G.R. No. L-66653 June 19, 1986 Profits actually remitted .........................................P6,499,999.

30

COMMISSIONER OF INTERNAL REVENUE, petitioner,  Remittance tax rate .......................................................15%

vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.  Branch profit remittance tax-

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.  due thereon ......................................................P 974,999.89 

PARAS, J.: Branch profit remittance 

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of tax paid .............................................................Pl,147,058.70 
respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs
Limited vs. Commissioner of Internal Revenue" which ordered petitioner Less: Branch profit remittance
Commissioner of Internal Revenue to grant in favor of private respondent
Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously
overpaid branch profit remittance tax.  tax as above computed................................................. 974,999.89 

Burroughs Limited is a foreign corporation authorized to engage in trade or
business in the Philippines through a branch office located at De la Rosa corner
Esteban Streets, Legaspi Village, Makati, Metro Manila.  On February 24, 1981, private respondent filed with respondent court, a petition for
Sometime in March 1979, said branch office applied with the Central Bank for
authority to remit to its parent company abroad, branch profit amounting to
P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance
tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of
P6,499,999.30 computed as follows: 
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70 
Net amount actually remitted.................................. P6,499,999.30  instant petition before this Court with the prayers as herein earlier stated upon the
Claiming that the 15% profit remittance tax should have been computed on the
basis of the amount actually remitted (P6,499,999.30) and not on the amount
before profit remittance tax (P7,647,058.00), private respondent filed on December
24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90
representing alleged overpaid branch profit remittance tax, computed as follows: 
Total amount refundable........................................... P172,058.81 
review, docketed as C.T.A. Case No. 3204 for the recovery of the above-
mentioned amount of P172,058.81. 
On June 27, 1983, respondent court rendered its Decision, the dispositive portion
of which reads— 
ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered
to grant a tax credit in favor of petitioner Burroughs Limited the amount of P
172,058.90. Without pronouncement as to costs. 
SO ORDERED. 
Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the
sole issue of whether the tax base upon which the 15% branch profit remittance
tax shall be imposed under the provisions of section 24(b) of the Tax Code, as
amended, is the amount applied for remittance on the profit actually remitted after
deducting the 15% profit remittance tax. Stated differently is private respondent
Burroughs Limited legally entitled to a refund of the aforementioned amount of
P172,058.90. 

1
We rule in the affirmative. The pertinent provision of the National Revenue Code is
Sec. 24 (b) (2) (ii) which states:  decision-
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted
abroad by a branch to its head office shall be subject to a tax of
fifteen per cent (15 %) ... 
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting
Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision
had been interpreted to mean that "the tax base upon which the 15% branch profit
remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not
on the total branch profits out of which the remittance is to be made. " The said
ruling is hereinbelow quoted as follows: 
In reply to your letter of November 3, 1978, relative to your query
as to the tax base upon which the 15% branch profits remittance
tax provided for under Section 24 (b) (2) of the 1977 Tax Code
shall be imposed, please be advised that the 15% branch profit tax
shall be imposed on the branch profits actually remitted abroad
and not on the total branch profits out of which the remittance is to
be made. 
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private respondent that it
made an overpayment in the amount of P172,058.90 which is the difference
between the remittance tax actually paid of Pl,147,058.70 and the remittance tax
that should have been paid of P974,999,89, computed as follows 
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%  be given retroactive application if the revocation, modification, or
Remittance tax due................................................... P974,999.89  cases (a) where the taxpayer deliberately misstates or omits
2
is well-taken. As correctly held by respondent Court in its assailed
 
Respondent concedes at least that in his ruling dated January 21,
1980 he held that under Section 24 (b) (2) of the Tax Code the
15% branch profit remittance tax shall be imposed on the profit
actually remitted abroad and not on the total branch profit out of
which the remittance is to be made. Based on such ruling
petitioner should have paid only the amount of P974,999.89 in
remittance tax computed by taking the 15% of the profits of
P6,499,999.89 in remittance tax actually remitted to its head office
in the United States, instead of Pl,147,058.70, on its net profits of
P7,647,058.00. Undoubtedly, petitioner has overpaid its branch
profit remittance tax in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or
repealed the BIR ruling of January 21, 1980. The said memorandum circular states
—
Considering that the 15% branch profit remittance tax is imposed
and collected at source, necessarily the tax base should be the
amount actually applied for by the branch with the Central Bank of
the Philippines as profit to be remitted abroad. 
