
the owner's account.
In this connection, we find no contractual
basis for the execution of the two
compromise agreements in which Baguio
Gold recognized a debt in favor of
petitioner, which supposedly arose from the
termination of their business relations over
the Sto. Nino mine. The "Power of
Attorney" clearly provides that petitioner
would only be entitled to the return of a
proportionate share of the mine assets to
be computed at a ratio that the manager's
account had to the owner's account. Except
to provide a basis for claiming the advances
as a bad debt deduction, there is no reason
for Baguio Gold to hold itself liable to
petitioner under the compromise
agreements, for any amount over and
above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that
it was unlikely for a business corporation to
lend hundreds of millions of pesos to
another corporation with neither security, or
collateral, nor a specific deed evidencing the
terms and conditions of such loans. The
parties also did not provide a specific
maturity date for the advances to become
due and demandable, and the manner of
payment was unclear. All these point to the
inevitable conclusion that the advances
were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was
a partner in the Sto Niño mine is the fact
that it would receive 50% of the net profits
as "compensation" under paragraph 12 of
the agreement. The entirety of the parties'
contractual stipulations simply leads to no
other conclusion than that petitioner's
"compensation" is actually its share in the
income of the joint venture.
Article 1769 (4) of the Civil Code explicitly
provides that the "receipt by a person of a
share in the profits of a business is prima
facie evidence that he is a partner in the
business." Petitioner asserts, however, that
no such inference can be drawn against it
since its share in the profits of the Sto Niño
project was in the nature of compensation
or "wages of an employee", under the
exception provided in Article 1769 (4)
(b).[24]
On this score, the tax court correctly noted
that petitioner was not an employee of
Baguio Gold who will be paid "wages"
pursuant to an employer-employee
relationship. To begin with, petitioner was
the manager of the project and had put
substantial sums into the venture in order
to ensure its viability and profitability. By
pegging its compensation to profits,
petitioner also stood not to be remunerated
in case the mine had no income. It is hard
to believe that petitioner would take the
risk of not being paid at all for its services,
if it were truly just an ordinary employee.
Consequently, we find that petitioner's
"compensation" under paragraph 12 of the
agreement actually constitutes its share in
the net profits of the partnership. Indeed,
petitioner would not be entitled to an equal
share in the income of the mine if it were
just an employee of Baguio Gold.[25] It is
not surprising that petitioner was to receive
a 50% share in the net profits, considering
that the "Power of Attorney" also provided
for an almost equal contribution of the
parties to the St. Nino mine. The
"compensation" agreed upon only serves to
reinforce the notion that the parties'
relations were indeed of partners and not
employer-employee.
All told, the lower courts did not err in
treating petitioner's advances as
investments in a partnership known as the
Sto. Nino mine. The advances were not
"debts" of Baguio Gold to petitioner
inasmuch as the latter was under no
unconditional obligation to return the same
to the former under the "Power of
Attorney". As for the amounts that
petitioner paid as guarantor to Baguio
Gold's creditors, we find no reason to
depart from the tax court's factual finding
that Baguio Gold's debts were not yet due
and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid
Baguio Gold's outstanding loans to its bank
creditors and this conclusion is supported
by the evidence on record.[26]
In sum, petitioner cannot claim the
advances as a bad debt deduction from its
gross income. Deductions for income tax
purposes partake of the nature of tax
exemptions and are strictly construed
against the taxpayer, who must prove by
convincing evidence that he is entitled to
the deduction claimed.[27] In this case,
petitioner failed to substantiate its assertion
that the advances were subsisting debts of
Baguio Gold that could be deducted from its
gross income. Consequently, it could not
claim the advances as a valid bad debt
deduction.
WHEREFORE, the petition is DENIED. The
decision of the Court of Appeals in CA-G.R.
SP No. 49385 dated June 30, 2000, which
affirmed the decision of the Court of Tax
Appeals in C.T.A. Case No. 5200 is
AFFIRMED. Petitioner Philex Mining
Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the
amount of P62,811,161.31, with 20%
delinquency interest computed from
February 10, 1995, which is the due date
given for the payment of the deficiency
income tax, up to the actual date of
payment.
SO ORDERED.
SECOND DIVISION
G.R. No. 127347, November 25, 1999
ALFREDO N. AGUILA, JR, PETITIONER,
VS. HONORABLE COURT OF APPEALS
AND FELICIDAD S. VDA. DE ABROGAR,
RESPONDENTS.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of
the decision[1] of the Court of Appeals,
dated November 29, 1990, which reversed
the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated
April 11, 1995. The trial court dismissed the
petition for declaration of nullity of a deed
of sale filed by private respondent Felicidad
S. Vda. de Abrogar against petitioner
Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila &
Sons, Co., a partnership engaged in lending
activities. Private respondent and her late
husband, Ruben M. Abrogar, were the
registered owners of a house and lot,
covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April
18, 1991, private respondent, with the
consent of her late husband, and A.C.
Aguila & Sons, Co., represented by
petitioner, entered into a Memorandum of
Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila &
Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad
S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be
executed by the FIRST PARTY conveying the
property to the SECOND PARTY for and in
consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine
Currency;
(2) The FIRST PARTY is hereby given by the
SECOND PARTY the option to repurchase
the said property within a period of ninety
(90) days from the execution of this
memorandum of agreement effective April
18, 1991, for the amount of TWO HUNDRED
THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail
to exercise her option to repurchase the
said property within a period of ninety (90)
days, the FIRST PARTY is obliged to deliver
peacefully the possession of the property to
the SECOND PARTY within fifteen (15) days
after the expiration of the said 90 day grace
period;
(4) During the said grace period, the FIRST
PARTY obliges herself not to file any lis
pendens or whatever claims on the property
nor shall be cause the annotation of say
claim at the back of the title to the said
property;
(5) With the execution of the deed of
absolute sale, the FIRST PARTY warrants
her ownership of the property and shall
defend the rights of the SECOND PARTY
against any party whom may have any
interests over the property;
(6) All expenses for documentation and
other incidental expenses shall be for the
account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver
peaceful possession of the property to the
SECOND PARTY after the expiration of the
15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an
amount equivalent to Five Percent of the
principal amount of TWO HUNDRED PESOS
(P200.00) or P10,000.00 per month of
delay as and for rentals and liquidated
damages;
(8) Should the FIRST PARTY fail to exercise
her option to repurchase the property within
ninety (90) days period above-mentioned,
this memorandum of agreement shall be
deemed cancelled and the Deed of Absolute
Sale, executed by the parties shall be the
final contract considered as entered
between the parties and the SECOND
PARTY shall proceed to transfer ownership
of the property above described to its name
free from lines and encumbrances.[2]
On the same day, April 18, 1991, the
parties likewise executed a deed of absolute
sale,[3] dated June 11, 1991, wherein
private respondent, with the consent of her
late husband, sold the subject property to
A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000.00. In a special
power of attorney dated the same day, April
18, 1991, private respondent authorized
petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to
redeem the subject property as provided in
the Memorandum of Agreement.[4]
Private respondent failed to redeem the
property within the 90-day period as
provided in the Memorandum of Agreement.
Hence, pursuant to the special power of
attorney mentioned above, petitioner
caused the cancellation of TCT No. 195101
and the issuance of a new certificate of title
in the name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter
dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons,
Co., demanding that she vacate the
premises within 15 days after receipt of the
letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co.
Otherwise, the latter would bring the
appropriate action in court.[6]
Upon the refusal of private respondent to
vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against
her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision,
dated April 3, 1992, the Metropolitan Trial
Court ruled in favor of A.C. Aguila & Sons,
Co. on the ground that private respondent
did not redeem the subject property before
the expiration of the 90-day period provided
in the Memorandum of Agreement. Private
respondent appealed first to the Regional
Trial Court, Branch 163, Pasig, Metro
Manila, then to the Court of Appeals, and
later to this Court, but she lost in all the
cases.
Private respondent then filed a petition for
declaration of nullity of a deed of sale with
the Regional Trial Court, Branch 273,
Marikina, Metro Manila on December 4,
1993. She alleged that the signature of her
husband on the deed of sale was a forgery
because he was already dead when the
deed was supposed to have been executed
on June 11, 1991.
It appears, however, that private
respondent had filed a criminal complaint
for falsification against petitioner with the
Office of the Prosecutor of Quezon City
which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-
Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of
Absolute Sale is a forgery because they
could not personally appear before Notary
Public Lamberto C. Nanquil on June 11,
1991 because her husband, Ruben Abrogar,
died on May 8, 1991 or one month and 2
days before the execution of the Deed of
Absolute Sale, while the plaintiff was still in
the Quezon City Medical Center
recuperating from wounds which she
suffered at the same vehicular accident on
May 8, 1991, cannot be sustained. The
Court is convinced that the three required
documents, to wit: the Memorandum of
Agreement, the Special Power of Attorney,
and the Deed of Absolute Sale were all
signed by the parties on the same date on
April 18, 1991. It is a common and
accepted business practice of those
engaged in money lending to prepare an
undated absolute deed of sale in loans of
money secured by real estate for various
reasons, foremost of which is the evasion of
taxes and surcharges. The plaintiff never
questioned receiving the sum of
P200,000.00 representing her loan from the
defendant. Common sense dictates that an
established lending and realty firm like the
Aguila & Sons, Co. would not part with
P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the
simultaneous accomplishment and signing
of all the required documents, more
particularly the Deed of Absolute Sale, to
protect its interest.
....
WHEREFORE, foregoing premises
considered, the case in caption is hereby
ORDERED DISMISSED, with costs against
the plaintiff.
On appeal, the Court of Appeals reversed. It
held:
The facts and evidence show that the
transaction between plaintiff-appellant and
defendant-appellee is indubitably an
equitable mortgage. Article 1602 of the New
Civil Code finds strong application in the
case at bar in the light of the following
circumstances.
First: The purchase price for the alleged
sale with right to repurchase is unusually
inadequate. The property is a two hundred
forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant
stands. The property is inside a
subdivision/village. The property is situated
in Marikina which is already part of Metro
Manila. The alleged sale took place in 1991
when the value of the land had considerably
increased.
For this property, defendant-appellee pays
only a measly P200,000.00 or P833.33 per
square meter for both the land and for the
house.
Second: The disputed Memorandum of
Agreement specifically provides that
plaintiff-appellant is obliged to deliver
peacefully the possession of the property to
the SECOND PARTY within fifteen (15) days
after the expiration of the said ninety (90)
day grace period. Otherwise stated,
plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained
possession of the property "sold" as if they
were still the absolute owners. There was
no provision for maintenance or expenses,
much less for payment of rent.
Third: The apparent vendor, plaintiff-
appellant herein, continued to pay taxes on
the property "sold". It is well-known that
payment of taxes accompanied by actual
possession of the land covered by the tax
declaration, constitute evidence of great
weight that a person under whose name the
real taxes were declared has a claim of right
over the land.
It is well-settled that the presence of even
one of the circumstances in Article 1602 of
the New Civil Code is sufficient to declare a
contract of sale with right to repurchase an
equitable mortgage.
Considering that plaintiff-appellant, as
vendor, was paid a price which is unusually
inadequate, has retained possession of the
subject property and has continued paying
the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2)
and (5) of Article 1602 of the New Civil
Code), it must be conclusively presumed
that the transaction the parties actually
entered into is an equitable mortgage, not a
sale with right to repurchase. The factors
cited are in support to the finding that the
Deed of Sale/Memorandum of Agreement
with right to repurchase is in actuality an
equitable mortgage.
Moreover, it is undisputed that the deed of
sale with right of repurchase was executed
by reason of the loan extended by
defendant-appellee to plaintiff-appellant.
The amount of loan being the same with the
amount of the purchase price.
....
Since the real intention of the party is to
secure the payment of debt, now deemed to
be repurchase price: the transaction shall
then be considered to be an equitable
mortgage.
Being a mortgage, the transaction entered
into by the parties is in the nature of a
pactum commissorium which is clearly
prohibited by Article 2088 of the New Civil
Code. Article 2088 of the New Civil Code
reads:
ART. 2088. The creditor cannot appropriate
the things given by way of pledge or
mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
The aforequoted provision furnishes the two
elements for pactum commissorium to
exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or
mortgaged by way of security for the
payment of principal obligation; and (2)
that there should be a stipulation for an
automatic appropriation by the creditor of
the thing pledged and mortgaged in the
event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality
extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the
property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period
within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant
will pay P230,000.00 and not P200,000.00,
the P30,000.00 excess is the interest for
the loan extended. Failure of plaintiff-
appellee to pay the P230,000,00 within the
ninety (90) days period, the property shall
automatically belong to defendant-appellee
by virtue of the deed of sale executed.
Clearly, the agreement entered into by the
parties is in the nature of pactum
commissorium. Therefore, the deed of sale
should be declared void as we hereby so
declare to be invalid, for being violative of
law.
....
WHEREFORE, foregoing considered, the
appealed decision is hereby REVERSED and
SET ASIDE. The questioned Deed of Sale
and the cancellation of the TCT No. 195101
issued in favor of plaintiff-appellant and the
issuance of TCT No. 267073 issued in favor
of defendant-appellee pursuant to the
questioned Deed of Sale is hereby declared
VOID and is hereby ANNULLED. Transfer
Certificate of Title No. 195101 of the
Registry of Marikina is hereby ordered
REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety
(90) days from the finality of this decision.
In case of failure to pay the amount of
P230,000.00 from the period therein stated,
the property shall be sold at public auction
to satisfy the mortgage debt and costs and
if there is an excess, the same is to be
given to the owner.
Petitioner now contends that: (1) he is not
the real party in interest but A.C. Aguila &
Co., against which this case should have
been brought; (2) the judgment in the
ejectment case is a bar to the filing of the
complaint for declaration of nullity of a deed
of sale in this case; and (3) the contract
between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale
and not an equitable mortgage as held by
the appellate court.
The petition is meritorious.
Rule 3, §2 of the Rules of Court of 1964,
under which the complaint in this case was
filed, provided that "every action must be
prosecuted and defended in the name of the
real party in interest." A real party in
interest is one who would be benefited or
injured by the judgment, or who is entitled
to the avails of the suit.[7] This ruling is now
embodied in Rule 3, §2 of the 1997 Revised
Rules of Civil Procedure. Any decision
rendered against a person who is not a real
party in interest in the case cannot be
executed.[8] Hence, a complaint filed
against such a person should be dismissed
for failure to state a cause of action.[9]
Under Art. 1768 of the Civil Code, a
partnership "has a juridical personality
separate and distinct from that of each of
the partners." The partners cannot be held
liable for the obligations of the partnership
unless it is shown that the legal fiction of a
different juridical personality is being used
for fraudulent, unfair, or illegal purposes.[10]
In this case, private respondent has not
shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is
in the name of A.C. Aguila & Sons, Co. and
the Memorandum of Agreement was
executed between private respondent, with
the consent of her late husband, and A. C.
Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not
its officers or agents, which should be
impleaded in any litigation involving
property registered in its name. A violation
of this rule will result in the dismissal of the
complaint.[11] We cannot understand why
both the Regional Trial Court and the Court
of Appeals sidestepped this issue when it
was squarely raised before them by
petitioner.
Our conclusion that petitioner is not the real
party in interest against whom this action
should be prosecuted makes it unnecessary
to discuss the other issues raised by him in
this appeal.

WHEREFORE, the decision of the Court of

Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.