Petitioner's aforesaid contention is without merit. What is applicable in the case at
bar is still the Revenue Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in question on March 14,
1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code
which provides- 
Sec. 327.  Non-retroactivity of rulings. Any revocation,
modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of
the rulings or circulars promulgated by the Commissioner shag not
reversal will be prejudicial to the taxpayer except in the following
material facts from his return or in any document required of him
by the Bureau of Internal Revenue; (b) where the facts
 subsequently gathered by the Bureau of Internal Revenue are merchandise, using invoices, bills and letterheads bearing its trade-name,
materially different from the facts on which the ruling is based, or maintaining its own books of accounts and bank accounts, and had a quota
(c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting allocation with the Central Bank.
Corp. v. CTA, 108 SCRA 151-152) 
In 1948, however, general partner Suter and limited partner Spirig got married and,
The prejudice that would result to private respondent Burroughs Limited by a thereafter, on 18 December 1948, limited partner Carlson sold his share in the
retroactive application of Memorandum Circular No. 8-82 is beyond question for it partnership to Suter and his wife. The sale was duly recorded with the Securities
would be deprived of the substantial amount of P172,058.90. And, insofar as the and Exchange Commission on 20 December 1948.
enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall
under any of them.  The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until
WHEREFORE, the assailed decision of respondent Court of Tax Appeals is in 1959 when the latter, in an assessment, consolidated the income of the firm and
hereby AFFIRMED. No pronouncement as to costs.  the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount
SO ORDERED. 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,
G.R. No. L-25532             February 28, 1969
after trial, rendered a decision, on 11 November 1965, reversing that of the
Commissioner of Internal Revenue.
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
The present case is a petition for review, filed by the Commissioner of Internal
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Revenue, of the tax court's aforesaid decision. It raises these issues:
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co.,
Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for
Ltd. should be disregarded for income tax purposes, considering that respondent
petitioner. 
William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
unit; and
REYES, J.B.L., J.:
(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
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on sale to them by the remaining partner, Gustav Carlson, of his participation of
30 September 1947 by herein respondent William J. Suter as the general partner, P2,000.00 in the partnership for a nominal amount of P1.00.
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
The theory of the petitioner, Commissioner of Internal Revenue, is that the
partnership. On 1 October 1947, the limited partnership was registered with the
marriage of Suter and Spirig and their subsequent acquisition of the interests of
Securities and Exchange Commission. The firm engaged, among other activities,
remaining partner Carlson in the partnership dissolved the limited partnership, and
in the importation, marketing, distribution and operation of automatic phonographs,
if they did not, the fiction of juridical personality of the partnership should be
radios, television sets and amusement machines, their parts and accessories. It
disregarded for income tax purposes because the spouses have exclusive
had an office and held itself out as a limited partnership, handling and carrying
ownership and control of the business; consequently the income tax return of
3
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 acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution 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 contra distinguished from a duly registered general partnership, 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
4
else "all  that the partners may acquire by their industry or work  during the
existence 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 Casan, 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 o podran constituir sociedad particular? Aunque
el punto ha sido muy debatido, 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 estar a la norma general segun la
que toda persona es capaz para 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 resolution 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 contributed 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 cardinal
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. University 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 stockholders, 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 independent
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, tax wise, 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
5
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, pp. 88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal
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 partnership, which is not
essential to the income taxability of the partnership since the law taxes the income
of even joint accounts that have no personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in
their individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a
given taxable year, their consequences would be different, as their contributions in
the business partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands,
does not authorize it, and even bars it by requiring the limited partnership to pay
tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed.
No costs.
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP,
SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G.
GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E.
FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A.
CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF
THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES."
RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR.,
JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and
JOSE F. BUENAVENTURA, petitioners.
R E S O L U T I O N  when permissible by local custom, is not unethical but care should
MELENCIO-HERRERA, J.:ñé+.£ªwph!1
Two separate Petitions were filed before this Court 1) by the surviving partners of
Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners
of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be
allowed to continue using, in the names of their firms, the names of partners who
had passed away. In the Court's Resolution of September 2, 1976, both Petitions
were ordered consolidated.  law directories of the fact of their respective deceased partners' deaths. 5
Petitioners base their petitions on the following arguments:  5. No local custom prohibits the continued use of a deceased partner's name in a
1. Under the law, a partnership is not prohibited from continuing its business under
a firm name which includes the name of a deceased partner; in fact, Article 1840 of
the Civil Code explicitly sanctions the practice when it provides in the last
paragraph that: têñ.£îhqwâ£
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person
or partnership. 1
2. In regulating other professions, such as accountancy and engineering, the
legislature has authorized the adoption of firm names without any restriction as to
the use, in such firm name, of the name of a deceased partner; 2 the legislative
authorization given to those engaged in the practice of accountancy — a
profession requiring the same degree of trust and confidence in respect of clients
as that implicit in the relationship of attorney and client — to acquire and use a
trade name, strongly indicates that there is no fundamental policy that is offended
by the continued use by a firm of professionals of a firm name which includes the
6
name of a deceased partner, at least where such firm name has acquired the
characteristics of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by the continued use of
the name of a deceased partner in the firm name of a law partnership because
Canon 33 of the Canons of Professional Ethics adopted by the American Bar
Association declares that: têñ.£îhqwâ£
... The continued use of the name of a deceased or former partner
be taken that no imposition or deception is practiced through this
use. ... 4
4. There is no possibility of imposition or deception because the deaths of their
respective deceased partners were well-publicized in all newspapers of general
circulation for several days; the stationeries now being used by them carry new
letterheads indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national and international
professional firm's name; 6 there is no custom or usage in the Philippines, or at
least in the Greater Manila Area, which recognizes that the name of a law firm
necessarily Identifies the individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an accepted
practice in the legal profession of most countries in the world.8
The question involved in these Petitions first came under consideration by this
Court in 1953 when a law firm in Cebu (the Deen case) continued its practice of
including in its firm name that of a deceased partner, C.D. Johnston. The matter
was resolved with this Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, who has long been dead." 
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-
11964, entitled Register of Deeds of Manila vs. China Banking Corporation. The
law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before
acting thereon, the Court, in a Resolution of April 15, 1957, stated that it "would
like to be informed why the name of Perkins is still being used although Atty. E. A.
Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of
Perkins and Ponce Enrile, raising substantially the same arguments as those now
being raised by petitioners, prayed that the continued use of the firm name
"Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: têñ.£îhqwâ£
After carefully considering the reasons given by Attorneys Alfonso
Ponce Enrile and Associates for their continued use of the name
of the deceased E. G. Perkins, the Court found no reason to
depart from the policy it adopted in June 1953 when it required
Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist
from including in their firm designation, the name of C. D.