SO ORDERED.
THIRD DIVISION
G.R. No. 144214, July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES
VILLAREAL AND CARMELITO JOSE,
PETITIONERS, VS. DONALDO EFREN C.
RAMIREZ AND SPOUSES CESAR G.
RAMIREZ JR. AND CARMELITA C.
RAMIREZ, RESPONDENTS.
DECISION
PANGANIBAN, J.:
A share in a partnership can be returned
only after the completion of the latter's
dissolution, liquidation and winding up of
the business.
The Case
The Petition for Review on Certiorari before
us challenges the March 23, 2000
Decision[1] and the July 26, 2000
Resolution[2] of the Court of Appeals[3] (CA)
in CA-GR CV No. 41026. The assailed
Decision disposed as follows:
"WHEREFORE, foregoing premises
considered, the Decision dated July 21,
1992 rendered by the Regional Trial Court,
Branch 148, Makati City is hereby SET
ASIDE and NULLIFIED and in lieu thereof a
new decision is rendered ordering the
[petitioners] jointly and severally to pay
and reimburse to [respondents] the amount
of P253,114.00. No pronouncement as to
costs."[4]
Reconsideration was denied in the
impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal,
Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for
the operation of a restaurant and catering
business under the name "Aquarius Food
House and Catering Services."[5] Villareal
was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez
joined as a partner in the business on
September 5, 1984. His capital contribution
of P250,000 was paid by his parents,
Respondents Cesar and Carmelita
Ramirez.[6]
After Jesus Jose withdrew from the
partnership in January 1987, his capital
contribution of P250,000 was refunded to
him in cash by agreement of the partners.[7]
In the same month, without prior
knowledge of respondents, petitioners
closed down the restaurant, allegedly
because of increased rental. The restaurant
furniture and equipment were deposited in
the respondents' house for storage.[8]
On March 1, 1987, respondent spouses
wrote petitioners, saying that they were no
longer interested in continuing their
partnership or in reopening the restaurant,
and that they were accepting the latter's
offer to return their capital contribution.[9]
On October 13, 1987, Carmelita Ramirez
wrote another letter informing petitioners of
the deterioration of the restaurant furniture
and equipment stored in their house. She
also reiterated the request for the return of
their one-third share in the equity of the
partnership. The repeated oral and written
requests were, however, left unheeded.[10]
Before the Regional Trial Court (RTC) of
Makati, Branch 59, respondents
subsequently filed a Complaint[11] dated
November 10, 1987, for the collection of a
sum of money from petitioners.
In their Answer, petitioners contended that
respondents had expressed a desire to
withdraw from the partnership and had
called for its dissolution under Articles 1830
and 1831 of the Civil Code; that
respondents had been paid, upon the
turnover to them of furniture and
equipment worth over P400,000; and that
the latter had no right to demand a return
of their equity because their share, together
with the rest of the capital of the
partnership, had been spent as a result of
irreversible business losses.[12]
In their Reply, respondents alleged that
they did not know of any loan encumbrance
on the restaurant. According to them, if
such allegation were true, then the loans
incurred by petitioners should be regarded
as purely personal and, as such, not
chargeable to the partnership. The former
further averred that they had not received
any regular report or accounting from the
latter, who had solely managed the
business. Respondents also alleged that
they expected the equipment and the
furniture stored in their house to be
removed by petitioners as soon as the latter
found a better location for the
restaurant.[13]
Respondents filed an Urgent Motion for
Leave to Sell or Otherwise Dispose of
Restaurant Furniture and Equipment[14] on
July 8, 1988. The furniture and the
equipment stored in their house were
inventoried and appraised at P29,000.[15]
The display freezer was sold for P5,000 and
the proceeds were paid to them.[16]
After trial, the RTC[17] ruled that the parties
had voluntarily entered into a partnership,
which could be dissolved at any time.
Petitioners clearly intended to dissolve it
when they stopped operating the
restaurant. Hence, the trial court, in its July
21, 1992 Decision, held them liable as
follows:[18]
"WHEREFORE, judgment is hereby rendered
in favor of [respondents] and against the
[petitioners] ordering the [petitioners] to
pay jointly and severally the following:
(a) Actual damages in the amount of
P250,000.00
(b) Attorney's fee in the amount of
P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had
no right to demand the return of their
capital contribution, the partnership was
nonetheless dissolved when petitioners lost
interest in continuing the restaurant
business with them. Because petitioners
never gave a proper accounting of the
partnership accounts for liquidation
purposes, and because no sufficient
evidence was presented to show financial
losses, the CA computed their liability as
follows:
"Consequently, since what has been proven
is only the outstanding obligation of the
partnership in the amount of P240,658.00,
although contracted by the partnership
before [respondents'] have joined the
partnership but in accordance with Article
1826 of the New Civil Code, they are liable
which must have to be deducted from the
remaining capitalization of the said
partnership which is in the amount of
P1,000,000.00 resulting in the amount of
P759,342.00, and in order to get the share
of [respondents], this amount of
P759,342.00 must be divided into three (3)
shares or in the amount of P253,114.00 for
each share and which is the only amount
which [petitioner] will return to
[respondents'] representing the contribution
to the partnership minus the outstanding
debt thereof."[19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit
the following issues for our consideration:
"9.1. Whether the Honorable Court of
Appeals' decision ordering the distribution
of the capital contribution, instead of the
net capital after the dissolution and
liquidation of a partnership, thereby
treating the capital contribution like a loan,
is in accordance with law and
jurisprudence;
"9.2. Whether the Honorable Court of
Appeals' decision ordering the petitioners to
jointly and severally pay and reimburse the
amount of [P]253,114.00 is supported by
the evidence on record; and
"9.3. Whether the Honorable Court of
Appeals was correct in making [n]o
pronouncement as to costs."[22]
On closer scrutiny, the issues are as
follows: (1) whether petitioners are liable to
respondents for the latter's share in the
partnership; (2) whether the CA's
computation of P253,114 as respondents'
share is correct; and (3) whether the CA
was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found
that a partnership had indeed existed, and
that it was dissolved on March 1, 1987.
They found that the dissolution took place
when respondents informed petitioners of
the intention to discontinue it because of
the former's dissatisfaction with, and loss of
trust in, the latter's management of the
partnership affairs. These findings were
amply supported by the evidence on record.
Respondents consequently demanded from
petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to
demand from petitioners the return of their
equity share. Except as managers of the
partnership, petitioners did not personally
hold its equity or assets. "The partnership
has a juridical personality separate and
distinct from that of each of the
partners."[23] Since the capital was
contributed to the partnership, not to
petitioners, it is the partnership that must
refund the equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate
and distinct entity, that must refund the
shares of the partners, the amount to be
refunded is necessarily limited to its total
resources. In other words, it can only pay
out what it has in its coffers, which consists
of all its assets. However, before the
partners can be paid their shares, the
creditors of the partnership must first be
compensated.[25] After all the creditors have
been paid, whatever is left of the
partnership assets becomes available for
the payment of the partners' shares.
Evidently, in the present case, the exact
amount of refund equivalent to
respondents' one-third share in the
partnership cannot be determined until all
the partnership assets will have been
liquidated -- in other words, sold and
converted to cash -- and all partnership
creditors, if any, paid. The CA's
computation of the amount to be refunded
to respondents as their share was thus
erroneous.
First, it seems that the appellate court was
under the misapprehension that the total
capital contribution was equivalent to the
gross assets to be distributed to the
partners at the time of the dissolution of the
partnership. We cannot sustain the
underlying idea that the capital contribution
at the beginning of the partnership remains
intact, unimpaired and available for
distribution or return to the partners. Such
idea is speculative, conjectural and totally
without factual or legal support.
Generally, in the pursuit of a partnership
business, its capital is either increased by
profits earned or decreased by losses
sustained. It does not remain static and
unaffected by the changing fortunes of the
business. In the present case, the financial
statements presented before the trial court
showed that the business had made meager
profits.[26] However, notable therefrom is
the omission of any provision for the
depreciation[27] of the furniture and the
equipment. The amortization of the
goodwill[28] (initially valued at P500,000) is
not reflected either. Properly taking these
non-cash items into account will show that
the partnership was actually sustaining
substantial losses, which consequently
decreased the capital of the partnership.
Both the trial and the appellate courts in
fact recognized the decrease of the
partnership assets to almost nil, but the
latter failed to recognize the consequent
corresponding decrease of the capital.
Second, the CA's finding that the
partnership had an outstanding obligation in
the amount of P240,658 was not supported
by evidence. We sustain the contrary
finding of the RTC, which had rejected the
contention that the obligation belonged to
the partnership for the following reason:
"x x x [E]vidence on record failed to show
the exact loan owed by the partnership to
its creditors. The balance sheet (Exh. `4')
does not reveal the total loan. The
Agreement (Exh. `A') par. 6 shows an
outstanding obligation of P240,055.00
which the partnership owes to different
creditors, while the Certification issued by
Mercator Finance (Exh. `8') shows that it
was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case,
who obtained a loan of P355,000.00 on Oct.
1983, when the original partnership was not
yet formed."
Third, the CA failed to reduce the
capitalization by P250,000, which was the
amount paid by the partnership to Jesus
Jose when he withdrew from the
partnership.
Because of the above-mentioned
transactions, the partnership capital was
actually reduced. When petitioners and
respondents ventured into business
together, they should have prepared for the
fact that their investment would either grow
or shrink. In the present case, the
investment of respondents substantially
dwindled. The original amount of P250,000
which they had invested could no longer be
returned to them, because one third of the
partnership properties at the time of
dissolution did not amount to that much.
It is a long established doctrine that the law
does not relieve parties from the effects of
unwise, foolish or disastrous contracts they
have entered into with all the required
formalities and with full awareness of what
they were doing. Courts have no power to
relieve them from obligations they have
voluntarily assumed, simply because their
contracts turn out to be disastrous deals or
unwise investments.[29]
Petitioners further argue that respondents
acted negligently by permitting the
partnership assets in their custody to
deteriorate to the point of being almost
worthless. Supposedly, the latter should
have liquidated these sole tangible assets of
the partnership and considered the
proceeds as payment of their net capital.
Hence, petitioners argue that the turnover
of the remaining partnership assets to
respondents was precisely the manner of
liquidating the partnership and fully settling
the latter's share in the partnership.
We disagree. The delivery of the store
furniture and equipment to private
respondents was for the purpose of storage.
They were unaware that the restaurant
would no longer be reopened by petitioners.
Hence, the former cannot be faulted for not
disposing of the stored items to recover
their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results
of suit.- Unless otherwise provided in these
rules, costs shall be allowed to the
prevailing party as a matter of course, but
the court shall have power, for special
reasons, to adjudge that either party shall
pay the costs of an action, or that the same
be divided, as may be equitable. No costs
shall be allowed against the Republic of the
Philippines unless otherwise provided by
law."
Although, as a rule, costs are adjudged
against the losing party, courts have
discretion, "for special reasons," to decree
otherwise. When a lower court is reversed,
the higher court normally does not award
costs, because the losing party relied on the
lower court's judgment which is presumed
to have been issued in good faith, even if
found later on to be erroneous. Unless
shown to be patently capricious, the award
shall not be disturbed by a reviewing
tribunal.
WHEREFORE, the Petition is GRANTED, and
the assailed Decision and Resolution SET
ASIDE. This disposition is without prejudice
to proper proceedings for the accounting,
the liquidation and the distribution of the
remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 68118, October 29, 1985
JOSE P. OBILLOS, JR. SARAH P.
OBILLOS, ROMEO P. OBILLOS AND
REMEDIOS P. OBILLOS, BROTHERS AND
SISTERS, PETITIONERS, VS.
COMMISSIONER OF INTERNAL
REVENUE AND COURT OF TAX APPEALS,
RESPONDENTS.
DECISION
AQUINO, J.:
This case is about the income tax liability of
four brothers and sisters who sold two
parcels of land which they had acquired
from their father.
On March 2, 1973 Jose Obillos, Sr.
completed payment to Ortigas & Co., Ltd.
on two lots with areas of 1,124 and 963
square meters located at Greenhills, San
Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners,
to enable them to build their
residences. The company sold the two lots
to petitioners for P178,708.12 on March 13
(Exh. A and B, p. 44, Rollo). Presumably,
the Torrens titles issued to them would
show that they were co-owners of the two
lots.
In 1974, or after having held the two lots
for more than a year, the petitioners resold
them to the Walled City Securities
Corporation and Olga Cruz Canda for the
total sum of P313,050 (Exh. C and
D). They derived from the sale a total
profit of P134,341.88 or P33,584 for each of
them. They treated the profit as a capital
gain and paid an income tax on one-half
thereof or on P16,792.
In April, 1980, or one day before the
expiration of the five-year prescriptive
period, the Commissioner of Internal
Revenue required the four petitioners to
pay corporate income tax on the total profit
of P134,336 in addition to individual income
tax on their shares thereof. He assessed
P37,018 as corporate income tax, P18,509
as 50% fraud surcharge and P15,547.56 as
42% accumulated interest, or a total of
P71,074.56.
Not only that. He considered the share of
the profits of each petitioner in the sum of
P33,584 as a "distributive dividend" taxable
in full (not a mere capital gain of which ½ is
taxable) and required them to pay
deficiency income taxes aggregating
P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
Thus, the petitioners are being held liable
for deficiency income taxes and penalties
totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital
gains already paid by them.
The Commissioner acted on the theory that
the four petitioners had formed an
unregistered partnership or joint venture
within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil.
822).
The petitioners contested the
assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin
dissented. Hence, the instant appeal.
We hold that it is error to consider the
petitioners as having formed a partnership
under article 1767 of the Civil Code simply
because they allegedly contributed
P178,708.12 to buy the two lots, resold the
same and divided the profit among
themselves.
To regard the petitioners as having formed
a taxable unregistered partnership would
result in oppressive taxation and confirm
the dictum that the power to tax involves
the power to destroy. That eventuality
should be obviated.
As testified by Jose Obillos, Jr., they had no
such intention. They were co-owners pure
and simple. To consider them as partners
would obliterate the distinction between a
co-ownership and a partnership. The
petitioners were not engaged in any joint
venture by reason of that isolated
transaction.
Their original purpose was to divide the lots
for residential purposes. If later on they
found it not feasible to build their
residences on the lots because of the high
cost of construction, then they had no
choice but to resell the same to dissolve the
co-ownership. The division of the profit was
merely incidental to the dissolution of the
co-ownership which was in the nature of
things a temporary state. It had to be
terminated sooner or later. Castan Tobeñas
says:
"Como establecer el deslinde entre la
comunidad ordinaria o copropiedad y la
sociedad?
"El criterio diferencial — segun la doctrina
mas generalizada — esta: por razon del
origen, en que la sociedad presupone
necesariamente la convencion, mientras
que la comunidad puede existir y existe
ordinariamente sin ella; y por razon del fin
u objeto, en que el objeto de la sociedad es
obtener lucro, mientras que el de la
indivision es solo mantener en su integridad
la cosa comun y favorecer su conservacion.
"Reflejo de este criterio es la sentencia de
15 de octubre de 1940, en la que se dice
que si en nuestro Derecho positivo se
ofrecen a veces dificultades al tratar de fijar
la linea divisoria entre comunidad de bienes
y contrato de sociedad, la moderna
orientacion de la doctrina cientifica señala
como nota fundamental de diferenciacion,
aparte del origen o fuente de que surgen,
no siempre uniforme, la finalidad
perseguida por los interesados: lucro
comun partible en la sociedad, y mera
conservacion y aprovechamiento en la
comunidad." (Derecho Civil Español, Vol. 2,
Part 1, 10th Ed., 1971, 328-329).
Article 1769(3) of the Civil Code provides
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". There
must be an unmistakable intention to form
a partnership or joint venture.[*]
Such intent was present in Gatchalian vs.
Collector of Internal Revenue, 67 Phil. 666
where 15 persons contributed small
amounts to purchase a two-peso
sweepstakes ticket with the agreement that
they would divide the prize. The ticket won
the third prize of P50,000. The 15 persons
were held liable for income tax as an
unregistered partnership.
The instant case is distinguishable from the
cases where the parties engaged in joint
ventures for profit. Thus, in Oña vs.
Commissioner of Internal Revenue, L-
19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the coheirs
used the inheritance or the incomes derived
therefrom as a common fund to produce
profits for themselves, it was held that they
were taxable as an unregistered
partnership.
It is likewise different from Reyes vs.
Commissioner of Internal Revenue, 24
SCRA 198 where father and son purchased
a lot and building, entrusted the
administration of the building to an
administrator and divided equally the net
income, and from Evangelista vs. Collector
of Internal Revenue, 102 Phil. 140 where
the three Evangelista sisters bought four
pieces of real property which they leased to
various tenants and derived rentals
therefrom. Clearly, the petitioners in these
two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner
should have investigated was whether the
father donated the two lots to the
petitioners and whether he paid the donor's
tax (See art. 1448, Civil Code). We are not
prejudging this matter. It might have
already prescribed.
WHEREFORE, the judgment of the Tax
Court is reversed and set aside. The
assessments are cancelled. No costs.
SO ORDERED.
G.R. Nos. L-24020-21, July 29, 1968
FLORENCIO REYES AND ANGEL REYES,
PETITIONERS, VS. COMMISSIONER OF
INTERNAL REVENUE AND HON. COURT
OF TAX APPEALS, RESPONDENTS.
DECISION
FERNANDO, J.:
Petitioners in this case were assessed by
respondent Commissioner of Internal
Revenue the sum of P46,647.00 as income
tax, surcharge and compromise for the
years 1951 to 1954, an assessment
subsequently reduced to P37, 528. 00. This
assessment sought to be reconsidered
successfully was the subject of an appeal to
respondent Court of Tax
Appeals. Thereafter, another assessment
was made against petitioners, this time for
back income taxes plus surcharge and
compromise in the total sum of P25,973.75,
covering the years 1955 and 1956. There
being a failure on their part to have such
assessments reconsidered, the matter was
likewise taken to the respondent Court of
Tax Appeals. The two cases[1] involving as
they did identical issues and ultimately
traceable to facts similar in character were
heard jointly with only one decision being
rendered.
In that joint decision of respondent Court of
Tax Appeals, the tax liability for the years
1951 to 1954 was reduced to P37,128. 00
and for the years 1955 and 1956, to
P20,619.00 as income tax due "from the
partnership formed" by petitioners.[2] The
reduction was due to the elimination of
surcharge, the failure to file the income tax
return being accepted as due to petitioners
honest belief that no such liability was
incurred as well as the compromise
penalties for such failure to file.[3] A
reconsideration of the aforesaid decision
was sought and denied by respondent Court
of Tax Appeals. Hence this petition for
review.
The facts as found by respondent Court of
Tax Appeals, which being supported by
substantial evidence, must be respected[4]
follow: "On October 31, 1950, petitioners,
father and son, purchased a lot and
building, known as the Gibbs Building,
situated at 671 Dasmariñas Street, Manila,
for P835, C00.00, of which they paid the
sum of P375, 000.00, leaving a balance of
P460, 000. 00, representing the mortgage
obligation of the vendors with the China
Banking Corporation, which mortgage
obligations was assumed by the
vendees. The initial payment of
P375,000.00 was shared equally by
petitioners At the time of the purchase, the
building was leased to various tenant whose
rights under the lease contracts with the
original owners the purchasers, petitioners
herein, agreed to respect. The administra-
tion of the building was entrusted to an
administrator who collected the rents; kept
its books and records and rendered
statements of accounts to the owners;
negotiated leases; made necessary repairs
and disbursed payments, whenever
necessary, after approval by the owners;
and performed such other functions
necessary for the conservation and
preservation of the building. Petitioners
divided equally the income derived from the
building after deducting the expenses of
operation and maintenance. The gross
income from rentals of the building
amounted to about P90, 000. 00
annually."[5]
From the above facts, the respondent Court
of Tax Appeals applying the appropriate
provisions of the National Internal Revenue
Code, the first of which imposes an income
tax on corporations "organized in, or
existing under the laws of the Philippines,
no matter how created or organized but net
including duly registered general co-
partnerships (compañias colectivas), * * *,
"[6] a term, which according to the second
provision cited, includes partnerships "no
matter how created or organized, * * *, "[7]
and applying the leading case of Evangelista
v. Collector of Internal Revenue,[8]
sustained the action of respondent
Commissioner of Internal Revenue but
reduced the tax liability of petitioners, as
previously noted.
Petitioners maintain the view that the
Evangelista ruling does not apply; for them,
the situation is dissimilar. Consequently,
they allege that the reliance by respondent
Court of Tax Appeals was unwarranted and
the decision should be, set aside. If their
interpretation of the authoritative doctrine
therein se forth commands assent, then
clearly what respondent Court of Tax
Appeals did fails to find shelter in the
law. That is the crux of the matter. A
perusal of the Evangelista decision is
therefore unavoidable.
As noted in the opinion of the Court,
penned by the present Chief Justice, the
issue was 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, * * *.[9] After referring to
another section of the National Internal
Revenue Code, which explicitly provides
that the term corporation "includes
partnerships" and then to Article 1767 of
the Civil Code of the Philippines, defining
what a Contract of partnership is, the
opinion goes on to state that "the essential
elements of 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, * * *. "[10]
In support of the above conclusion,
reference was made to the following
circumstances, namely, the common fund
being created purposely not something
already found in existence, the' investment
of the same not merely in one transaction
but in a series of transactions; the lots thus
acquired not being devoted to residential
purposes or to other personal uses of
petitioners in that case; such properties
having been under the management of one
person with full power to lease, to collect
rents, to issue receipts, to bring suits, to
sign letters and contracts and to endorse
notes and checks; the above conditions
having existed for more than 10 years since
the acquisition of the above properties; and
no testimony having been introduced as to
the purpose "in creating the set up already
adverted to, or on the causes for its
continued existence.".[11] The conclusion
that emerged had all the imprint of
inevitability. Thus: "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."[12]