Johnston, deceased. The Court believes that, in view of the
personal and confidential nature of the relations between attorney
and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a
remote degree could give rise to the possibility of deception. Said
attorneys are accordingly advised to drop the name "PERKINS"
from their firm name.  firm, can initially ride on that old firm's reputation established by deceased
Petitioners herein now seek a re-examination of the policy thus far enunciated by
the Court.  B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
The Court finds no sufficient reason to depart from the rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta,
Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their
partnership names of the names of deceased partners will run counter to Article
1815 of the Civil Code which provides: têñ.£îhqwâ£
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners.  Thus, it has been held that a saleable goodwill can exist only in a commercial
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability, of a
partner.  As a general rule, upon the dissolution of a commercial
It is clearly tacit in the above provision that names in a firm name of a partnership
must either be those of living partners and. in the case of non-partners, should be
living persons who can be subjected to liability. In fact, Article 1825 of the Civil
7
Code prohibits a third person from including his name in the firm name under pain
of assuming the liability of a partner. The heirs of a deceased partner in a law firm
cannot be held liable as the old members to the creditors of a firm particularly
where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics
"prohibits an agreement for the payment to the widow and heirs of a deceased
lawyer of a percentage, either gross or net, of the fees received from the future
business of the deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not represent service or
responsibility on the part of the recipient. " Accordingly, neither the widow nor the
heirs can be held liable for transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there ran be no corresponding
liability. 
Prescinding the law, there could be practical objections to allowing the use by law
firms of the names of deceased partners. The public relations value of the use of
an old firm name can tend to create undue advantages and disadvantages in the
practice of the profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who can join an old
partners.
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX
of the Code entitled "Dissolution and Winding Up." The Article primarily deals with
the exemption from liability in cases of a dissolved partnership, of the individual
property of the deceased partner for debts contracted by the person or partnership
which continues the business using the partnership name or the name of the
deceased partner as part thereof. What the law contemplates therein is a hold-over
situation preparatory to formal reorganization. 
Secondly, Article 1840 treats more of a commercial partnership with a good will to
protect rather than of a professional partnership, with no saleable good will but
whose reputation depends on the personal qualifications of its individual members.
partnership and cannot arise in a professional partnership consisting of
lawyers. 9têñ.£îhqwâ£
partnership the succeeding partners or parties have the right to
carry on the business under the old name, in the absence of a
stipulation forbidding it, (s)ince the name of a commercial
 partnership is a partnership asset inseparable from the good will of
the firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)  and in which one may attain the highest eminence without making
On the other hand, têñ.£îhqwâ£
... a professional partnership the reputation of which depends or;
the individual skill of the members, such as partnerships of
attorneys or physicians, has no good win to be distributed as a
firm asset on its dissolution, however intrinsically valuable such
skill and reputation may be, especially where there is no provision
in the partnership agreement relating to good will as an asset. ...
(ibid, s 203, p. 115) (Emphasis supplied)  of advertising and encroachment on their practice, or dealing
C. A partnership for the practice of law cannot be likened to partnerships formed
by other professionals or for business. For one thing, the law on accountancy
specifically allows the use of a trade name in connection with the practice of
accountancy.10 têñ.£îhqwâ£
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. ... It is
not a partnership formed for the purpose of carrying on trade or
business or of holding property." 11 Thus, it has been stated that
"the use of a nom de plume, assumed or trade name in law
practice is improper. 12
The usual reason given for different standards of conduct being
applicable to the practice of law from those pertaining to business
is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of
the Legal Profession, (The Lawyer from Antiquity to Modern
Times, p. 5) defines a profession as "a group of men pursuing a
learned art as a common calling in the spirit of public service, —
no less a public service because it may incidentally be a means of
livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from
business are:  local custom and not where by custom this purports to Identify the
8
1. A duty of public service, of which the emolument is a byproduct,
much money. 
2. A relation as an "officer of court" to the administration of justice
involving thorough sincerity, integrity, and reliability. 
3. A relation to clients in the highest degree fiduciary. 
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods
directly with their clients. 13
"The right to practice law is not a natural or constitutional right but is in the nature
of a privilege or franchise. 14 It is limited to persons of good moral character with
special qualifications duly ascertained and certified. 15 The right does not only
presuppose in its possessor integrity, legal standing and attainment, but also the
exercise of a special privilege, highly personal and partaking of the nature of a
public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American
Bar Association" in support of their petitions. 