It may be said that there could be a
differentiation made between the
circumstances above detailed 'and those
existing in the present case. It does not
suffice though to preclude the applicability
of the Evangelista decision. Petitioners
could harp on these being only one
transaction. They could stress that an
affidavit of one of them found in the Bureau
of Internal Revenue records would indicate
that their intention was to house in the
building acquired by them the respective
enterprises, coupled with a plan of effecting
a division in 10 years. It is a little
surprising then that while the purchase was
made on October 31, 1950 and their brief
as petitioners filed on October 20, 1965,
almost 15 years later, there was no
allegation that such division as between
them was in fact made Moreover, the facts
as found and as submitted in the brief made
clear that the building in question continued
to be leased by other parties with
petitioners dividing "equally the income 4' *
* after deducting the expenses of operation
and maintenance * *."[13] Differences of
such slight significance do not call for a
different ruling.
It is obvious that petitioners' effort to avoid
the controlling force of the Evangelista
ruling cannot be deemed
successful. Respondent Court of Tax
Appeals acted correctly. It yielded to the
command of an authoritative decision; it
recognized its binding character. There is
clearly no merit to the second error
assigned by petitioners, who would deny its
applicability to their situation.
The first alleged error committed by
respondent Court of Tax Appeals in holding
that petitioners, in acquiring the Gibbs
Building, established a partnership subject
to income tax as a corporation under the
National Internal Revenue Code is likewise
untenable. In their discussion in their brief
of this alleged error, stress is laid on their
being co-owners and not partners. Such an
allegation was likewise, made in the
Evangelista case.
This is the way it was disposed of in the
opinion of the present Chief Justice: "This
pretense was correctly rejected by the
Court of Tax Appeals."[14] Then came the
explanation why: "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 paticipacion)’ and 'associations'
none of which has personality of its own, 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'."[15] The opinion went on to
summarize the matter aptly: "For purposes
of the tax on corporations, our National
Internal Revenue Code, include these
partnerships - with the exception only of
duly registered general co-partnerships -
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. "[16]
In the light of the above, it cannot be said
that the respondent Court of Tax Appeals
decided the matter incorrectly. There is no
warrant for the assertion that it failed to
apply the settled law to uncontroverted
facts. Its decision cannot be successfully
assailed. Moreover, an observation made in
Alhambra Cigar & Cigarette Manufacturing
Co. v. Commissioner of Internal
Revenue,[17] is well-worth recalling. Thus:
"Nor as a matter of principle is it advisable
for this Court to set aside the conclusion
reached by an agency such as the Court of
Tax Appeals which is, by th very nature of
its function, dedicated exclusively to the
study and consideration of tax problems
and has necessarily developed an expertise
on the subject, unless, as did not happen
here, there has been an abuse or
improvident exercise of its authority."
WHEREFORE, the decision of the
respondent Court of Tax Appeals ordering
petitioners "to pay the sums of P37,128. 00
as income tax due from the partnership
formed by herein petitioners for the years
1951 to 1954 and P20,619.00 for the years
1955 and 1956 within thirty days from the
date this decision becomes final, plus the
corresponding surcharge and interest in
case of delinquency, " is affirmed. With
costs against petitioners.
G.R. No. 35840, March 31, 1933
FRANCISCO BASTIDA, PLAINTIFF AND
APPELLEE, VS. MENZI & CO., INC., J. M.
MENZI AND P. C. SCHLOBOHM,
DEFENDANTS. MENZI & CO., INC.,
APPELLANT.
DECISION
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one
of the defendants, from a decision of the
Court of First Instance of Manila. The case
was tried on the amended complaint dated
May 26, 1928 and defendants' amended
answer thereto of September 1, 1928. For
the sake of clearness, we shall incorporate
herein the principal allegations of the
parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I good faith of the defendants, Menzi & Co.,
That the defendant J. M. Menzi, together
with his wife and daughter, owns ninety-
nine per cent (99%) of the capital stock of
the defendant Menzi & Co., Inc., that the
plaintiff has been informed and therefore
believes that the defendant J. M. Menzi, his
wife and daughter, together with the
defendant P. C. Schlobohm and one Juan
Seiboth, constitute the board of directors of
the defendant, Menzi& Co., Inc.;
II
That on April 27, 1922, the defendant Menzi
& Co., Inc., through its president and
general manager, J. M. Menzi, under the
authority of the board of directors, entered
into a contract with the plaintiff to engage
in the business of exploiting prepared
fertilizers, as evidenced by the contract
marked Exhibit A, attached to the original
complaint as a part thereof, and likewise
made a part of the amended complaint, as
if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff
and defendant Menzi & Co., Inc., began to
manufacture prepared fertilizers, the former
superintending the work of actual
preparation, and the latter, through
defendants J. M. Menzi and P. C.
Schlobohm, managing the business and
opening an account entitled "FERTILIZERS"
on the books of the defendant Menzi & Co.,
Inc., where all the accounts of the
partnership business were supposed to be
kept; the plaintiff had no participation in the
making of these entries, which were wholly
in the defendants' charge, under whose
orders every entry was made;
IV
That according to paragraph 7 of the
contract Exhibit A, the defendant Menzi&
Co., Inc., was obliged to render annual
balance sheets to the plaintiff upon the 30th
day of June of each year; that the plaintiff
had no intervention in the preparation of
these yearly balances, nor was he permitted
to have any access to the books of account;
and when the balance sheets were shown
him, he, believing in good faith that they
contained the true statement of the
partnership business, and relying upon the
Inc., J. M. Menzi, and P. C. Schlobohm,
accepted and signed them, the last balance
sheet having been rendered in the year
1926;
V
That by reason of the foregoing facts and
especially those set forth in the preceding
paragraph, the plaintiff was kept in
ignorance of the defendants' acts relating to
the management of the partnership funds,
and the keeping of accounts, until he was
informed and so believes and alleges, that
the defendants had conspired to conceal
from him the true status of the business,
and to his damage and prejudice made false
entries in the books of account and in the
yearly balance sheets, the exact nature and
amount of which it is impossible to
ascertain, even after the examination of the
books of the business, due to the
defendants' refusal to furnish all the books
and data required for the purpose, and the
constant obstacles they have placed in the
way of the examination of the books of
account and vouchers;
VI
That when the plaintiff received the
information mentioned in the preceding
paragraph, he demanded that the
defendants permit him to examine the
books and vouchers of the business, which
were in their possession, in order to
ascertain the truth of the alleged false
entries in the books and balance sheets
submitted for his approval, but the
defendants refused, and did not consent to
the examination until after the original
complaint was filed in this case; but up to
this time they have refused to furnish all
the books, data, and Vouchers necessary
for a complete and accurate examination of
all the partnership's accounts; and
VII
That as a result of the partial examination
of the books of account of the business, the
plaintiff has, through his accountants,
discovered that the defendants, conspiring
and confederating together, presented to
the plaintiff during the period covered by
the partnership contract false and incorrect
accounts,
(a) For having included therein undue
interest;
(b) For having entered, as a charge to
fertilizers, salaries and wages which should
have been paid and were in fact paid by the
defendant Menzi & Co., Inc.;
(c) For having collected from the
partnership the income tax which should
have been paid for its own account by
Menzi & Co., Inc.;
(d) For having-collected, to the damage and
prejudice of the plaintiff, commissions on
the purchase of materials for the
manufacture of fertilizers;
(e) For having appropriated, to the damage
and prejudice of the plaintiff, the profits
obtained from the sale of fertilizers
belonging to the partnership and bought
with its own funds; and
(f) For having appropriated to themselves
all rebates for freight insurance, taxes, etc.,
upon materials for fertilizer bought abroad,
no entries of said rebates having been
made on the books to the credit of the
partnership.
Upon the strength of the facts set out in
this first cause of action, the plaintiff prays
the court:
1. To prohibit the defendants, each and
every one of them, from destroying
and concealing the books and papers
of the partnership constituted
between the defendant Menzi & Co.,
Inc., and the plaintiff;
2. To summon each and every defendant
to appear and give a true account of
all facts relating to the partnership
between the plaintiff and the
defendant Menzi & Co., Inc., and of
each and every act and transaction
connected with the business of said
partnership from the beginning to
April 27, 1927, and a true statement
of all merchandise of whatever
description, purchased for said
partnership, and of all the
expenditures and sales of every kind,
together with the true amount
thereof, besides the sums received by
the partnership from every source
together with their exact nature, and
a true and complete account of the
vouchers for all sums paid by the
partnership, and of the salaries paid
to its employees;
3. To declare null and void the yearly
balances submitted by the defendants
to the plaintiff from 1922 to 1926,
both inclusive;
4. To order the defendants to give a true
statement of all receipts and
disbursements of the partnership
during the period of its existence,
besides granting the plaintiff any
other remedy that the court may
deem just and equitable.
Exhibit A
"CONTRATO
que se celebra entre los Sres. Menzi y
Compañia, de Manila, como Primera Parte,
y D. Francisco Bastida, tambien de Manila,
como Segunda Parte, bajo las siguientes
"CONDICIONES
"1.ª El objeto de este contrato es la
explotacion del negocio de Abonos o
Fertilizantes Preparados, para diversas
aplicaciones agricolas;
"2.ª La duracion de este contrato sera de
cinco años, a contar desde la fecha de su
firma;
"3.ª La Primera Parte se compromete a
facilitar la ayuda financiera necesaria para
el negocio;
"4.ª La Segunda Parte se compromete a
poner su entero tiempo y toda su
experiencia a la disposicion del negocio;
"5.ª La Segunda Parte no podra, directa o
indirectamente, dedicarse por si sola ni en
sociedad con otras personas, o de manera
alguna que no sea con la Primera Parte, al
negocio de Abonos, simples o preparados, o
de materia alguna que se aplique
comunmente a la fertilizacion de suelos y
plantas, durante la vigencia de este
contrato, a menos que obtenga autorizacion
expresa de la Primera Parte para ello;
"6.ª La Primera Parte no podra dedicarse,
por si sola ni en sociedad o combinacion con
otras personas o entidades, ni de otro modo
que en sociedad con la Segunda Parte, al
negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados, ya
preparados en las Islas Filipinas; tampoco
podra dedicarse a la venta o negocio de
materias o productos que tengan aplicacion
como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si
ellos son productos de suelo de la
manufactura filipinos, pudiendo sin
embargo vender o negociar en materias
fertilizantes simples importados de los
Estados Unidos o del Extranjero;
"7.ª La Primera Parte se obliga a ceder y a
hacer efectivo a la Segunda Parte el 35 por
ciento (treinta y cinco por ciento) de las
utilidades netas del negocio de abonos,
liquidables el 30 de junio de cada ano;
"8.ªa La Primera Parte facilitara a la
Segunda, mensualmente, la cantidad de
P300 (trescientos pesos), a cuenta de su
parte de beneficios;
"9.ª Durante el año 1923 la Primera Parte
concedera a la Segunda permiso para que
este se ausente de Filipinas por un periodo
de tiempo que no exceda de un ano, sin
menoscabo para los derechos de la
Segunda Parte con arreglo a este contrato.
"En testimonio de Io cual firmamos el
presente en la Ciudad de Manila, I. F., a
veintisiete de abril de 1922.
"MENZI &
CO., INC.
"Por
J. MENZI
(Fdo.)
"General
Manager
"Primera Parte
(Fdo.) F. BASTIDA
"Segunda
Parte
"MENZI & CO.,
INC.
"(Fdo.)MAX KAEGI
"Acting
Secretary"
Defendants denied all the allegations of the
amended complaint, except the formal
allegations as to the parties, and as a
special defense to the first cause of action
alleged:
1. That the defendant corporation, Menzi
& Co., Inc., has been engaged in the
general merchandise business in the
Philippine Islands since its
organization in October, 1921,
including the importation and sale of
all kinds of goods, wares, and
merchandise, and especially simple
fertilizers and fertilizer ingredients,
and as a part of that business, it has
been engaged since its organization in
the manufacture and sale of prepared
fertilizers for agricultural purposes,
and has used for that purpose trade-
marks belonging to it;
2. That on or about November, 1921,
the defendant, Menzi & Co., Inc.,
made and entered into an
employment agreement with the
plaintiff, who represented that he had
had much experience in the mixing of
fertilizers, to superintend the mixing
of the ingredients in the manufacture
of prepared fertilizers in its fertilizer
department and to obtain orders for
such prepared fertilizers subject to its
approval, for a compensation of 50
per cent of the net profits which it
might derive from the sale of the
fertilizers prepared by him, and that
said Francisco Bastida worked under
said agreement until April 27, 1922,
and received the compensation
agreed upon for his services; that on
the said 27th of April, 1922, the said
Menzi & Co., Inc., and the said
Francisco Bastida made and entered
into the written agreement, which is
marked Exhibit A, and made a part of
the amended complaint in this case,
whereby they mutually agreed that
 the employment of the said Francisco
Bastida by the said Menzi & Co., Inc.,
in the capacity stated, should be for a
definite period of five years from that
date and under the other terms and
conditions stated therein, but with the
understanding and agreement that
the said Francisco Bastida should
receive as compensation for his said
services only 35 per cent of the net
profits derived from the sale of the
fertilizers prepared by him during the
period of the contract instead of 50
per cent of such profits, as provided
in his former agreement; that the said
Francisco Bastida was found to be
incompetent to do anything in relation
to its said fertilizer business with the
exception of overseeing the mixing of
the ingredients in the manufacture of
the same, and on or about the month
of December, 1922, the defendant,
Menzi & Co., Inc., in order to make
said business successful, was obliged
to and actually did assume the full
management and direction of said
business;
3. That the accounts of the business of
the said fertilizer department of Menzi
& Co., Inc., were duly kept in the
regular books of its general business,
in the ordinary course thereof, up to
June 30, 1923, and that after that
time and during the remainder of the
period of said agreement, for the
purpose of convenience in
determining the amount of
compensation due to the plaintiff
under his agreement, separate books
of account for its said fertilizer
business were duly kept in the name
of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose, and
it was mutually agreed between the
said Francisco Bastida and the said
Menzi & Co., Inc., that the yearly
balances for the determination of the
net profits of said business due to the
said plaintiff as compensation for his
services under said agreement would
be made as of December 31st,
instead of June 30th, of each year,
during the period of said agreement ;
that the accounts of the business of
its said fertilizer department, as
recorded in its said books, and the
vouchers and records supporting the
same, for each year of said business
have been duly audited by Messrs.
White, Page & Co., certified public
accountants, of Manila, who, shortly
after the close of business at the end
of each year up to and including the
year 1926, have prepared therefrom a
manufacturing and profit and loss
account and balance sheet, showing
the status of said business and the
share of the net profits pertaining to
the plaintiff as his compensation
under said agreement; that after the
said manufacturing and profit and the
loss account and balance sheet for
each year of the business of its said
fertilizer department up to and
including the year 1926, had been
prepared by the said auditors and
certified by them, they were shown to
and examined by the plaintiff, and
duly accepted, and approved by him,
with full knowledge of their contents,
and as evidence of such approval, he
signed his name on each of them, as
shown on the copies of said
manufacturing and profit and loss
account and balance sheet for each
year up to and including the year
1926, which are attached to the
record of this case, and which are
hereby referred to and made a part of
this amended answer, and in
accordance therewith, the said
plaintiff has actually received the
portion of the net profits of its said
business for those years pertaining to
him for his services under said
agreement; that at no time during the
course of said fertilizer business and
the liquidation thereof has the plaintiff
been in any way denied access to the
books and records' pertaining thereto,
but on the contrary, said books and
records have been subject to his
inspection and examination at any
time during business hours, and even
since the commencement of this
action, the plaintiff and his
accountants, Messrs. Haskins & Sells,
of Manila, have been going over and
 examining said books and records for
months and the defendant, Menzi &
Co., Inc., through its officers, have
turned over to said plaintiff and his
accountant the books and records of
said business and even furnished
them suitable accommodations in its
own office to examine the same;
4. That prior to the termination of the
said agreement, Exhibit A, the
defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not
under any conditions renew his said
agreement or continue his said
employment with it after its
expiration, and after the termination
of said agreement of April 27, 1927,
the said Menzi & Co., Inc., had the
certified public accountants, White,
Page & Co., audit the accounts of the
business of its said fertilizer
department for the four months of
1927 covered by plaintiff's agreement
and prepare a manufacturing and
profit and loss account and balance
sheet of said business snowing the
status of said Business at the
termination of said agreement, a copy
of which was shown to and explained
to the plaintiff; that at that time there
were accounts receivable to be
collected for business covered by said
agreement of over P100,000, and
there was guano, ashes, fine tobacco
and other fertilizer ingredients on
hand of over P75,000, which had to
be disposed of by Menzi & Co., Inc.,
or valued by the parties, before the
net profits of said business for the
period of the agreement could be
determined; that Menzi & Co., Inc.,
offered to take the face value of said
accounts and the cost value of the
other properties for the purpose of
determining the profits of said
business for that period, and to pay to
the plaintiff at that time his proportion
of such profits on that basis, which
the plaintiff refused to accept, and
being disgruntled because the said
Menzi & Co., Inc., would not continue
him in its service, the said plaintiff
commenced this action, including
therein not only Menzi & Co., Inc., but
also its managers J. M. Menzi and P.
C. Schlobohm, wherein he knowingly
make various false and malicious
allegations against the defendants;
that since that time the said Menzi &
Co., Inc., has been collecting the
accounts receivable and disposing of
the stocks on hand, and there is still
on hand old stock of approximately
P25,000, which it has been unable to
dispose of up to this time; that as
soon as possible a final liquidation
and accounting of the net profits of
the business covered by said
agreement for the last four months
thereof will be made and the share
thereof appertaining to the plaintiff
will be paid to him; that the plaintiff
has been informed from time to time
as to the status of the disposition of
such properties, and he and his
auditors have fully examined the
books and records of said business in
relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff
alleged:
I. That the plaintiff hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That the examination made by the
plaintiffs auditors of some of the
books of the partnership that were
furnished by the defendants disclosed
the fact that said defendants had
charged to "purchases" of the
business, undue interest, the amount
of which the plaintiff is unable to
determine as he has never had at his
disposal the books and vouchers
necessary for that purpose, and
especially, owing to the fact that the
partnership constituted between the
plaintiff and the defendant Menzi &
Co., Inc., never kept its own cash
book, but that its funds were
maliciously included in the private
funds of the defendant entity, neither
was there a separate BANK ACCOUNT
of the partnership, such account being
included in the defendant's bank
account.
III. That from the examination of the
partnership books as aforesaid, the
plaintiff estimates that the
partnership between himself and the
defendant Menzi & Co., Inc., has been
defrauded by the defendants by way
of interest in an amount of
approximately P184,432.51, of which
35 per cent, or P64,551.38, belongs
to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants
jointly and severally to pay him the sum of
P64,551.38, or any amount which may
finally appear to be due and owing from the
defendants to the plaintiff upon this ground,
with legal interest from the filing of the
original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That under the contract of
employment, Exhibit A, of the
amended complaint, the defendant,
Menzi & Co., Inc., only undertook and
agreed to facilitate financial aid in
carrying on the said fertilizer
business, as it had been doing before
the plaintiff was employed under the
said agreement; that the said
defendant, Menzi & Co., Inc., in the
course of the said business of its
fertilizer department, opened letters
of credit through the banks of Manila,
accepted and paid drafts drawn upon
it under said letters of credit, and
obtained loans and advances of
moneys for the purchase of materials
to be used in mixing and
manufacturing its fertilizers and in
paying the expenses of said business;
that such drafts and loans naturally
provided for interest at the banking
rate from the dates thereof until paid,
as is the case in all such business
enterprises, and that such payments
of interest as were actually made on
such drafts, loans and advances
during the period of the said
employment agreement constituted
legitimate expenses of said business
under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That under the terms of the contract
Exhibit A, neither the defendants J. M.
Menzi and P. C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a
right to collect for itself or themselves
any amount whatsoever by way of
salary for services rendered to the
partnership between the plaintiff and
the defendant, inasmuch as such
services were compensated with the
65% of the net profits of the business
constituting their share.
III. That the plaintiff has, on his own
account and with his own money, paid
all the employees he has placed in the
service of the partnership, having
expended for their account, during
the period of the contract, over
P88,000, without ever having made
any claim upon the defendants for
this sum because it was included in
the compensation of 35 per cent
which he was to receive in accordance
with the contract Exhibit A.
IV. That the defendants J. M. Menzi and
P. C. Schlobohm, not satisfied with
collecting undue and excessive
salaries for themselves, have made
the partnership, or the fertilizer
business, pay the salaries of a
number of the employees of the
defendant Menzi & Co., Inc.
V. That under this item of undue salaries
the defendants have appropriated
P43,920 of the partnership funds, of
which 35 per cent, or P15,372
belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants to
pay jointly and severally to the plaintiff the
amount of P15,372, with legal interest from
the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc.,
through its manager, exclusively
managed and conducted its said
fertilizer business, in which the
plaintiff was to receive 35 percent of
the net profits as compensation for
his services, as hereinbefore alleged,
from on or about January 1, 1923,
when its other departments had
special experienced Europeans in
charge thereof, who received not only
salaries but also a percentage of the
net profits of such departments; that
its said fertilizer business, after its
manager took charge of it, became
very successful, and owing to the
large volume of business transacted,
said business required great deal of
time and attention, and actually
consumed at least one-half of the
time of the manager and certain
employees of Menzi& Co., Inc., in
carrying it on; that the said Menzi &
Co., Inc., furnished office space,
stationery and other incidentals, for
said business, and had its employees
perform the duties of cashiers,
accountants, clerks, messengers, etc.,
for the same, and for that reason the
said Menzi & Co., Inc., charged each