It is true that Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner in the firm name of a law partnership when
such a practice is permissible by local custom but the Canon warns that care
should be taken that no imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more
senior members or partners of the law firm. A glimpse at the history of the firms of
petitioners and of other law firms in this country would show how their firm names
have evolved and changed from time to time as the composition of the partnership
changed. têñ.£îhqwâ£
The continued use of a firm name after the death of one or more of
the partners designated by  it is proper only where sustained by
active members. ...
 There would seem to be a question, under the working of the
Canon, as to the propriety of adding the name of a new partner
and at the same time retaining that of a deceased partner who
was never a partner with the new one. (H.S. Drinker, op.
cit., supra, at pp. 207208) (Emphasis supplied).  Not so in this jurisdiction where there is no local custom that sanctions the
The possibility of deception upon the public, real or consequential, where the name
of a deceased partner continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar ring of a distinguished
name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use
of a deceased partner's name in the firm name of law partnerships. But that is so
because it is sanctioned by custom.  not mean that Courts can rely on the same for purposes of adjudication as a
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733)
which petitioners Salazar, et al. quoted in their memorandum, the New York
Supreme Court sustained the use of the firm name Alexander & Green even if
none of the present ten partners of the firm bears either name because the
practice was sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The Court stated
therein: têñ.£îhqwâ£
The practice sought to be proscribed has the sanction of
custom and offends no statutory provision or legislative policy.
Canon 33 of the Canons of Professional Ethics of both the
American Bar Association and the New York State Bar Association
provides in part as follows: "The continued use of the name of a
deceased or former partner, when permissible by local custom is
not unethical, but care should be taken that no imposition or
deception is practiced through this use."  There is no question as
to local custom. Many firms in the city use the names of deceased
members with the approval of other attorneys, bar associations
and the courts. The Appellate Division of the First Department has
considered the matter and reached The conclusion that such
practice should not be prohibited. (Emphasis supplied)  assertion as the highest good, lawyer and grocer and farmer may
xxx xxx xxx
9
Neither the Partnership Law nor the Penal Law prohibits the
practice in question. The use of the firm name herein is also
sustainable by reason of agreement between the partners. 18
practice. Custom has been defined as a rule of conduct formed by repetition of
acts, uniformly observed (practiced) as a social rule, legally binding and
obligatory. 19 Courts take no judicial notice of custom. A custom must be proved as
a fact, according to the rules of evidence. 20 A local custom as a source of right
cannot be considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. 21 We find such proof of the
existence of a local custom, and of the elements requisite to constitute the same,
wanting herein. Merely because something is done as a matter of practice does
juridical custom. Juridical custom must be differentiated from social custom. The
former can supplement statutory law or be applied in the absence of such statute.
Not so with the latter. 
Moreover, judicial decisions applying or interpreting the laws form part of the legal
system. 22 When the Supreme Court in the Deen and Perkins cases issued its
Resolutions directing lawyers to desist from including the names of deceased
partners in their firm designation, it laid down a legal rule against which no custom
or practice to the contrary, even if proven, can prevail. This is not to speak of our
civil law which clearly ordains that a partnership is dissolved by the death of any
partner. 23 Custom which are contrary to law, public order or public policy shall not
be countenanced. 24
The practice of law is intimately and peculiarly related to the administration of
justice and should not be considered like an ordinary "money-making trade." têñ.