year, from and after 1922, as
expenses of said business, which
pertained to the fertilizer department,
as certain amount as salaries and
wages to cover the proportional part
of the overhead expenses of Menzi &
Co., Inc.; that the same method is
followed in each of the several
departments of the business of Menzi
& Co., Inc., that each and every year
from and after 1922, a just proportion
of said overhead expenses were
charged to said fertilizer departments
and entered on the books thereof,
with the knowledge and consent of
the plaintiff, and included in the
auditors' reports, which were
examined, accepted and approved by
him, and he is now estopped from
saying that such expenses were not
legitimate and just expenses of said
business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff
alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That the defendant Menzi & Co., Inc.,
through the defendants J. M. Menzi
and P. C. Schlobohm, has paid, with
the funds of the partnership between
the defendant entity and the plaintiff,
the income tax due from said
defendant entity for the fertilizer
business, thereby defrauding the
partnership in the amount of
P10,361.72 of which 35 per cent
belongs exclusively to the plaintiff,
amounting to P3,626.60.
III. That the plaintiff has, during the
period of the contract, paid with his
own money the income tax
corresponding to his share which
consists in 35 per cent of the profits
of the fertilizer business, expending
about P5,000 without ever having
made any claim for reimbursement
against the partnership, inasmuch as
it has always been understood among
the partners that each of them would
pay his own income tax.
Wherefore, the plaintiff prays the court to
order the defendants jointly and severally
to pay the plaintiff the sum of P3,626.60,
with legal interest from the date of the filing
of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That under the Income Tax Law Menzi
& Co., Inc., was obliged to and did
make return to the Government of the
Philippine Islands each year during
the period of the agreement, Exhibit
A, of the income of its whole
business, including its fertilizer
department; that the proportional
 share of such income taxes found to
be due on the business of the
fertilizer department was charged as
a proper and legitimate expense of
that department, in the same manner
as was done in the other departments
of its business; that inasmuch as the
agreement with the plaintiff was an
employment agreement, he was
requested to make his own return
under the Income Tax Law and to pay
his own income taxes, instead of
having them paid at the source, as
might be done under the law, so that
he would be entitled to the personal
exemptions allowed by the law; that
the income taxes paid by the said
Menzi & Co., Inc., pertaining to the
business of the fertilizer department
and charged to that business, were
duly entered on the books of that
department, and included in the
auditors' reports hereinbefore referred
to, which reports were examined,
accepted and approved by the
plaintiff, with full knowledge of their
contents, and he is now estopped
from saying that such taxes are not a
legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That the plaintiff has discovered that
the defendant Menzi & Co., Inc., had
been receiving, during the period of
the contract Exhibit A, from foreign
firms selling fertilizing material, a
secret commission equivalent to 5 per
cent of the total value of the
purchases of fertilizing material made
by the partnership constituted
between the plaintiff and the
defendant Menzi & Co., Inc., and that
said 5 per cent commission was not
entered by the defendants in the
books of the business, to the credit
and benefit of the partnership
constituted between the plaintiff and
the defendant, but to the credit of the
defendant Menzi & Co., Inc., which
appropriated it to itself.
III. That the exact amount, or even the
approximate amount of the fraud thus
suffered by the plaintiff cannot be
determined, because the entries
referring to these items do not appear
in the partnership books, although the
plaintiff believes and alleges that they
do appear in the private books of the
defendant Menzi & Co., Inc., which
the latter has refused to furnish,
notwithstanding the demands made
therefor by the auditors and the
lawyers of the plaintiff.
IV. That taking as basis the amount of
the purchases of some fertilizing
material made by the partnership
during the first four years of the
contract Exhibit A, the plaintiff
estimates that this 5 per cent
commission collected by the
defendant Menzi & Co., Inc., to the
damage and prejudice of the plaintiff,
amounts to P127,375.77 of which 35
per cent belongs exclusively to the
plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants to pay jointly and
severally to the plaintiff the amount of
P44,581.52, or the exact amount owed
upon this ground, after both parties have
adduced their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc.,
did have during the period of said
agreement, Exhibit A, and has now
what is called a "Propaganda Agency
Agreement" with the Deutsches
Kalesyndikat, G. M. B., of Berlin,
which is a manufacturer of potash, by
virtue of which the said Menzi& Co.,
Inc., was to receive, for its
propaganda work in advertising and
bringing about sales of its potash a
commission of 5 per cent on all orders
of potash received by it from the
Philippine Islands; that during the
period of said agreement, Exhibit A,
orders were sent to said concern for
 potash, through C. Andre & Co., of
Hamburg, as the agent of the said
Menzi & Co., Inc., upon which the said
Menzi& Co., Inc., received a 5 per
cent commission, amounting in all to
P2,222.32 for the propaganda work
which it did for said firm in the
Philippine Islands; that said
commissions were not in any sense
discounts on the purchase price of
said potash, and have no relation to
the fertilizer business of which the
plaintiff was to receive a share of the
net profits for his services, and
consequently were not credited to
that department;
3. That in going over the books of Menzi
& Co., Inc., it has been found that
there are only two items of
commissions, which were received
from the United Supply Co., of San
Francisco, in the total sum of $66.51,
which, through oversight, were not
credited on the books of the fertilizer
department of Menzi & Co., Inc., but
due allowance has now been given to
that department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V, of the
first cause of action.
II. That the defendant Menzi & Co., Inc.,
in collusion with and through the
defendants J. M. Menzi and P. C.
Schlobohm and their assistants, has
tampered with the books of the
business making fictitious transfers in
favor of the defendant Menzi & Co.,
Inc., of merchandise belonging to the
partnership, purchased with the
latter's money, and deposited in its
warehouses, and then sold by Menzi&
Co., Inc., to third persons, thereby
appropriating to itself the profits
obtained from such resale.
III. That it is impossible to ascertain the
amount of the fraud suffered by the
plaintiff in this respect as the real
amount obtained from such sales can
only be ascertained from an
examination of the private books of
the defendant entity, which the latter
has refused to permit notwithstanding
the demand made for the purpose by
the auditors and the lawyers of the
plaintiff, and no basis of computation
can be established, even
approximately, to ascertain the extent
of the fraud sustained by the plaintiff
in this respect, by merely examining
the partnership books.
Wherefore, the plaintiff prays the court to
order the defendants J. M. Menzi and P. C.
Schlobohm, to make a sworn statement as
to all the profits received from the sale to
third persons of the fertilizers pertaining to
the partnership, and the profits they have
appropriated, ordering them jointly and
severally to pay 35 per cent of the net
amount, with legal interest from the filing of
the original complaint until the payment
thereof.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer:
2. That under the express terms of the
employment agreement, Exhibit A,
the defendant, Menzi & Co., Inc., had
the right to import into the Philippine
Islands in the course of its fertilizer
business and sell for its exclusive
account and benefit simple fertilizer
ingredients; that the only materials
imported by it and sold during the
period of said agreement were simple
fertilizer ingredients, which had
nothing whatever to do with the
business of mixed fertilizers, of which
the plaintiff was to receive a share of
the net profits as a part of his
compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That during the existence of the
contract Exhibit A, the defendant
Menzi & Co., Inc., for the account of
the partnership constituted between
 itself and the plaintiff, and with the
latter's money, purchased from
several foreign firms various simple
fertilizing material for the use of the
partnership.
III. That in the paid invoices for such
purchases there are charged, besides
the cost price of the merchandise,
other amounts for freight, insurance,
duty, etc., some of which were not
entirely thus spent and were later
credited by the selling firms to the
defendant Menzi & Co., Inc.
IV. That said defendant Menzi& Co., Inc.,
through and in collusion with the
defendants J. M. Menzi and P. C.
Schlobohm upon receipt of the credit
notes remitted by the selling firms of
fertilizing material, for rebates upon
freight, insurance, duty, etc., charged
in the invoice but not all expended,
did not enter them upon the books to
the credit of the partnership
constituted between the defendant
and the plaintiff, but entered or had
them entered to the credit of Menzi &
Co., Inc., thereby defrauding the
plaintiff of 35 per cent of the value of
such reductions.
V. That the total amount, or even the
approximate amount of this fraud
cannot be ascertained without an
examination of the private books of
Menzi & Co., Inc., which the latter has
refused to permit notwithstanding the
demand to this effect made upon
them by the auditors and the lawyers
of the plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants J. M. Menzi and P. C.
Schlobohm, to make a sworn statement as
to the total amount of such rebates, and to
sentence the defendants to pay to the
plaintiff jointly and severally 35 per cent of
the net amount.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer:
2. That during the period of said
employment agreement, Exhibit A,
the defendant, Menzi & Co., Inc.,
received from its agent, C. Andre&
Co., of Hamburg, certain credits
pertaining to the fertilizer business in
the profits of which the plaintiff was
interested, by way of refunds of
German Export Taxes, in the total
sum of P1,402.54; that all of said
credits were duly noted on the books
of the fertilizer department as
received, but it has just recently been
discovered that through error an
additional sum of P216.22 was
credited to said department, which
does not pertain to said business in
the profits of which the plaintiff is
interested.
EIGHTH CAUSE OF ACTION
As eighth cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That on or about April 21, 1927, that
is, before the expiration of the
contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc.,
acting as manager of the fertilizer
business constituted between said
defendant and the plaintiff, entered
into a contract with the Compañia
General de Tabacos de Filipinas for
the sale to said entity of three
thousand tons of fertilizers of the
trade mark "Corona No. 1", at the
rate of P111 per ton, f. o. b. Bais,
Oriental Negros, to be delivered, as
they were delivered, according to
information received by the plaintiff,
during the months of November and
December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned
above and the benefits derived
therefrom, which the plaintiff
estimates at P90,000, Philippine
currency, belongs to the fertilizer
business constituted between the
plaintiff and the defendant, of which
35 per cent, or P31,500, belongs to
said plaintiff.
IV. That notwithstanding the expiration of
the partnership contract Exhibit A, on
April 27, 1927, the defendants have
not rendered a true accounting of the
profits obtained by the business
during the last four months thereof,
as the proposed balance submitted to
the plaintiff was incorrect with regard
to the inventory of merchandise,
transportation equipment, and the
value of the trade marks, for which
reason such proposed balance did not
represent the true status of the
business of the partnership on April
30, 1927.
V. That the proposed balance submitted
to the plaintiff with reference to the
partnership operations during the last
four months of its existence, was
likewise incorrect, inasmuch as it did
not include the profit realized or to be
realized from the contract entered
into with the Compañia General de
Tabacos de Filipinas, notwithstanding
the fact that this contract was
negotiated during the existence of the
partnership, and while the defendant
Menzi & Co., Inc., was the manager
thereof.
VI. That the defendant entity now
contends that the contract entered
into with the Compañia General de
Tabacos de Filipinas belongs to it
exclusively, and refuses to give the
plaintiff his share consisting in 35 per
cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable
court to order the defendants to render a
true and detailed account of the business
during the last four months of the existence
of the partnership, i. e., from January 1,
1927 to April 27, 1927, and to sentence
them likewise to pay the plaintiff 35 per
cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the said order for 3,000 tons of
mixed fertilizer, received by Menzi &
Co., Inc., from the Compañia General
de Tabacos de Filipinas on April 21,
1927, was taken by it in the regular
course of its fertilizer business, and
was to be manufactured and delivered
in December, 1927, and up to April,
1928; that the employment
agreement of the plaintiff expired by
its own terms on April 27, 1927, and
he has not been in any way in the
service of the defendant, Menzi & Co.,
Inc., since that time, and he cannot
possibly have any interest in the
fertilizers manufactured and delivered
by the said Menzi & Co., Inc., after
the expiration of his contract for any
service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That during the period of the contract
Exhibit A, the partnership constituted
thereby registered in the Bureau of
Commerce and Industry the trade
marks "CORONA No. 1", "CORONA
No. 2", "ARADO", and "HOZ", the
plaintiff and the defendant having by
their efforts succeeded in making
them favorably known in the market.
III. That the plaintiff and the defendant,
laboring jointly, have succeeded in
making the fertilizing business a
prosperous concern to such an extent
that the profits obtained from the
business during the five years it has
existed, amount to approximately
P1,000,000, Philippine currency.
IV. That the value of the good-will and
the trade marks of a business of this
nature amounts to at least
P1,000,000, of which sum 35 per cent
belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of
the contract Exhibit A, the defendant
entity, notwithstanding and in spite of
the plaintiff's insistent opposition, has
assumed the charge of liquidating the
fertilizing business, without having
rendered a monthly account of the
state of the liquidation, as required by
 law, thereby causing the plaintiff
damages.
VI. That the damages sustained by the
plaintiff, as well as the amount of his
share in the remaining property of the
business, after its expiration, are
wholly unknown to the plaintiff, and
may only be truly and correctly
ascertained by compelling the
defendants J. M. Menzi and P. C.
Schlobohm to declare under oath and
explain to the court in detail the sums
obtained from the sale of the
remaining merchandise, after the
expiration of the partnership contract.
VII. That after the contract Exhibit A had
expired, the defendant continued to
use for its own benefit the good-will
and trade marks belonging to the
partnership, as well as its
transportation equipment and other
machinery, thereby indicating its
intention to retain such good-will,
trade marks, transportation
equipment and machinery, for the
manufacture of fertilizers, by virtue of
which the defendant is bound to pay
the plaintiff 35 per cent of the value
of said property.
VIII. That the true value of the
transportation equipment and
machinery employed in the
preparation of the fertilizers amounts
to P20,000, 35 per cent of which
amounts to P7,000.
IX. That the plaintiff has repeatedly
demanded that the defendant entity
render a true and detailed account of
the state of the liquidation of the
partnership business, but said
defendant has ignored such demands,
so that the plaintiff does not, at this
date, know whether the liquidation of
the business has been finished, or
what the status of it is at present.
Wherefore, the plaintiff prays the Honorable
Court:
"1. To order the defendants J. M. Menzi and
P. C. Schlobohm to render a true and
detailed account of the status of the
business in liquidation, that is, from April
28, 1927, until it is finished, ordering all the
defendants to pay the plaintiff jointly and
severally 35 per cent of the net amount.
"2. To order the defendants to pay the
plaintiff jointly and severally the amount of
P350,000, which is 35 per cent of the value
of the goodwill and the trade marks of the
fertilizer business;
"3. To order the defendants to pay the
plaintiff jointly and severally the amount of
P7,000, which is 35 per cent of the value of
the transportation equipment and
machinery of the business; and
"4. To order the defendants to pay the costs
of this trial, and further, to grant any other
remedy that this Honorable Court may
deem just and equitable."
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2,
3 and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the goodwill, if any, of the said
fertilizer business of the defendant,
Menzi & Co., Inc., pertains exclusively
to it, and the plaintiff can have no
interest therein of any nature under
his said employment agreement; that
the trade-marks mentioned by the
plaintiff in his amended complaint, as
a part of such goodwill, belonged to
and have been used by the said Menzi
& Co., Inc., in its fertilizer business
from and since its organization, and
the plaintiff can have no rights to or
interest therein under his said
employment agreement; that the
transportation equipment pertains to
the fertilizer department of Menzi&
Co., Inc., and whenever it has been
used by the said Menzi & Co., Inc., in
its own business, due and reasonable
compensation for its use has been
allowed to said business; that the
machinery pertaining to the said
fertilizer business was destroyed by
fire in October, 1926, and the value
thereof in the sum of P20,000 was
collected from the Insurance
Company, and the plaintiff has been
given credit for 35 per cent of that
amount; that the present machinery
 used by Menzi & Co., Inc., was
constructed by it, and the costs
thereof was not charged to the
fertilizer department, and the plaintiff
has no right to have it taken into
consideration in arriving at the net
profits due to him under his said
employment agreement.
The dispositive part of the decision of the
trial court is as follows:
"Wherefore, let judgment be entered:
"(a) Holding that the contract entered into
by the parties, evidenced by Exhibit A, is a
contract of general regular commercial
partnership, wherein Menzi & Co., Inc., was
the capitalist, and the plaintiff, the
industrial partner;
"(b) Holding that the plaintiff, by the mere
fact of having signed and approved the
balance sheets, Exhibits C to C-8, is not
estopped from questioning the statements
of accounts therein contained;
"(c) Ordering Menzi & Co., Inc., upon the
second ground of action, to pay the plaintiff
the sum of P60,385.67 with legal interest
from the date of the filing of the original
complaint until paid;
"(d) Dismissing the third cause of action;
"(e) Ordering Menzi & Co., Inc., upon the
fourth cause of action, to pay the plaintiff
the sum of P3,821.41, with legal interest
from the date of the filing of the original
complaint until paid;
"(f) Dismissing the fifth cause of action;
"(g) Dismissing the sixth cause of action;
"(h) Dismissing the seventh cause of action;
"(i) Ordering the defendant Menzi & Co.,
Inc., upon the eighth cause of action, to
pay the plaintiff the sum of P6,578.38 with
legal interest from January 1, 1929, the
date of the liquidation of the fertilizer
business, until paid;
"(j) Ordering Menzi & Co., Inc., upon the
ninth cause of action to pay the plaintiff the
sum of P196,709.20 with legal interest from
the date of the filing of the original
complaint until paid;
"(k) Ordering the said defendant
corporation, in view of the plaintiff's share
of the profits of the business accruing from
January 1, 1927 to December 31, 1928, to
pay the plaintiff 35 per cent of the net
balance shown in Exhibits 51 and 51-A,
after deducting the item of P2,410 for
income tax, and any other sum charged for
interest under the entry 'Purchases';
"(l) Ordering the defendant corporation, in
connection with the final liquidation set out
in Exhibits 52 and 52-A, to pay the plaintiff
the sum of P17,463.54 with legal interest
from January 1, 1929, until fully paid;
"(m) Dismissing the case with reference to
the other defendants, J. M. Menzi and P. C.
Schlobohm; and
"(n) Menzi & Co., Inc., shall pay the costs of
the trial."
The appellant makes the following
assignments of error:
"I. The trial court erred in finding and
holding that the contract Exhibit A
constitutes a regular collective commercial
copartnership between the defendant
corporation, Menzi & Co., Inc., and the
plaintiff, Francisco Bastida, and not a
contract of employment.
"II. The trial court erred in finding and
holding that the defendant, Menzi& Co.,
Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33
as income taxes partners' balances, foreign
drafts, local drafts, and on other credit
balances in the sum of P172,530.49, and
that 35 per cent thereof, or the sum of
P60,385.67, with legal interest thereon
from the date of filing his complaint,
corresponds to the plaintiff.
"III. The trial court erred in finding and
holding that the defendant, Menzi & Co.,
Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33
as income taxes for the years 1923, 1924,
1925 and 1926, and that the plaintiff is
entitled to 35 per cent thereof, or the sum
of P3,821.41, with legal interest thereon
from the date of filing his complaint, and in
disallowing the item of P2,410 charged as
income tax in the liquidation in Exhibits 51
and 51-A for the period from January 1 to
April 27, 1927.
"IV. The trial court erred in refusing to find
and hold under the evidence in this case
that the contract, Exhibit A was during the
whole period thereof considered by the
parties and performed by them as a
contract of employment in relation to the
fertilizer business of the defendant, and
that the accounts of said business were
kept by the defendant, Menzi & Co., Inc.,
on that theory with the knowledge and
consent of the plaintiff, and that at the end
of each year for five years a balance sheet
and profit and loss statement of said
business were prepared from the books of
account of said business on the same
theory and submitted to the plaintiff, and
that each year said balance sheet and profit
and loss statement were examined,
approved and signed by said plaintiff and he
was paid the amount due him under said
contract in accordance therewith with full
knowledge of the manner in which said
business was conducted and the charges for
interest and income taxes made against the
same and that by reason of such facts, the
plaintiff is now estopped from raising any
question as to the nature of said contract or
the propriety of such charges.
"V. The trial court erred in finding and
holding that the plaintiff, Francisco Bastida,
is entitled to 35 per cent of the net profits
in the sum of P18,795.38 received by the
defendant, Menzi & Co., Inc., from its
contract with the Compañia General de
Tabacos de Filipinas, or the sum of
P6,578.38, with legal interest thereon from
January 1, 1929, the date upon which the
liquidation of said business was terminated.
"VI. The trial court erred in finding and
holding that the value of the good-will of
the fertilizer business in question was
P562,312, and that the plaintiff, Francisco
Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with
legal interest thereon from the date of filing
his complaint.
"VII. The trial court erred in rendering
judgment in favor of the plaintiff and
against the defendant, Menzi & Co., Inc.,
(a) on the second cause of action, for the
sum of P60,385.67, with legal interest
thereon from the date of filing the
complaint; (b) on the fourth cause of
action, for the sum of P3,821.41, with legal
interest thereon from the date of filing the
complaint; (c) on the eighth cause of
action, for the sum of P6,578.38, with legal
interest thereon from January 1, 1929; and
(d) on the ninth cause of action, for the
sum of P196,709.20, with legal interest
thereon from the date of filing the original
complaint; and (e) for the costs of the
action, and in not approving the final
liquidation of said business, Exhibits 51 and
51-A and 52 and 52-A, as true and correct,
and entering judgment against said
defendant only for the amounts admitted
therein as due the plaintiff with legal
interest, with the costs against the plaintiff.
"VIII. The trial court erred in overruling the
defendants' motion for a new trial."
It appears from the evidence that the
defendant corporation was organized in
1921 for the purpose of importing and
selling general merchandise, including
fertilizers and fertilizer ingredients. It
acquired through John Bordman and the
Menzi-Bordman Co. the good-will, trade-
marks, business, and other assets of the old
German firm of Behn, Meyer & Co., Ltd.,
including its fertilizer business with its
stocks and trade-marks. Behn, Meyer & Co.,
Ltd., had owned and carried on this fertilizer
business from 1910 until that firm was
taken over by the Alien Property Custodian
in 1917. Among the trade-marks thus
acquired by the appellant were those known
as the "ARADO", "HOZ", and "CORONA".
They were registered in the Bureau of
Commerce and Industry in the name of
Menzi & Co. The trade-marks "ARADO" and
"HOZ" had been used by Behn, Meyer &
Co., Ltd., in the sale of its mixed fertilizers,
and the trade-mark "CORONA" had been
used in its other business. The "HOZ" trade-
mark was used by John Bordman and the
Menzi-Bordman Co. in the continuation of
the fertilizer business that had belonged to
Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was
divided into several different departments,
each of which was in charge of a manager,
who received a fixed salary and a
percentage of the profits. The corporation
had to borrow money or obtain credits from
time to time and to pay interest thereon.
The amount paid for interest was charged
against the department concerned, and the
interest charges were taken into account in
determining the net profits of each
department. The practice of the corporation
was to debit or credit each department with
interest at the bank rate on its daily
balance. The fertilizer business of Menzi &
Co., Inc., was carried on in accordance with
this practice under the "Sundries
Department" until July, 1923, and after that
as a separate department.
In November, 1921, the plaintiff, who had
had some experience in mixing and selling
fertilizer, went to see Toehl, the manager of
the sundries department of Menzi & Co.,
Inc., and told him that he had a written
contract with the Philippine Sugar Centrals
Agency for 1,250 tons of mixed fertilizers,
and that he could obtain other contracts,
including one from the Calamba Sugar
Estates for 450 tons, but that he did not
have the money to buy the ingredients to
fill the order and carry on the business. He
offered to assign to Menzi & Co., Inc., his
contract with the Philippine Sugar Centrals
Agency and to supervise the mixing of the
fertilizer and to obtain other orders for fifty
per cent of the net profits that Menzi & Co.,
Inc., might derive therefrom. J. M. Menzi,
the general manager of Menzi & Co.,
accepted plaintiffs offer. Plaintiff assigned to
Menzi& Co., Inc., his contract with the
Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order.
Plaintiff supervised the mixing of the
fertilizer.
On January 10, 1922 the defendant
corporation at plaintiff's request gave him
the following letter, Exhibit B:
"MANILA,
10 de
enero de
1922
"Sr. FRANCISCO
BASTIDA
"Manila
"MUY SR. NUESTRO: Interin formalizamos
el contrato que, en principio, tenemos
convenido para la explotacion del negocio
de abono y fertilizantes, por la presente
venimos en confirmar su derecho de 50 por
ciento de las utilidades que se deriven del
contrato obtenido por Vd. de la Philippine
Sugar Centrals (por 1250 tonel.) y del
contrato con la Calamba Sugar Estates, asi
como de cuantos contratos se cierren con
compradores de abonos preparados antes
de la formalizaci6n definitiva de nuestro
contrato mutuo, lo que hacemos para
garantia y seguridad de Vd.
"MENZI
& CO.
"Por W.
(Fdo.)TOEHL"
Menzi & Co., Inc., continued to carry on its
fertilizer business under this arrangement
with the plaintiff. It ordered ingredients
from the United States and other countries,
and the interest on the drafts for the
purchase of these materials was charged to
the business as a part of the cost of the
materials. The mixed fertilizers were sold by
Menzi & Co., Inc., between January 19 and
April 1, 1922 under its "CORONA" brand.
Menzi & Co., Inc., had only one bank
account for its whole business. The fertilizer
business had no separate capital. A fertilizer
account was opened in the general ledger,
and interest at the rate charged by the
Bank of the Philippine Islands was debited
or credited to that account on the daily
balances of the fertilizer business. This was
in accordance with appellant's established
practice, to which the plaintiff assented.
On or about April 24, 1922 the net profits of
the business carried on under the oral
agreement were determined by Menzi &
Co., Inc., after deducting interest charges,
proportional part of warehouse rent and
salaries and wages, and the other expenses
of said business, and the plaintiff was paid
some twenty thousand pesos in full
satisfaction of his share of the profits.
Pursuant to the aforementioned verbal
agreement, confirmed by the letter, Exhibit
B, the defendant corporation on April 27,
1922 entered into a written contract with
the plaintiff, marked Exhibit A, which is the
basis of the present action.
The fertilizer business was carried on by
Menzi & Co., Inc., after the execution of
Exhibit A in practically the same manner as
it was prior thereto. The intervention of the
plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s,
Inc., bodegas.
The trade-marks used in the sale of the
fertilizer were registered in the Bureau of
Commerce & Industry in the name of Menzi
& Co., Inc., and the fees were paid by that
company. They were not charged to the
fertilizer business, in which the plaintiff was
interested. Only the fees for registering the
formulas in the Bureau of Science were
charged to the fertilizer business, and the
total amount thereof was credited to this
business in the final liquidation on April 27,
1927.
On May 3, 1924 the plaintiff made a
contract with Menzi & Co., Inc., to furnish it
all the stems and scraps of tobacco that it
might need for its fertilizer business either
in the Philippine Islands or for export to
other countries. This contract is referred to
in the record as the "Vastago Contract".
Menzi & Co., Inc., advanced the plaintiff
large sums of money for buying and
installing machinery, paying the salaries of
his employees, and other expenses in
performing his contract. White, Page& Co.,
certified public accountants, audited the
books of Menzi& Co., Inc., every month,
and at the end of each year they prepared a
balance sheet and a profit and loss
statement of the fertilizer business. These
statements were delivered to the plaintiff
for examination, and after he had had an
opportunity of verifying them he approved
them without objection and returned them
to Menzi & Co., Inc.
Plaintiff collected from Menzi & Co., Inc., as
his share or 35 per cent of the net profits of
the fertilizer business the following
amounts:
19 ............................................ P1,874.
22 .......................... 73
19 ............................................ 30,212.
23 .......................... 62
19 ............................................ 101,08
24 .......................... 1.56
19 ............................................ 35,665.
25 .......................... 03
19 ............................................ 27,649.
26 .......................... 98
______
___
Tot ....................................... P196,4
al ...................... 83.92
To this amount must be added plaintiff's
share of the net profits from January 1 to
April 27, 1927, amounting to P34,766.87,
making a total of P231,250.79.
Prior to the expiration of the contract,
Exhibit A, the manager of Menzi & Co., Inc.,
notified the plaintiff that the contract for his
services would not be renewed.
When plaintiff's contract expired on April
27, 1927, the fertilizer department of Menzi
& Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book
value of approximately P75,000, and
accounts receivable amounting to
P103,000. There were claims outstanding
and bills to pay. Before the net profits could
be finally determined, it was necessary to
dispose of the materials and equipment,
collect the outstanding accounts, and pay
the debts of the business. The accountants
for Menzi & Co., Inc., prepared a balance
sheet and a profit and loss statement for
the period from January 1 to April 27, 1927
as a basis of settlement, but the plaintiff
refused to accept it, and filed the present
action.
Menzi & Co., Inc., then proceeded to
liquidate the fertilizer business in question.
In October, 1927 it proposed to the plaintiff
that the old and damaged stocks on hand
having a book value of P40,000, which the
defendant corporation had been unable to
dispose of, be sold at public or private sale,
or divided between the parties. The plaintiff
refused to agree to this. The defendant
corporation then applied to the trial court
for an order for the sale of the remaining
property at public auction, but apparently
the court did not act on the petition.
The old stocks were taken over by Menzi &
Co., Inc., and the final liquidation of the
fertilizer business was completed in
December, 1928, and a final balance sheet
and a profit and loss statement were
submitted to the plaintiff during the trial.
During the liquidation the books of Menzi &
Co., Inc., for the whole period of the
contract in question were reaudited by
White, Page & Co., certain errors of
bookkeeping were discovered by them.
After making the corrections they found the
balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public
accountant, Vernon Thompson, to examine
the books and vouchers of Menzi & Co.
Thompson assumed the plaintiff and Menzi
& Co., Inc., to be partners, and that Menzi&
Co., Inc., was obliged to furnish free of
charge all the capital the partnership should
need. He naturally reached very different
conclusions from those of the auditors of
Menzi & Co., Inc.
We come now to a consideration of
appellant's assignments of error. After
considering the evidence and the arguments
of counsel, we are unanimously of the
opinion that under the facts of this case the
relationship established between Menzi &
Co. and the plaintiff by the contract, Exhibit
A, was not that of partners, but that of
employer and employee, whereby the
plaintiff was to receive 35 per cent of the
net profits of the fertilizer business of Menzi
& Co., Inc., in compensation for his services
of supervising the mixing of the fertilizers.
Neither the provisions of the contract nor
the conduct of the parties prior or
subsequent to its execution justified the
finding that it was a contract of
copartnership. Exhibit A, as appears from
the statement of facts, was in effect a
continuation of the verbal agreement
between the parties, whereby the plaintiff
worked for the defendant corporation for
one-half of the net profits derived by the
corporation from certain fertilizer contracts.
Plaintiff was paid his share of the profits
from those transactions after Menzi & Co.,
Inc., had deducted the same items of
expense which he now protests. Plaintiff
never made any objection to defendant's
manner of keeping the accounts or to the
charges. The business was continued in the
same manner under the written agreement,
Exhibit A, and for four years the plaintiff
never made any objection. On the contrary
he approved and signed every year the
balance sheet and the profit and loss
statement. It was only when plaintiff's
contract was about to expire and the
defendant corporation had notified him that
it would not renew it that the plaintiff began
to make objections.
The trial court relied on article 116 of the
Code of Commerce, which provides that
articles of association by which two or more
persons obligate themselves to place in a
common fund any property, industry, or
any of these things, in order to obtain
profit, shall be commercial, no matter what
its class may be, provided it has been
established in accordance with the
provisions of this Code; but in the case at
bar there was no common fund, that is, a
fund belonging to the parties as joint
owners or partners. The business belonged
to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and
a small percentage of the net profits, he
was to receive 35 per cent of the net profits
as compensation for his services. Menzi &
Co., Inc., was to advance him P300 a
month on account of his participation in the
profits. It will be noted that no provision
was made for reimbursing Menzi & Co.,
Inc., in case there should be no net profits
at the end of the year. It is now well settled
that the old rule that sharing profits as
profits made one a partner is overthrown.
(Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the
parties were establishing a partnership or
intended to become partners. Great stress
is laid by the trial judge and plaintiff's
attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en
sociedad con" is used in providing that
defendant corporation shall not engage in
the business of prepared fertilizers except in
association with the plaintiff (en sociedad
con). The fact is that en sociedad con as
there used merely means en reunion con or
in association with, and does not carry the
meaning of "in partnership with".
The trial judge found that the defendant
corporation had not always regarded the
contract in question as an employment
agreement, because in its answer to the
original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff
that it would not continue associated with
him in said business. The trial judge
concluded that the phrase "associated
with", used by the defendant corporation,
indicated that it regarded the contract,
Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and answer
having been superseded by the amended
complaint and the answer thereto, and the
answer to the original complaint not having
been presented in evidence as an exhibit,
the trial court was not authorized to take it
into account. "Where amended pleadings
have been filed, allegations in the original
pleadings are held admissible, but in such
case the original pleadings can have no
effect, unless formally offered in evidence."
(Jones on Evidence, sec. 273; Lucido vs.
Calupitan, 27 Phil, 148.)
In the second place, although the word
"associated" may be related etymologically
to the Spanish word "socio", meaning
partner, it does not in its common
acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit
A, whereby the defendant corporation
obligated itself to pay to the plaintiff 35 per
cent of the net profits of the fertilizer
business, to advance to him P300 a month
on account of his share of the profits, and
to grant him permission during 1923 to
absent himself from the Philippines for not
more than one year are utterly incompatible
with the claim that it was the intention of
the parties to form a copartnership. Various
other reasons for holding that the parties
were not partners are advanced in
appellant's brief. We do not deem it
necessary to discuss them here. We merely
wish to add that in the Vastago contract,
Exhibit A, the plaintiff clearly recognized
Menzi & Co., Inc., as the owners of the
fertilizer business in question.
As to the various items of expense rejected
by the trial judge, they were in our opinion
proper charges and erroneously disallowed,
and' this would be true even if the parties
had been partners. Although Menzi & Co.,
Inc., agreed to furnish the necessary
financial aid for the fertilizer business, it did
not obligate itself to contribute any fixed
sum as capital or to defray at its own
expense the cost of securing the necessary
credit. Some of the contentions of the
plaintiff and his expert witness Thompson
are so obviously without merit as not to
merit serious consideration. For instance,
they objected to the interest charges on
draft for materials purchased abroad. Their
contention is that the corporation should
have furnished the money to purchase
these materials for cash,' overlooking the
fact that the interest was added to the cost
price, and that the plaintiff was not
prejudiced by the practice complained of. It
was also urged, and this seems to us the
height of absurdity, that the defendant
corporation should have furnished free of
charge such financial assistance as would
have made it unnecessary to discount
customers' notes, thereby enabling the
business to reap the interest. In other
words, the defendant corporation should
have enabled the fertilizer department to do
business on a credit instead of a cash basis.
The charges now complained of, as we have
already stated, are the same as those made
under the verbal agreement, upon the
termination of which the parties made a
settlement; the charges in question were
acquiesced in by the plaintiff for years, and
it is now too late for him to contest them.
The decision of this court in the case of
Kriedt vs. E. C. McCullough & Co. (37 Phil.,
474), is in point. A portion of the syllabus of
that case reads as follows:
"1. CONTRACTS; INTERPRETATION;
CONTEMPORANEOUS ACTS OF PARTIES.—
Acts done by the parties to a contract in the
course of its performance are admissible in
evidence upon the question of its meaning,
as being their own contemporaneous
interpretation of its terms.
"2. ID.; ID.; ACTION OF PARTIES UNDER
PRIOR CONTRACT.—In an action upon a
contract containing a provision of doubtful
application it appeared that under a similar
prior contract the parties had, upon the
termination of said contract, adjusted their
rights and made a settlement in which the
doubtful clause had been given effect in
conformity with the interpretation placed
thereon by one of the parties. Held: That
this action of the parties under the prior
contract could properly be considered upon
the question of the interpretation of the
same clause in the later contract.
"3. ID. ; ID.; ACQUIESCENCE.—Where one
of the parties to a contract acquiesces in
the interpretation placed by the other upon
a provision of doubtful application, the party
so acquiescing is bound by such
interpretation.
"4. ID. ; ID.; ILLUSTRATION. —One of the
parties to a contract, being aware at the
time of the execution thereof that the other
placed a certain interpretation upon a
provision of doubtful application,
nevertheless proceeded, without raising any
question upon the point, to perform the
services which he was bound to render
under the contract. Upon the termination of
the contract by mutual consent a question
was raised as to the proper interpretation of
the doubtful provision. Held: That the party
raising such question had acquiesced in the
interpretation placed upon the contract by
the other party and was bound thereby."
The trial court held that the plaintiff was
entitled to P6,578.38 or 35 per cent of the
net profits derived by Menzi & Co., Inc.,
from its contract for fertilizers with the
Tabacalera. This finding in our opinion is not
justified by the evidence. This contract was
obtained by Menzi & Co., Inc., shortly
before plaintiff's contract with the defendant
corporation expired. Plaintiff tried to get the
Tabacalera contract for himself. When this
contract was filled, plaintiff had ceased to
work for Menzi & Co., Inc., and he has no
right to participate in the profits derived
therefrom.
Appellant's sixth assignment of error is that
the trial court erred in finding the value of
the good-will of the fertilizer business in
question to be P562,312, and that the
plaintiff was entitled to 35 per cent thereof
or P196,709.20. In reaching this conclusion
the trial court unfortunately relied on the
opinion of the accountant, Vernon
Thompson, who assumed, erroneously as
we have seen, that the plaintiff and Menzi &
Co., Inc., were partners; but even if they
had been partners there would have been
no good-will to dispose of. The defendant
corporation had a fertilizer business before
it entered into any agreement with the
plaintiff; plaintiff's agreement was for a
fixed period, five years, and during that
time the business was carried on in the
name of Menzi& Co., Inc., and in Menzi &
Co.'s warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc.,
continued its fertilizer business, as it had a
perfect right to do. There was really nothing
to which any good-will could attach. Plaintiff
maintains, however, that the trade-marks
used in the fertilizer business during the
time that he was connected with it acquired
great value, and that they have been
appropriated by the appellant to its own
use. That seems to be the only basis of the
alleged good-will, to which a fabulous
valuation was given. As we have seen, the
trade-marks were not new. They had been
used by Behn, Meyer & Co. in its business
for other goods and one of them for
fertilizer. They belonged to Menzi & Co.,
Inc., and were registered in its name; only
the expense of registering the formulas in
the Bureau of Science was charged to the
business in which the plaintiff was
interested. These trade-marks remained the
exclusive property of Menzi & Co., and the
plaintiff had no interest therein on the
expiration of his contract.
The balance due the plaintiff, as appears
from Exhibit 52, is P21,633.20. We are
satisfied by the evidence that said balance
is correct.
For the foregoing reasons, the decision
appealed from is modified and the
defendant corporation is sentenced to pay
the plaintiff twenty-one thousand, six
hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest
thereon from the date of the filing of the
complaint or June 17, 1927, without a
special finding as to costs.
SECOND DIVISION
G.R. No. 126881, October 03, 2000
HEIRS OF TAN ENG KEE, PETITIONERS,
VS. COURT OF APPEALS AND BENGUET
LUMBER COMPANY, REPRESENTED BY
ITS PRESIDENT TAN ENG LAY,
RESPONDENTS.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari,
petitioners pray for the reversal of the
Decision[1] dated March 13, 1996 of the
former Fifth Division[2] of the Court of
Appeals in CA-G.R. CV No. 47937, the
dispositive portion of which states:
THE FOREGOING CONSIDERED, the
appealed decision is hereby set aside, and
the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on
September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined
by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively
known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19,
1990. The complaint,[3] docketed as Civil
Case No. 1983-R in the Regional Trial Court
of Baguio City was for accounting,
liquidation and winding up of the alleged
partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. On
March 18, 1991, the petitioners filed an
amended complaint[4] impleading private
respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay.
The amended complaint was admitted by
the trial court in its Order dated May 3,
1991.[5]
The amended complaint principally alleged
that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their
resources and industry together, entered
into a partnership engaged in the business
of selling lumber and hardware and
construction supplies. They named their
enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death.
Petitioners herein averred that the business
prospered due to the hard work and thrift of
the alleged partners. However, they claimed
that in 1981, Tan Eng Lay and his children
caused the conversion of the partnership
"Benguet Lumber" into a corporation called
"Benguet Lumber Company." The
incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their
rightful participation in the profits of the
business. Petitioners prayed for accounting
of the partnership assets, and the
dissolution, winding up and liquidation
thereof, and the equal division of the net
assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio
City, Branch 7 rendered judgment[6] on
April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing,
judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint
adventure which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee
and Tan Eng Lay are joint adventurers
and/or partners in a business venture
and/or particular partnership called Benguet
Lumber and as such should share in the
profits and/or losses of the business
venture or particular partnership;
c) Declaring that the assets of Benguet
Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the
heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to
share in said assets;
d) Declaring that all the rights and
obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular
partnership have descended to the plaintiffs
who are his legal heirs.
e) Ordering the defendant Tan Eng Lay
and/or the President and/or General
Manager of Benguet Lumber Company Inc.
to render an accounting of all the assets of
Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the
business;
f) Ordering the appointment of a receiver to
preserve and/or administer the assets of
Benguet Lumber Company, Inc. until such
time that said corporation is finally
liquidated are directed to submit the name
of any person they want to be appointed as
receiver failing in which this Court will
appoint the Branch Clerk of Court or
another one who is qualified to act as such.
g) Denying the award of damages to the
plaintiffs for lack of proof except the
expenses in filing the instant case.
h) Dismissing the counter-claim of the
defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the
Court of Appeals which, on March 13, 1996,
rendered the assailed decision reversing the
judgment of the trial court. Petitioners'
motion for reconsideration[7] was denied by
the Court of Appeals in a Resolution[8] dated
October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners
filed Criminal Case No. 78856 against Tan
Eng Lay and Wilborn Tan for the use of
allegedly falsified documents in a judicial
proceeding. Petitioners complained that
Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting
of payrolls indicating that Tan Eng Kee was
a mere employee of Benguet Lumber, were
fake, based on the discrepancy in the
signatures of Tan Eng Kee. They also filed
Criminal Cases Nos. 78857-78870 against
Gloria, Julia, Juliano, Willie, Wilfredo, Jean,
Mary and Willy, all surnamed Tan, for
alleged falsification of commercial
documents by a private individual. On
March 20, 1999, the Municipal Trial Court of
Baguio City, Branch 1, wherein the charges
were filed, rendered judgment[9] dismissing
the cases for insufficiency of evidence.
In their assignment of errors, petitioners
claim that:
I. THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM
ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE;
(C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR
THE DURATION OF THE PARTNERSHIP
(PAGE 13, DECISION).
II. THE HONORABLE COURT OF APPEALS
ERRED IN RELYING SOLELY ON THE SELF-
SERVING TESTIMONY OF RESPONDENT TAN
ENG LAY THAT BENGUET LUMBER WAS A
SOLE PROPRIETORSHIP AND THAT TAN
ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.
III. THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THE FOLLOWING
FACTS WHICH WERE DULY SUPPORTED BY
EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS
NO ARTICLES OF PARTNERSHIP DULY
RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE
AND TAN ENG LAY WERE ALL LIVING
AT THE BENGUET LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN
ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN
ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG
LAY WERE THE ONES DETERMINING
THE PRICES OF STOCKS TO BE SOLD
TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG
KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV. THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP JUST BECAUSE THE
CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI,
TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT
KNOW WHEN THE ESTABLISHMENT KNOWN
IN BAUGIO CITY AS BENGUET LUMBER WAS
STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
V. THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR
ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS
SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP
SHOULD HAVE BEEN MADE AND NO SUCH
PUBLIC INSTRUMENT ESTABLISHED BY THE
APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated
rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if
such are supported by the evidence.[10] Our
jurisdiction, it must be emphasized, does
not include review of factual issues. Thus:
Filing of petition with Supreme Court.-A
party desiring to appeal by certiorari from a
judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts
whenever authorized by law, may file with
the Supreme Court a verified petition for
review on certiorari. The petition shall raise
only questions of law which must be
distinctly set forth.[11] [italics supplied]
Admitted exceptions have been recognized,
though, and when present, may compel us
to analyze the evidentiary basis on which
the lower court rendered judgment. Review
of factual issues is therefore warranted:
(1) when the factual findings of the Court of
Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely
on speculation, surmises, or conjectures;
(3) when the inference made by the Court
of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion
in the appreciation of facts;
(5) when the appellate court, in making its
findings, goes beyond the issues of the
case, and such findings are contrary to the
admissions of both appellant and appellee;
(6) when the judgment of the Court of
Appeals is premised on a misapprehension
of facts;
(7) when the Court of Appeals fails to notice
certain relevant facts which, if properly
considered, will justify a different
conclusion;
(8) when the findings of fact are themselves
conflicting;
(9) when the findings of fact are
conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court
of Appeals are premised on the absence of
evidence but such findings are contradicted
by the evidence on record.[12]
In reversing the trial court, the Court of
Appeals ruled, to wit:
We note that the Court a quo over extended
the issue because while the plaintiffs
mentioned only the existence of a
partnership, the Court in turn went beyond
that by justifying the existence of a joint
adventure.
When mention is made of a joint adventure,
it would presuppose parity of standing
between the parties, equal proprietary
interest and the exercise by the parties
equally of the conduct of the business,
thus:
xxx xxx xxx xxx
We have the admission that the father of
the plaintiffs was not a partner of the
Benguet Lumber before the war. The
appellees however argued that (Rollo, p.
104; Brief, p. 6) this is because during the
war, the entire stocks of the pre-war
Benguet Lumber were confiscated if not
burned by the Japanese. After the war,
because of the absence of capital to start a
lumber and hardware business, Lay and Kee
pooled the proceeds of their individual
businesses earned from buying and selling
military supplies, so that the common fund
would be enough to form a partnership,
both in the lumber and hardware business.
That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even
testified to by witnesses. Because of the
pooling of resources, the post-war Benguet
Lumber was eventually established. That
the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1)
they conducted the affairs of the business
during Kee's lifetime, jointly, (2) they were
the ones giving orders to the employees,
(3) they were the ones preparing orders
from the suppliers, (4) their families stayed
together at the Benguet Lumber compound,
and (5) all their children were employed in
the business in different capacities.
xxx xxx xxx xxx
It is obvious that there was no partnership
whatsoever. Except for a firm name, there
was no firm account, no firm letterheads
submitted as evidence, no certificate of
partnership, no agreement as to profits and
losses, and no time fixed for the duration of
the partnership. There was even no attempt
to submit an accounting corresponding to
the period after the war until Kee's death in
1984. It had no business book, no written
account nor any memorandum for that
matter and no license mentioning the
existence of a partnership [citation
omitted].
Also, the exhibits support the establishment
of only a proprietorship. The certification
dated March 4, 1971, Exhibit "2",
mentioned co-defendant Lay as the only
registered owner of the Benguet Lumber
and Hardware. His application for
registration, effective 1954, in fact
mentioned that his business started in 1945
until 1985 (thereafter, the incorporation).
The deceased, Kee, on the other hand, was
merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage
effective 1958, Exhibit "3". In the Payrolls,
Exhibits "4" to "4-U", inclusive, for the
years 1982 to 1983, Kee was similarly listed
only as an employee; precisely, he was on
the payroll listing. In the Termination
Notice, Exhibit "5", Lay was mentioned also
as the proprietor.
xxx xxx xxx xxx
We would like to refer to Arts. 771 and 772,
NCC, that a partner [sic] may be
constituted in any form, but when an
immovable is constituted, the execution of a
public instrument becomes necessary. This
is equally true if the capitalization exceeds
P3,000.00, in which case a public
instrument is also necessary, and which is
to be recorded with the Securities and
Exchange Commission. In this case at bar,
we can easily assume that the business
establishment, which from the language of
the appellees, prospered (pars. 5 & 9,
Complaint), definitely exceeded P3,000.00,
in addition to the accumulation of real
properties and to the fact that it is now a
compound. The execution of a public
instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was
incorporated and the incorporators were
only Lay and the members of his family.
There is no proof either that the capital
assets of the partnership, assuming them to
be in existence, were maliciously assigned
or transferred by Lay, supposedly to the
corporation and since then have been
treated as a part of the latter's capital
assets, contrary to the allegations in pars.
6, 7 and 8 of the complaint.
These are not evidences supporting the
existence of a partnership:
1) That Kee was living in a bunk house just
across the lumber store, and then in a room
in the bunk house in Trinidad, but within
the compound of the lumber establishment,
as testified to by Tandoc; 2) that both Lay
and Kee were seated on a table and were
"commanding people" as testified to by the
son, Elpidio Tan; 3) that both were
supervising the laborers, as testified to by
Victoria Choi; and 4) that Dionisio Peralta
was supposedly being told by Kee that the
proceeds of the 80 pieces of the G.I. sheets
were added to the business.
Partnership presupposes the following
elements [citation omitted]: 1) a contract,
either oral or written. However, if it involves
real property or where the capital is
P3,000.00 or more, the execution of a
contract is necessary; 2) the capacity of the
parties to execute the contract; 3) money
property or industry contribution; 4)
community of funds and interest,
mentioning equality of the partners or one
having a proportionate share in the
benefits; and 5) intention to divide the
profits, being the true test of the
partnership. The intention to join in the
business venture for the purpose of
obtaining profits thereafter to be divided,
must be established. We cannot see these
elements from the testimonial evidence of
the appellees.
As can be seen, the appellate court disputed
and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG
LAY had allegedly entered into a joint
adventure. In this connection, we have held
that whether a partnership exists is a
factual matter; consequently, since the
appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the
correctness of the assessment of the
evidence by the court a quo.[13] Inasmuch
as the Court of Appeals and the trial court
had reached conflicting conclusions,
perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan
Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership
is defined by law as one where:
xxx two or more persons bind themselves
to contribute money, property, or industry
to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a
partnership for the exercise of a
profession.[14]
Thus, in order to constitute a partnership, it
must be established that (1) two or more
persons bound themselves to contribute
money, property, or industry to a common
fund, and (2) they intend to divide the
profits among themselves.[15] The
agreement need not be formally reduced
into writing, since statute allows the oral
constitution of a partnership, save in two
instances: (1) when immovable property or
real rights are contributed,[16] and (2) when
the partnership has a capital of three
thousand pesos or more.[17] In both cases,
a public instrument is required.[18] An
inventory to be signed by the parties and
attached to the public instrument is also
indispensable to the validity of the
partnership whenever immovable property
is contributed to the partnership.[19]
The trial court determined that Tan Eng Kee
and Tan Eng Lay had entered into a joint
adventure, which it said is akin to a
particular partnership.[20] A particular
partnership is distinguished from a joint
adventure, to wit:
(a)A joint adventure (an American concept
similar to our joint accounts) is a sort of
informal partnership, with no firm name
and no legal personality. In a joint
account, the participating merchants can
transact business under their own name,
and can be individually liable therefor.
(b)Usually, but not necessarily a joint
adventure is limited to a SINGLE
TRANSACTION, although the business of
pursuing to a successful termination may
continue for a number of years; a
partnership generally relates to a
continuing business of various
transactions of a certain kind.[21]
A joint adventure "presupposes generally a
parity of standing between the joint co-
ventures or partners, in which each party
has an equal proprietary interest in the
capital or property contributed, and where
each party exercises equal rights in the
conduct of the business."[22] Nonetheless, in
Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,[23] we
expressed the view that a joint adventure
may be likened to a particular partnership,
thus:
The legal concept of a joint adventure is of
common law origin. It has no precise legal
definition, but it has been generally
understood to mean an organization formed
for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since
their elements are similar-community of
interest in the business, sharing of profits
and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F. 2d. 498,
[1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal.
2d. 183, 288 P.2d. 12 289 P.2d. 242
[1955]). The main distinction cited by most
opinions in common law jurisdiction is that
the partnership contemplates a general
business with some degree of continuity,
while the joint adventure is formed for the
execution of a single transaction, and is
thus of a temporary nature. (Tufts v. Mann.
116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 Ill. 595, 71 NE 2d.
74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely
accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular
or universal, and a particular partnership
may have for its object a specific
undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine
law, a joint adventure is a form of
partnership and should thus be governed by
the law of partnerships. The Supreme Court
has however recognized a distinction
between these two business forms, and has
held that although a corporation cannot
enter into a partnership contract, it may
however engage in a joint adventure with
others. (At p. 12, Tuazon v. Bolaños, 95
Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected
Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have
been the contract of partnership itself, or
the articles of partnership but there is none.
The alleged partnership, though, was never
formally organized. In addition, petitioners
point out that the New Civil Code was not
yet in effect when the partnership was
allegedly formed sometime in 1945,
although the contrary may well be argued
that nothing prevented the parties from
complying with the provisions of the New
Civil Code when it took effect on August 30,
1950. But all that is in the past. The net
effect, however, is that we are asked to
determine whether a partnership existed
based purely on circumstantial evidence. A
review of the record persuades us that the
Court of Appeals correctly reversed the
decision of the trial court. The evidence
presented by petitioners falls short of the
quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee
has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the
precise nature of the business relationship
between them. In the absence of evidence,
we cannot accept as an established fact that
Tan Eng Kee allegedly contributed his
resources to a common fund for the
purpose of establishing a partnership. The
testimonies to that effect of petitioners'
witnesses is directly controverted by Tan
Eng Lay. It should be noted that it is not
with the number of witnesses wherein
preponderance lies;[24] the quality of their
testimonies is to be considered. None of
petitioners' witnesses could suitably account
for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio
Peralta whose deceased wife was related to
Matilde Abubo.[25] He stated that when he
met Tan Eng Kee after the liberation, the
latter asked the former to accompany him
to get 80 pieces of G.I. sheets supposedly
owned by both brothers.[26] Tan Eng Lay,
however, denied knowledge of this meeting
or of the conversation between Peralta and
his brother.[27] Tan Eng Lay consistently
testified that he had his business and his
brother had his, that it was only later on
that his said brother, Tan Eng Kee, came to
work for him. Be that as it may, co-
ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium
of the existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural,
that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee
never asked for an accounting. The essence
of a partnership is that the partners share
in the profits and losses.[29] Each has the
right to demand an accounting as long as
the partnership exists.[30] We have allowed
a scenario wherein "[i]f excellent relations
exist among the partners at the start of the
business and all the partners are more
interested in seeing the firm grow rather
than get immediate returns, a deferment of
sharing in the profits is perfectly
plausible."[31] But in the situation in the
case at bar, the deferment, if any, had gone
on too long to be plausible. A person is
presumed to take ordinary care of his
concerns.[32] As we explained in another
case:
In the first place, plaintiff did not furnish
the supposed P20,000.00 capital. In the
second place, she did not furnish any help
or intervention in the management of the
theatre. In the third place, it does not
appear that she has even demanded from
defendant any accounting of the expenses
and earnings of the business. Were she
really a partner, her first concern should
have been to find out how the business was
progressing, whether the expenses were
legitimate, whether the earnings were
correct, etc. She was absolutely silent with
respect to any of the acts that a partner
should have done; all that she did was to
receive her share of P3,000.00 a month,
which cannot be interpreted in any manner
than a payment for the use of the premises
which she had leased from the owners.
Clearly, plaintiff had always acted in
accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered
this offer as the real contract between
them.[33] [italics supplied]
A demand for periodic accounting is
evidence of a partnership.[34] During his
lifetime, Tan Eng Kee appeared never to
have made any such demand for accounting
from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4"
to "4-U" for private respondents, consisting
of payrolls purporting to show that Tan Eng
Kee was an ordinary employee of Benguet
Lumber, as it was then called. The
authenticity of these documents was
questioned by petitioners, to the extent that
they filed criminal charges against Tan Eng
Lay and his wife and children. As aforesaid,
the criminal cases were dismissed for
insufficiency of evidence. Exhibits "4" to "4-
U" in fact shows that Tan Eng Kee received
sums as wages of an employee. In
connection therewith, Article 1769 of the
Civil Code provides:
In determining whether a partnership
exists, these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each
other are not partners as to third persons;
(2) Co-ownership or co-possession does not
of itself establish a partnership, whether
such co-owners or co-possessors do or do
not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of
itself establish a partnership, whether or
not the persons sharing them have a joint
or common right or interest in any property
which the returns are derived;
(4) The receipt by a person of a share of
the profits of a business is prima facie
evidence that he is a partner in the
business, but no such inference shall be
drawn if such profits were received in
payment:
(a) As a debt by installment or
otherwise;
(b) As wages of an employee or rent to
a landlord;
(b) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of
a goodwill of a business or other property
by installments or otherwise.
In the light of the aforequoted legal
provision, we conclude that Tan Eng Kee
was only an employee, not a partner. Even
if the payrolls as evidence were discarded,
petitioners would still be back to square
one, so to speak, since they did not present
and offer evidence that would show that
Tan Eng Kee received amounts of money
allegedly representing his share in the
profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee,
received, if any, as his share in the profits
of Benguet Lumber Company for any
particular period. Hence, they failed to
prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the
business between themselves, which is one
of the essential features of a partnership.
Nevertheless, petitioners would still want us
to infer or believe the alleged existence of a
partnership from this set of circumstances:
that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were
supervising the employees; that both were
the ones who determined the price at which
the stocks were to be sold; and that both
placed orders to the suppliers of the
Benguet Lumber Company. They also point
out that the families of the brothers Tan
Eng Kee and Tan Eng Lay lived at the
Benguet Lumber Company compound, a
privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point
in asserting that the above enumerated
powers and privileges granted in favor of
Tan Eng Kee, were indicative of his being a
partner in Benguet Lumber for the following
reasons:
(i) even a mere supervisor in a company,
factory or store gives orders and directions
to his subordinates. So long, therefore, that
an employee's position is higher in rank, it
is not unusual that he orders around those
lower in rank.
(ii) even a messenger or other trusted
employee, over whom confidence is reposed
by the owner, can order materials from
suppliers for and in behalf of Benguet
Lumber. Furthermore, even a partner does
not necessarily have to perform this
particular task. It is, thus, not an indication
that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his
family, lived in the lumber compound and
this privilege was not accorded to other
employees, the undisputed fact remains
that Tan Eng Kee is the brother of Tan Eng
Lay. Naturally, close personal relations
existed between them. Whatever privileges
Tan Eng Lay gave his brother, and which
were not given the other employees, only
proves the kindness and generosity of Tan
Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng
Kee was quarrelling with Tan Eng Lay in
connection with the pricing of stocks, this
does not adequately prove the existence of
a partnership relation between them. Even
highly confidential employees and the
owners of a company sometimes argue with
respect to certain matters which, in no way
indicates that they are partners as to each
other.[35]
In the instant case, we find private
respondent's arguments to be well-taken.
Where circumstances taken singly may be
inadequate to prove the intent to form a
partnership, nevertheless, the collective
effect of these circumstances may be such
as to support a finding of the existence of
the parties' intent.[36] Yet, in the case at
bench, even the aforesaid circumstances
when taken together are not persuasive
indicia of a partnership. They only tend to
show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the
likelihood that as a member of the family,
he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such
as his residence in the Benguet Lumber
Company compound. He would have moral,
if not actual, superiority over his fellow
employees, thereby entitling him to
exercise powers of supervision. It may even
be that among his duties is to place orders
with suppliers. Again, the circumstances
proffered by petitioners do not provide a
logical nexus to the conclusion desired;
these are not inconsistent with the powers
and duties of a manager, even in a business
organized and run as informally as Benguet
Lumber Company.
There being no partnership, it follows that
there is no dissolution, winding up or
liquidation to speak of. Hence, the petition
must fail.
WHEREFORE, the petition is hereby
denied, and the appealed decision of the
Court of Appeals is hereby AFFIRMED in
toto. No pronouncement as to costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 127405, September 20, 2001
MARJORIE TOCAO AND WILLIAM T.
BELO, PETITIONERS, VS. COURT OF
APPEALS AND NENITA A. ANAY,
RESPONDENTS.
RESOLUTION
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend
and control its processes and orders so as
to make them conformable to law and
justice includes the right to reverse itself,
especially when in its honest opinion it has
committed an error or mistake in judgment,
and that to adhere to its decision will cause
injustice to a party litigant.[1]
On November 14, 2001, petitioners Marjorie
Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated
October 4, 2000. They maintain that there
was no partnership bettween petitioner
Belo, on the one hand, and respondent
Nenita A. Anay, on the other hand; and that
the latter being merely an employee of
petitioner Tocao.
After a careful review of the evidence
presented, we are convinced that, indeed,
petitioner Belo acted merely as guarantor of
Geminesse Enterprise. This was
categorically affirmed by respondent's own
witness, Elizabeth Bantilan, during her
cross-examination. Furthermore, Bantilan
testified that it was Peter Lo who was the
company's financier. Thus:
Q You mentioned a while ago the name
William Belo. Now, what is the role of
William Belo with Geminesse Enterprise?
A William Belo is the friend of Marjorie
Tocao and he was the guarantor of the
company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes
somebody who is Peter Lo and he acts as
guarantor for us. We can borrow money
from him.
Q You mentioned a certain Peter Lo. Who is
this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the
Geminesse Enterprise?
A He is the one fixing our orders that open
the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely
the guarantor of Geminesse Enterprise,
am I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor
contradicted by respondent's evidence. It
should be recalled that the business
relationship created between petitioner
Tocao and respondent Anay was an informal
partnership, which was not even recorded
with the Securities and Exchange
Commission. As such, it was
understandable that Belo, who was after all
petitioner Tocao's good friend and
confidante, would occasionally participate in
the affairs of the business, although never
in a formal or official capacity.[3] Again,
respondent's witness, Elizabeth Bantilan,
confirmed that petitioner Belo's presence in
Geminesse Enterprise's meetings was
merely as guarantor of the company and to
help petitioner Tocao.[4]
Furthermore, no evidence was presented to
show that petitioner Belo participated in the
profits of the business enterprise.
Respondent herself professed lack of
knowledge that petitioner Belo received any
share in the net income of the
partnership.[5] On the other hand, petitioner
Tocao declared that petitioner Belo was not
entitled to any share in the profits of
Geminesse Enterprise.[6] With no
participation in the profits, petitioner Belo
cannot be deemed a partner since the
essence of a partnership is that the partners
share in the profits and losses.[7]
Consequently, inasmuch as petitioner Belo
was not a partner in Geminesse Enterprise,
respondent had no cause of action against
him and her complaint against him should
accordingly be dismissed.
As regards the award of damages,
petitioners argue that respondent should be
deemed in bad faith for failing to account
for stocks of Geminesse Enterprise
amounting to P208,250.00 and that,
accordingly, her claim for damages should
be barred to that extent. We do not agree.
Given the circumstances surrounding
private respondent's sudden ouster from
the partnership by petitioner Tocao, her act
of withholding whatever stocks were in her
possession and control was justified, if only
to serve as security for her claims against
the partnership. However, while we do not
agree that the same renders private
respondent in bad faith and should bar her
claim for damages, we find that the said
sum of P208,250.00 should be deducted
from whatever amount is finally adjudged in
her favor on the basis of the formal account
of the partnership affairs to be submitted to
the Regional Trial Court.

WHEREFORE, based on the foregoing, the

Motion for Reconsideration of petitioners is
PARTIALLY GRANTED. The Regional Trial
Court of Makati is hereby ordered to
DISMISS the complaint, docketed as Civil
Case No. 88-509, as against petitioner
William T. Belo only. The sum of
P208,250.00 shall be deducted from
whatever amount petitioner Marjorie Tocao
shall be held liable to pay respondent after
the formal accounting of the partnership
affairs.

SO ORDERED.
G.R. No. L-12541, August 28, 1959
ROSARIO U. YULO, ASSISTED BY HER
HUSBAND JOSE C. YULO, PLAINTIFFS
AND APPELLANTS, VS. YANG CHIAO
SENG, DEFENDANT AND APPELLEE.
DECISION
LABRADOR, J.:
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 plaintiff 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 afc 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 egrees of patrons of the theatre; (4)
that after December 31, 1947, all
improvements placed by the partnership
shall belong to Mrs. Yulo, but that 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 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 in
the Court of First Instance of Manila on July
3, 1949 to declare the lease of the premises
one for an indefinite period. On August 17,
1949, the owners on their part brought an
action in the Municipal Court of Manila
against Mrs. Yulo and her husband and
Yang Chiao Seng to eject them from 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 to her
the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954,
alleging the existence of a partnership
between them, and that defendant Yang
Chiao Seng has refused to pay her share
from December, 1949 to December, ,1950;
that after December 81, 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 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 P300 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 profits 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 one of partnership but
one of 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 a 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 counter-
claim, on the ground that 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.
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 the parties had 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
defendant-appellee to prove that the
relation between him and the plaintiff is one
of 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 one 6f 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
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.
G.R. No. L-12541, March 30, 1960
ROSARIO U. YULO, ASSISTED BY HER
HUSBAND JOSE C. YULO, PLAINTIFFS
AND APPELLANTS, VS. YANG CHIAO
SENG, DEFENDANT AND APPELLEE.
RESOLUTION
LABRADOR, J.:
This concerns a "Petition to Reopen Case,"
dated December 14, 1959, presented by
attorneys for plaintiffs-appellants, alleging
that the relationship between Rosario U.
Yulo, plaintiff-appellant and Yang Chiao
Seng, defendant-appellee, as lessor and
lessee, has already been definitely decided
by the Court of Appeals in the case of Sta.
Marina, et al., and Rosario U. Yulo and Yang
Chiao Seng, C. A. G. R. No. 8143-R. We
have gone out of our way to review our
conclusion that no relation of partnership
existed between said parties because we
had denied the motion for reconsideration
of plaintiff-appellant questioning the
conclusion of this Court without
explanation.
The claim of plaintiff-appellant Rosario U.
Yulo is that the relationship between her
and defendant-appellee Yang Chiao Seng as
partners had already been passed upon by
the Court of Appeals in the above-indicated
decision. The portion of the decision of the
Court of Appeals is contained on page 8 of
the motion for reconsideration in which it
held that articles of partnership of Young &
Co., Ltd. show that the parties to this case
are partners in the construction of the Astor
Theatre. It is to be noted, however, that the
decision of the Court of Appeals was one in
which Emilia and Maria Carrion Sta. Marina
are plaintiffs and the defendants are
Rosario Yulo and Yang Chiao Seng; the
action was one to eject the defendants from
the land occupied by them; the issue was
the reasonable value for the use and
occupation of the land. The Court of
Appeals said that the plaintiffs in that case
had claimed that, the reasonable value was
P3,000, while the defendants claimed that it
was only P1,000, and the Court of Appeals
held that in view of the partnership papers
P3,000 represent the share of Rosario U.
Yulo in the profits of the partnership and
not the reasonable rent of the property.
It is evident that no res judicata can be
claimed for the previous judgment of the
Court of Appeals. In the first place, the
parties in that case were Emilia and Maria
Carrion Sta. Marina and the defendants,
Rosario U. Yulo and Yang Chiao Seng; in
the second place, the issue decided by the
Court of Appeals was the rental value of the
property in question; that the cause of
action was for ejectment of Rosario U. Yulo
and Yang Chiao Seng. In the case at bar,
the action is between Rosario U. Yulo as
plaintiff and Yang Chiao Seng as defendant;
the issue is whether or not the plaintiff is
partner in the cinematograph business, as
claimed by plaintiff, or said plaintiff is
merely a sublessee, as claimed by the
defendant. There is, therefore, no identity
of parties nor identity of issue, nor identity
of cause of action. We call attention to the
very citation contained in appellant's motion
for reconsideration,, which reads as follows:
"Parties to a judgment are not bound by it,
in a subsequent controversy between each
other, unless they were adversary parties in
the original action. There must have been
an issue or controversy between them. The
reason for this rule obviously is the same as
that which underlies the whole doctrine of
res judicata, namely, that a person should
not be bound by a judgment except to the
extent that he, or someone representing
him, had an adequate opportunity not only
to litigate the matters adjudicated, but to
litigate them against the party (or his
predecessor in interest) who seeks to use
the judgment against him." (See. 422, 1
Freeman on Judgments, 5th ed., p. 918).
Without going further, we are fully satisfied
of the correctness of our conclusion that the
relationship between plaintiff-appellant
Rosario U. Yulo and Yang Chiao Seng is
merely that of sublessor and sublessee, and
not that of partners. The motion to reopen
the case is hereby denied and considering
that judgment had become final since
October 29, 1959, order is hereby given to
remand the record to the court below.
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 OP TAX APPEALS,
RESPONDENTS.
DECISION
CONCEPCION, J.:
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
petitioners is hereby dismissed with costs
against petitioners."
It apears from the stipulation submitted by
the parties:
"1. That the petitioners borrowed from their
father the sum of P59,140.00 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 3,718.40 sq, m. including:
improvements thereon for 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
P18,000.00; this property has
an assessed value of P8,255.00
as of 1948;
"4, That on April 23, 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 from
Mrs. Valentin Afable a lot of 8,371 sq. m.
including improvements thereon for
P237.234.14. 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 tenant; 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 leased to various
tenants;
"8. That from the month of March, 1945 up
to and 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 in 1940, they realized a gross
rental income in the sum of P24,786.30, out
of which amount was deducted 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 the assessments made by said
officer, as follows:
 they be absolved from the payment of the
taxes in question, with costs against the
respondent.
After appropriate proceedings, the Court of
Income Taxes Tax Appeals rendered the above-mentioned
194 ............................................ decision for the respondent, and, a petition
5 ........... P614.84 for reconsideration and new trial having
194 ............................................ been subsequently denied, the case is now
6 .......... 1,144.71 before Us for review at the instance of the
194 ............................................ petitioners.
7 ............ 910.34 The issue in this case is whether petitioners
194 ............................................ are subject to the tax on corporations
8 ........... 1,912.30 provided for in section 24 of Commonwealth
194 ............................................ Act No. 466, otherwise known as the
9 ......... _1,575.90 National Internal Revenue Code, as well as
Total including surcharge and P6,157. to the residence tax for corporations and
compromise .... 09 the real estate dealers' fixed tax. With
respect to the tax on corporations, the issue
Real Estate Dealer's Fixed Tax hinges on the meaning of the terms
194 ………………………………………………… "corporation" and "partnership", as used in
6 ………. P37.50 sections 24 and 84 of said Code, the
194 ………….……………………………………… pertinent parts of which read:
7 ……… 150.00
194 ………….……………………………………… "Sec. 24. Rate of tax on corporations.—
8 ……… 150.00 There shall be levied, assessed, collected,
194 …..………….………………………………… and paid annually upon the total net income
9 ……… _150.00 received in the preceding taxable year from
Total including P527.5 all sources by every corporation organized
penalty……………….. 0 in, or existing under the laws of the
Philippines, no matter how created or
Residence Taxes of Corporation organized but not including duly registered
194 ………………………………………………… general co-partnerships (compañias
5 ……… P38.75 colectivas), a tax upon such income
194 ……………………….………………………… equal to the sum of the following: *
6 …….. 38.75 * *."
194 ……………………….…………………………
7 …….. 38.75 "Sec. 84(b). The term 'corporation' includes
194 ……………………….………………………… partnerships, no matter how created or
8 …….. 38.75 organized, joint-stock companies, joint
194 ……………………….………………………… accounts (cuentas en participacion),
9 …….. _38.75 associations or insurance companies, but
Total including P193.7 does not include duly registered general
surchage........................... 5 copartnerships (compañias colectivas)"
Total Taxes Due 6,878.3 Article 1767 of the Civil Code of the
........................................ 4 Philippines provides :

Said letter of demand and the
corresponding assessments were delivered
to petitioners on December 8, 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
"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 dividing1 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
P18,000.000. 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 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 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
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 cre
ating 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(6) 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 couid be
deemed constituted for purposes of the tax
on corporations. Again, pursuant to said
section 84(6), the term "corporation"
includes, among other, "joint accounts,
(cuentas en participation)" and
"associations", none of which his 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 [6]) 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 of 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
provision 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 designated 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
interinsurance 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 oi' the
Code, a, trust or an estate, or a
partnership." (7A Merten's Law of Federal
Income Taxation, p. 788; italics ours.)
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 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; italics
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; italics 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 thousand pesos or more a
tax for corporations. year. * * *." (Italics ours.)
As regards the residence tax for Wherefore, the appealed decision of the
corporations, section 2 of Commonwealth Court of Tax Appeals is hereby affirmed
Act No. 465 provides in part: with costs against the petitioners
herein. It is so ordered.
"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." (italics
ours.)
Considering that the pertinent part of this
provision is analogous to that of sections 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 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
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.
DECISION
BARREDO, J.:
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 afore-named 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. 34-
31, 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:
"YearInvestment Land Building
Account Account Account
1949 P87,860 P
17,590.00
 1950 P 128,566.7296,076.26
24,657.65
1951 51,301.31 120,349.28110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00120,249.78169,262.52
1956 175,028.68135,714.68169,262.52
(See Exhibits 3 & K; t.s.n., pp. 22, 25-26,
40, 50, 102-104).
"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
shown. 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 add 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............................................
....... P 40,209.89
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 Exh. 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
vs. 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 inheritances 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 proceeds 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 cases of
their respective shares of the profits of their
common business as reported by 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 tantamount 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 notnecessarily
'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,
(cuentasenparticipation)' 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.' * * *
"* * * * * *
"Similarly, the American Law
'* * * provides itsownconcept of a
partnership. Under the term 'partnership' it
includes notonly a partnership as known at
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; Italics
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; italics
ours.)
"For purposes of the tax on corporations,
ourNational Internal Revenue Code,
includesthesepartnerships — with the
exception only of duly registered general
co-partnerships — 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 but also the income of the
inherited properties."
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 allege:
'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 excess income taxes in the case
of herein petitioners has already lapsed,
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 them. In principle, it
is but proper not to allow any relaxation of
the tax laws in favor of persons who are not
exactly above suspicion in their conduct vis-
a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the
judgment of the Court of Tax Appeals
appealed from is affirmed, with costs
against petitioners.
THIRD DIVISION
G.R. No. 172690, March 03, 2010
HEIRS OF JOSE LIM, REPRESENTED BY
ELENITO LIM, PETITIONERS, VS.
JULIET VILLA LIM, RESPONDENT.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on
Certiorari[1] under Rule 45 of the Rules of
Civil Procedure, assailing the Court of
Appeals (CA) Decision[2] dated June 29,
2005, which reversed and set aside the
decision[3] of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim
(Jose), namely: Jose's widow Cresencia
Palad (Cresencia); and their children
Elenito, Evelia, Imelda, Edelyna and Edison,
all surnamed Lim (petitioners), represented
by Elenito Lim (Elenito). They filed a
Complaint[4] for Partition, Accounting and
Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim
(Elfledo), who was the eldest son of Jose
and Cresencia.
Petitioners alleged that Jose was the liaison
officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose,
together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a
partnership to engage in the trucking
business. Initially, with a contribution of
P50,000.00 each, they purchased a truck to
be used in the hauling and transport of
lumber of the sawmill. Jose managed the
operations of this trucking business until his
death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners
agreed to continue the business under the
management of Elfledo. The shares in the
partnership profits and income that formed
part of the estate of Jose were held in trust
by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire
properties using said funds.
Petitioners also alleged that, at that time,
Elfledo was a fresh commerce graduate
serving as his father's driver in the trucking
business. He was never a partner or an
investor in the business and merely
supervised the purchase of additional trucks
using the income from the trucking business
of the partners. By the time the partnership
ceased, it had nine trucks, which were all
registered in Elfledo's name. Petitioners
asseverated that it was also through
Elfledo's management of the partnership
that he was able to purchase numerous real
properties by using the profits derived
therefrom, all of which were registered in
his name and that of respondent. In
addition to the nine trucks, Elfledo also
acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving
respondent as his sole surviving heir.
Petitioners claimed that respondent took
over the administration of the
aforementioned properties, which belonged
to the estate of Jose, without their consent
and approval. Claiming that they are co-
owners of the properties, petitioners
required respondent to submit an
accounting of all income, profits and rentals
received from the estate of Elfledo, and to
surrender the administration thereof.
Respondent refused; thus, the filing of this
case.
Respondent traversed petitioners'
allegations and claimed that Elfledo was
himself a partner of Norberto and Jimmy.
Respondent also claimed that per testimony
of Cresencia, sometime in 1980, Jose gave
Elfledo P50,000.00 as the latter's capital in
an informal partnership with Jimmy and
Norberto. When Elfledo and respondent got
married in 1981, the partnership only had
one truck; but through the efforts of
Elfledo, the business flourished. Other than
this trucking business, Elfledo, together
with respondent, engaged in other business
ventures. Thus, they were able to buy real
properties and to put up their own car
assembly and repair business. When
Norberto was ambushed and killed on July
16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995
due to a heart attack, respondent talked to
Jimmy and to the heirs of Norberto, as she
could no longer run the business. Jimmy
suggested that three out of the nine trucks
be given to him as his share, while the
other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita
Uy, was not interested in the vehicles.
Thus, she sold the same to respondent, who
paid for them in installments.
Respondent also alleged that when Jose
died in 1981, he left no known assets, and
the partnership with Jimmy and Norberto
ceased upon his demise. Respondent also
stressed that Jose left no properties that
Elfledo could have held in trust. Respondent
maintained that all the properties involved
in this case were purchased and acquired
through her and her husband's joint efforts
and hard work, and without any
participation or contribution from petitioners
or from Jose. Respondent submitted that
these are conjugal partnership properties;
and thus, she had the right to refuse to
render an accounting for the income or
profits of their own business.
Trial on the merits ensued. On April 12,
2004, the RTC rendered its decision in favor
of petitioners, thus:
WHEREFORE, premises considered,
judgment is hereby rendered:
1) Ordering the partition of the above-
mentioned properties equally between the
plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an
accounting of all incomes, profits and
rentals received by her from said
properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set
aside the RTC's decision, dismissing
petitioners' complaint for lack of merit.
Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however,
denied in its Resolution[6] dated May 8,
2006.
Hence, this Petition, raising the sole
question, viz.:
IN THE APPRECIATION BY THE COURT OF
THE EVIDENCE SUBMITTED BY THE
PARTIES, CAN THE TESTIMONY OF ONE OF
THE PETITIONERS BE GIVEN GREATER
WEIGHT THAN THAT BY A FORMER
PARTNER ON THE ISSUE OF THE IDENTITY
OF THE OTHER PARTNERS IN THE
PARTNERSHIP?[7]
In essence, petitioners argue that according
to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a
partner; and that he and Norberto entered
into a partnership with Jose. Thus, the CA
erred in not giving that testimony greater
weight than that of Cresencia, who was
merely the spouse of Jose and not a party
to the partnership.[8]
Respondent counters that the issue raised
by petitioners is not proper in a petition for
review on certiorari under Rule 45 of the
Rules of Civil Procedure, as it would entail
the review, evaluation, calibration, and re-
weighing of the factual findings of the CA.
Moreover, respondent invokes the rationale
of the CA decision that, in light of the
admissions of Cresencia and Edison and the
testimony of respondent, the testimony of
Jimmy was effectively refuted; accordingly,
the CA's reversal of the RTC's findings was
fully justified.[9]
We resolve first the procedural matter
regarding the propriety of the instant
Petition.
Verily, the evaluation and calibration of the
evidence necessarily involves consideration
of factual issues -- an exercise that is not
appropriate for a petition for review on
certiorari under Rule 45. This rule provides
that the parties may raise only questions of
law, because the Supreme Court is not a
trier of facts. Generally, we are not duty-
bound to analyze again and weigh the
evidence introduced in and considered by
the tribunals below.[10] When supported by
substantial evidence, the findings of fact of
the CA are conclusive and binding on the
parties and are not reviewable by this
Court, unless the case falls under any of the
following recognized exceptions:
(1) When the conclusion is a finding
grounded entirely on speculation, surmises
and conjectures;
(2) When the inference made is manifestly
mistaken, absurd or impossible;
(3) Where there is a grave abuse of
discretion;
(4) When the judgment is based on a
misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making
its findings, went beyond the issues of the
case and the same is contrary to the
admissions of both appellant and appellee;
(7) When the findings are contrary to those
of the trial court;
(8) When the findings of fact are
conclusions without citation of specific
evidence on which they are based;
(9) When the facts set forth in the petition
as well as in the petitioners' main and reply
briefs are not disputed by the respondents;
and
(10) When the findings of fact of the Court
of Appeals are premised on the supposed
absence of evidence and contradicted by
the evidence on record.[11]
We note, however, that the findings of fact
of the RTC are contrary to those of the CA.
Thus, our review of such findings is
warranted.
On the merits of the case, we find that the
instant Petition is bereft of merit.
A partnership exists when two or more
persons agree to place their money, effects,
labor, and skill in lawful commerce or
business, with the understanding that there
shall be a proportionate sharing of the
profits and losses among them. A contract
of partnership is defined by the Civil Code
as one where two or more persons bind
themselves to contribute money, property,
or industry to a common fund, with the
intention of dividing the profits among
themselves.[12]
Undoubtedly, the best evidence would have
been the contract of partnership or the
articles of partnership. Unfortunately, there
is none in this case, because the alleged
partnership was never formally organized.
Nonetheless, we are asked to determine
who between Jose and Elfledo was the
"partner" in the trucking business.
A careful review of the records persuades
us to affirm the CA decision. The evidence
presented by petitioners falls short of the
quantum of proof required to establish that:
(1) Jose was the partner and not Elfledo;
and (2) all the properties acquired by
Elfledo and respondent form part of the
estate of Jose, having been derived from
the alleged partnership.
Petitioners heavily rely on Jimmy's
testimony. But that testimony is just one
piece of evidence against respondent. It
must be considered and weighed along with
petitioners' other evidence vis-à-vis
respondent's contrary evidence. In civil
cases, the party having the burden of proof
must establish his case by a preponderance
of evidence. "Preponderance of evidence" is
the weight, credit, and value of the
aggregate evidence on either side and is
usually considered synonymous with the
term "greater weight of the evidence" or
"greater weight of the credible evidence."
"Preponderance of evidence" is a phrase
that, in the last analysis, means probability
of the truth. It is evidence that is more
convincing to the court as worthy of belief
than that which is offered in opposition
thereto.[13] Rule 133, Section 1 of the Rules
of Court provides the guidelines in
determining preponderance of evidence,
thus:
SECTION I. Preponderance of evidence, how
determined. In civil cases, the party having
burden of proof must establish his case by a
preponderance of evidence. In determining
where the preponderance or superior
weight of evidence on the issues involved
lies, the court may consider all the facts
and circumstances of the case, the
witnesses' manner of testifying, their
intelligence, their means and opportunity of
knowing the facts to which they are
testifying, the nature of the facts to which
they testify, the probability or improbability
of their testimony, their interest or want of
interest, and also their personal credibility
so far as the same may legitimately appear
upon the trial. The court may also consider
the number of witnesses, though the
preponderance is not necessarily with the
greater number.
At this juncture, our ruling in Heirs of Tan
Eng Kee v. Court of Appeals[14] is
enlightening. Therein, we cited Article 1769
of the Civil Code, which provides:
Art. 1769. In determining whether a
partnership exists, these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each
other are not partners as to third persons;
(2) Co-ownership or co-possession does not
of itself establish a partnership, whether
such co-owners or co-possessors do or do
not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of
itself establish a partnership, whether or
not the persons sharing them have a joint
or common right or interest in any property
from which the returns are derived;
(4) The receipt by a person of a share of
the profits of a business is a prima facie
evidence that he is a partner in the
business, but no such inference shall be
drawn if such profits were received in
payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
Applying the legal provision to the facts of
this case, the following circumstances tend
to prove that Elfledo was himself the
partner of Jimmy and Norberto: 1)
Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on
a date that coincided with the payment of
the initial capital in the partnership;[15] (2)
Elfledo ran the affairs of the partnership,
wielding absolute control, power and
authority, without any intervention or
opposition whatsoever from any of
petitioners herein;[16] (3) all of the
properties, particularly the nine trucks of
the partnership, were registered in the
name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries
from the partnership, indicating that what
he actually received were shares of the
profits of the business;[17] and (5) none of
the petitioners, as heirs of Jose, the alleged
partner, demanded periodic accounting
from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng
Kee,[18] a demand for periodic accounting is
evidence of a partnership.
Furthermore, petitioners failed to adduce
any evidence to show that the real and
personal properties acquired and registered
in the names of Elfledo and respondent
formed part of the estate of Jose, having
been derived from Jose's alleged
partnership with Jimmy and Norberto. They
failed to refute respondent's claim that
Elfledo and respondent engaged in other
businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a
sideline.[19] Petitioners could not offer any
credible evidence other than their bare
assertions. Thus, we apply the basic rule of
evidence that between documentary and
oral evidence, the former carries more
weight.[20]
Finally, we agree with the judicious findings
of the CA, to wit:
The above testimonies prove that Elfledo
was not just a hired help but one of the
partners in the trucking business, active
and visible in the running of its affairs from
day one until this ceased operations upon
his demise. The extent of his control,
administration and management of the
partnership and its business, the fact that
its properties were placed in his name, and
that he was not paid salary or other
compensation by the partners, are
indicative of the fact that Elfledo was a
partner and a controlling one at that. It is
apparent that the other partners only
contributed in the initial capital but had no
say thereafter on how the business was ran.
Evidently it was through Elfredo's efforts
and hard work that the partnership was
able to acquire more trucks and otherwise
prosper. Even the appellant participated in
the affairs of the partnership by acting as
the bookkeeper sans salary.

It is notable too that Jose Lim died when

the partnership was barely a year old, and
the partnership and its business not only
continued but also flourished. If it were true
that it was Jose Lim and not Elfledo who
was the partner, then upon his death the
partnership should have

been dissolved and its assets liquidated. On

the contrary, these were not done but
instead its operation continued under the
helm of Elfledo and without any
participation from the heirs of Jose Lim.

Whatever properties appellant and her

husband had acquired, this was through
their own concerted efforts and hard work.
Elfledo did not limit himself to the business
of their partnership but engaged in other
lines of businesses as well.

In sum, we find no cogent reason to disturb

the findings and the ruling of the CA as they
are amply supported by the law and by the
evidence on record.

WHEREFORE, the instant Petition is

DENIED. The assailed Court of Appeals
Decision dated June 29, 2005 is
AFFIRMED. Costs against petitioners.

SO ORDERED.
G.R. No. L-24193, June 28, 1968
MAURICIO AGAD, PLAINTIFF-
APPELLANT VS. SEVERINO MABATO &
MABATO & AGAD COMPANY,
DEFENDANTS-APPELLEES.
DECISION
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio
Agad, from an order of dismissal of the
Court of First Instance of Davao, we are
called upon to determine the applicability of
Article 1773 of our Civil Code to the
contract of partnership on which the
complaint herein is based.
Alleging that he and defendant Severino
Mabato are - pursuant to a public
instrument dated August 29, 1952, copy of
which is attached to the complaint as Annex
"A" - partners in a fishpond business, to the
capital of which Agad contributed P1,000,
with the right to receive 50% of the profits;
that from 1952 up to and including 1956,
Mabato who handled the partnership funds,
had yearly rendered accounts of the
operations of the partnership; and that,
despite repeated demands, Mabato had
failed and refused to render accounts for
the years 1957 to 1963, Agad prayed in his
complaint against Mabato and Mabato&
Agad Company, filed on June 9, 1964, that
judgment be rendered sentencing Mabato to
pay him (Agad) the sum of P14,000, as his
share in the profits of the partnership for
the period from 1957 to 1963, in addition to
P1,000 as attorney's fees, and ordering the
dissolution of the partnership, as well as the
winding up of its affairs by a receiver to be
appointed therefor.
In his answer, Mabato admitted the formal
allegations of the complaint and denied the
existence of said partnership, upon the
ground that the contract therefor had not
been perfected, despite the execution of
Annex "A", because Agad had allegedly
failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, there-
fore, that the complaint be dismissed; that
Annex "A" be declared void ab initio; and
that Agad be sentenced to pay actual,
moral and exemplary damages, as well as
attorney's fees.
Subsequently, Mabato filed a motion to
dismiss, upon the ground that the complaint
states no cause of action and that the lower
court had no jurisdiction over the subject
matter of the case, because it involves
principally the determination of rights over
public lands. After due hearing, the court
issued the order appealed from, granting
the motion to dismiss the complaint for
failure to state a cause of action. This
conclusion was predicated upon the theory
that the contract of partnership, Annex "A",
is null and void, pursuant to Art. 1773 of
our Civil Code, because an inventory of the
fishpond referred in said instrument had not
been attached thereto. A reconsideration of
this order having been denied, Agad
brought the matter to us for review by
record on appeal.
Articles 1771 and 1773 of said Code
provide:
"Art. 1771. A partnership may be
constituted in any form, except where
immovable property or real rights are
contributed thereto, in which case a public
instrument shall be necessary.
"Art. 1773. A contract of partnership is
void, whenever immovable property is
contributed thereto, if inventory of said
property is not made, signed by the parties,
and attached to the Public instrument."
The issue before us hinges on whether or
not "immovable property or real rights"
have been contributed to the partnership
under consideration. Mabato alleged and
the lower court held that the answer should
be in the affirmative, because "it is really
inconceivable how a partnership engaged in
the fishpond business could exist without
said fishpond property (being) contributed
to the partnership." It should be noted,
however, that, as stated in Annex "A" the
partnership was established "to operate a
fishpond", not to" engage in a fishpond
business". Moreover, none of the partners
contributed either a fishpond or a real right
to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed,
Paragraph 4 of the Annex "A" provides:
"That the capital of the said partnership is
Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand
(P1,000.00) pesos has been contributed by
Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by
Mauricio Agad.
x x x x x x
x x "
The operation of the fishpond mentioned in
Annex "A" was the purpose of the
partnership. Neither said fishpond nor a
real right thereto was contributed to the
partnership or became part of the capital
thereof, even if a fishpond or a real right
thereto could become part of its assets.
WHEREFORE, we find that said Article
1773 of the Civil Code is not in point and
that, the order appealed from should be, as
it is hereby set aside and the case
remanded to the lower court for further
proceedings, with the costs of this instance
against defendant-appellee, Severino
Mabato.
IT IS SO ORDERED.
THIRD DIVISION
G.R. No. 134559, December 09, 1999
ANTONIA TORRES, ASSISTED BY HER
HUSBAND, ANGELO TORRES; AND
EMETERIA BARING, PETITIONERS, VS.
COURT OF APPEALS AND MANUEL
TORRES, RESPONDENTS.
DECISION
PANGANIBAN, J.:
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]
Second Division 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 plaintiff's
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:
"Article 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:
"x x x [The] Court of Appeals erred in
concluding that the transaction x x x
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, x x x the FIRST
PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, x x
x the SECOND PARTY:
W I T N E S S E T H:
"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 x x x 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 x x x 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. x x x 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 respondent 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 Petition is hereby DENIED

and the challenged Decision AFFIRMED.
Costs against petitioners.

SO ORDERED.
THIRD DIVISION
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, 2004[1] in consolidated
cases C.A. G.R. Sp. No. 76987 and C.A.
G.R. SP. No 78774 and its Resolution dated
December 07, 2004,[2] denying 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 reconsideration[12] 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 dismiss[13]
to its full resolution.
2. On April 24, 2003, he moved for
reconsideration of the Omnibus Order
of April 2, 2003, but his motion was
denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to
the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the
Rules of Court, docketed 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 reconsideration[24] 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 P3,000.00, 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
Decision[26] 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,
2004[27] 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.
Cost against the petitioner.
SO ORDERED.

G.R. No. L-25532, February 28, 1969
COMMISSIONER OF INTERNAL REVENUE,
PETITIONER, VS. WILLIAM J. SUTTER AND
THE COURT OF TAX APPEALS,
RESPONDENTS.
DECISION
REYES, J.B.L., J.:
A limited partnership, named "William J.
Suter 'Morcoin' Co., Ltd.", was formed on
30 September 1947 by herein respondent
William J. Suter, as the general partner,
and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. On 1 October
1947, the limited partnership was
registered with the Securities and Exchange
Commission. The firm engaged, among
other activities, in the importation,
marketing, distribution and opera-tion of
automatic phonographs, radios, television
sets and amusement machines, their parts
and accessories. It had an office and held
itself out as a limited partnership, handling
and carrying merchandise, using invoices,
bills and letterheads bearing its trade-
name, maintaining its own books of
accounts and bank accounts, and had a
quota allocation with the Central Bank.
In 1948, however, general partner Suter
and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited
partner Carlson sold his share in the
partnership to Suter and his wife. The sale
was duly recorded with the Securities and
Exchange Commission on 20 December
1948.
The limited partnership had been filing its
income tax returns as a corporation,
without objection by the herein petitioner,
Commissioner of Inter-nal Revenue, until in
1959 when the latter, in an assessment,
consolidated the income of the firm and the
individual incomes of the partners-spouses
Suter and Spirig, resulting in a
determination of a deficiency income tax
against res-pondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for
1955.
Respondent Suter protested the
assessment, and requested its cancellation
and withdrawal, as not in accordance with
law, but his request was denied. Unable to
secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after
trial, rendered a decision, on 11 November
1965, reversing that of the Commissioner of
Internal Revenue.
The present case is a petition for review,
filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid
decision. It raises these issues:
(a) Whether or not the corporate
personality of the William J. Suter "Morcoin"
Co., Ltd. should be disregarded for income
tax purposes, considering that res-pondent
William J. Suter and his wife, Julia Spirig
Suter, actually formed a single taxable unit;
and
(b) Whether or not the partnership was
dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig
Suter, and the subsequent sale to them by
the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the
partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner
of Internal Revenue, is that the marriage of
Suter and Spirig and their subsequent
acquisition of the interests of remaining
partner Carlson in the partnership dissolved
the limited partnership, and if they did not,
the fiction of juridical' personality of the
partnership should be dis-regarded for
income tax purposes because the spouses
have exclusive ownership and control of the
business; consequently, the income tax
return of respondent Suter for the years in
question should have included his and his
wife's individual incomes and that of the
limited partnership, in accordance with
Section 45 (d) of the National Internal
Revenue Code, which provides as follows:
"(d) Husband and wife. - In the case of
married persons, whether citizens, residents
or non-residents, only one consolidated
return for the taxable year shall be filed by
either spouse to cover the income of both
spouses, - - - - -.”
In refutation of the foregoing, respondent
Suter maintains, as the Court of Tax
appeals held, that his marriage with limited
partner Spirig and their acquisi-tion of
Carlson's interests in the partnership in
1948 is not a ground for dissolu-tion of the
partnership, either in the Code of
Commerce or in the New Civil Code, and
that since its juridical personality had not
been affected and since, as a limited
partnership, as contradistinguished from a
duly registered general part-nership, it is
taxable on its income similarly with
corporations, Suter was not bound to
include in his individual return the income
of the limited partnership.
We find the Commissioner's appeal
unmeritorious.
The thesis that the limited partnership,
William J. Suter "Morcoin" Co., Ltd., has
been dissolved by operation of law because
of the marriage of the only general partner,
William J. Suter, to the originally limited
partner, Julia Spirig, one year after the
partnership was organized is rested by the
appellant upon the opinion of now Senator
Tolentino in Commentaries and
Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that
reads as follows:
"' A husband and a wife may not enter into
a contract of general copartnership,
because under the Civil Code, which applies
in the absence of express provision in the
Code of Commerce, persons prohibited from
making donations to each other are
prohibited from entering into universal
partnerships. (2 Echaverri, 196) It follows
that the marriage of partners necessarily
brings about the dissolution of a pre-
existing partnership. (1 Guy de Montella
58)’"
The petitioner-appellant has evidently failed
to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal
partnership, but a particular one. As
appears from Articles 1674 and 1675 of the
Spanish Civil Code of 1889 (which was the
law in force when the subject firm was
organized in 1947), a universal partnership
requires either that the object of the
association be all the present property of
the partners, as contributed by them to the
common fund, or else "all that the partners
may acquire by their industry or work
during the exis-tence of the partnership".
William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the
contributions of the partners were fixed
sums of money, P20,000.00 by William
Suter and P18,000.00 by Julia Spirig, and
neither one of them was an industrial
partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership
that spouses were forbidden to enter by
Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish
Supreme Court, D. Jose Castan, in his
Derecho Civil, 7th Edition, 1952, Volume. 4,
page 546, footnote 1, says with regard to
the prohibition contained in the aforesaid
Article 1677:
"Los conyuges, segun esto, no pueden
celebrar entre si el contrato de sociedad
universal, Pero 8 podran constituir sociedad
particular? Aunque el punto ha sido muy
debetido, nos inclinamos a la tesis
permisiva de los contratos de sociedad
particular entre esposos, ya que ningun
precepto de nuestro Codigo los prohibe, y
hay que ester a la norma general segun la
que toda persona es capaz pare contratar
mientras no sea declarado incapaz por la
ley. La jurisprudencia de la Direccion de los
Registros fue favorable a esta misma tesis
en su resolucion de 3 de febrero de 1936,
mas parece cambiar de rumbo en la de 9 de
marzo de 1943."
Nor could the subsequent marriage of the
partners operate to dissolve it, such
marriage not being one of the causes
provided for that purpose either by the
Spanish Civil Code or the Code of
Commerce.
The appellant's view, that by the marriage
of both partners the company became a
single proprietorship, is equally erroneous.
The capital contributions of partners William
J. Suter and Julia Spirig were separately
owned and contri-buted by them before
their marriage; and after they were joined
in wedlock, such contributions remained
their respective separate property under the
Spanish Civil Code (Article 1396):
"The following shall be the exclusive
property of each spouse:
(a) That which is brought to the marriage
as his or her own; - - - -- - - -.”
Thus, the individual interest of each consort
in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after
their marriage in 1948.
It being a basic tenet of the Spanish and
Philippine law that the partnership has a
juridical personality of its own, distinct and
separate from that of its partners (unlike
American and English law that does not
recognize such separate juridical
personality), the bypassing of the existence
of the limited partnership as a taxpayer can
only be done by ignoring or disregarding
clear statutory mandates and basic
principles of our law. The limited
partnership's separate individuality makes it
impossible to equate its income with that of
the component members. True, section 24
of the Internal Revenue Code merges
registered general co partnerships
(compañias colectivas) with the personality
of the individual partners for income tax
purposes. But this rule is exceptional in its
disregard of a car-dinal tenet of our
partnership laws, and can not be extended
by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector
of Internal Revenue vs. Uni-versity of the
Visayas, L-13554, Resolution of 30 October
1964, and Koppel (Phil.), Inc., vs. Yatco, 77
Phil. 504) as authority for disregarding the
fiction of legal personality of the
corporations involved therein are not
applicable to the present case. In the cited
cases, the corporations were already
subject to tax when the fiction of their
corporate personality was pierced; in the
present case, to do so would exempt, the
limited partnership from income taxation
but would throw the tax burden upon the
partners-spouses in their individual
capacities. The corporations, in the cases
cited, merely served as business conduits or
alter egos of the stock-holders, a factor that
justified a disregard of their corporate
personalities for tax purposes. This is not
true in the present case. Here, the limited
partnership is not a mere business conduit
of the partner-spouses; it was organized for
legitimate business purposes; it conducted
its own dealings with its customers prior to
appellee's marriage, and had been filing its
own income tax returns as such
in-dependent entity. The change in its
membership, brought about by the
marriage of the partners and their
subsequent acquisition of all interest
therein, is no ground for withdrawing the
partnership from the coverage of Section 24
of the tax code, requiring it to pay income
tax. As far as the records show, the
partners did not enter into matrimony and
thereafter buy the interests of the
remaining partner with the premeditated
scheme or design to use the partnership as
a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under
consideration is taxable on its income, to
require that income to be included in the
individual tax return of respondent Suter is
to overstretch the letter and intent of the
law. In fact, it would even conflict with
what it specifically provides in its Section
24: for the appellant Commissioner's stand
results in equal treatment, taxwise, of a
general copartnership (compañia colectiva)
and a limited partnership, when the code
plainly differentiates the two. Thus, the
code taxes the latter on its income, but not
the former, because it is in the case of
compañias colectivas that the members,
and not the firm, are taxable in their
individual capacities for any dividend or
share of the profit derived from the duly
registered general partnership (Section 26,
N. I. R. C.; Arañas, Anno. & juris. on the
N.I.R.C., As Amended, Vol. 1, pages 88-
89).

But it is argued that the income of the

limited partnership is actually or
cons-tructively the income of the spouses
and forms part of the conjugal partnership
of gains. This is not wholly correct. As
pointed out in Agapito vs. Molo, 50 Phil.
779, and People's Bank vs. Register of
Deeds of Manila, 60 Phil. 167, the fruits of
the wife's parapherna become conjugal only
when no longer needed to defray the
expenses for the administration and
preservation of the paraphernal capital of
the wife. Then again, the appellant's
argument erroneously confines itself to the
question of the legal personality of the
limited partnerships which is not essential
to the income taxability of the partnership
since the law taxes the income of even joint
accounts that have no personality of their
own.[1] Appellant is, likewise, mistaken in
that it assumes that the conjugal
partnership of gains is a taxable unit, which
it is not. What is taxable is the "income of
both spouses" [section 45 (d)] in their
individual capacities. Though the amount of
income (income of the conjugal partnership
vis-a-vis the joint income of husband and
wife) may be the same for a given taxable
year, their consequences would be
different, as their contributions in the
business part-nership are not the same.

The difference in tax rates between the

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

For the foregoing reasons, the decision

under review is hereby affirmed. No costs.