£îhqwâ£
... It is of the essence of a profession that it is practiced in a spirit
of public service. A trade ... aims primarily at personal gain; a
profession at the exercise of powers beneficial to mankind. If, as in
the era of wide free opportunity, we think of free competitive self
seem to be freely competing with their fellows in their calling in
order each to acquire as much of the world's good as he may
within the allowed him by law. But the member of a profession
does not regard himself as in competition with his professional
brethren. He is not bartering his services as is the artisan nor
exchanging the products of his skill and learning as the farmer
 sells wheat or corn. There should be no such thing as a lawyers'
or physicians' strike. The best service of the professional man is
often rendered for no equivalent or for a trifling equivalent and it is
his pride to do what he does in a way worthy of his profession
even if done with no expectation of reward, This spirit of public
service in which the profession of law is and ought to be exercised
is a prerequisite of sound administration of justice according to
law. The other two elements of a profession, namely, organization
and pursuit of a learned art have their justification in that they
secure and maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the
public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to
drop the names "SYCIP" and "OZAETA" from their respective firm names. Those
names may, however, be included in the listing of individuals who have been
partners in their firms indicating the years during which they served as such.  appellees a letter stating:
SO ORDERED.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, 
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC
AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
10
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was
duly registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to
change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July
1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on
18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4
December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA;
on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June
1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners.
On February 17, 1988, petitioner-appellant wrote the respondents-
I am withdrawing and retiring from the firm of Bito, Misa
and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the
proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved
soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
"The partnership has ceased to be mutually satisfactory
because of the working conditions of our employees
including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of
 our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that
the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's
share in the partnership assets plus the profits, rent or
interest attributable to the use of his right in the assets of
the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito,
Misa & Lozada in any of their correspondence, checks
and pleadings and to pay petitioners damages for the use
thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in such
amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral
damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and equitable
under the premises."
11
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989
is hereby REVERSED insofar as it concludes that the partnership of Bito,
Misa & Lozada has not been dissolved. The case is hereby REMANDED
to the Hearing Officer for determination of the respective rights and
obligations of the parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as
rejecting the petition for receivership, and reiterating the remand of the case to the
Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP
No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito
and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and
21 December 1991. The death of the two partners, as well as the admission of
new partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was
not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown
to indicate that the partnership assets were in any such danger of being lost,
removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is
a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of
his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can
get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such
a partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
12
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the
surviving partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing paragraph 2
of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to
counsel and advise such persons and entities with respect
to their legal and other affairs; and to appear for and
represent their principals and client in all courts of justice
and government departments and offices in the
Philippines, and elsewhere when legally authorized to do
so."
The "purpose" of the partnership is not the specific undertaking referred to
in the law. Otherwise, all partnerships, which necessarily must have a
purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on
partnership at will as none would so exist. Apparently what the law
contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will. He must, however, act
in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among partners,7 mutual agency arises
and the doctrine of delectus personae allows them to have the  power, although not
necessarily theright, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused
by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business.8 Upon its dissolution, the
partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed
by various provisions of the Civil Code; 10 however, an agreement of the partners,
like any other contract, is binding among them and normally takes precedence to
the extent applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior
Partners for allocation as the Senior Partners may determine; provided,
however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th
floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or retirement shall
be determined by two (2) independent appraisers, one to be appointed (by
the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring or deceased partner
in the aforementioned two (2) floor office condominium shall be determined
upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of
two (2) existing Junior Partners and P5,000.00 in the case of the new
Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a
generic sense to mean the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
13
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa
did not act in bad faith. Public respondents viewed his withdrawal to have been
spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as
the reason for withdrawal of a partner is not contrary to the dictates of justice and
fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on
costs.
SO ORDERED.
G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner, 
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO
and LEOCADIO SANTIAGO, respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.
GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties. 
Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were
then being leased to the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the said lots owned
in common by them. A joint affidavit was executed by them on April 11, 1966 which
was prepared byAtty. Democrito Angeles 1 They agreed to help their brother,
petitioner herein, by allowing him to operate and manage the gasoline service
station of the family. They negotiated with SHELL. For practical purposes and in
order not to run counter to the company's policy of appointing only one dealer, it
was agreed that petitioner would apply for the dealership. Respondent Remedios
helped in managing the bussiness with petitioner from May 3, 1966 up to February
16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance
rental shall be deposited with SHELL to cover advances of fuel to petitioner as
dealer with a proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the
operation of the business to private respondents, but therafter petitioner failed to
render subsequent accounting. Hence through Atty. Angeles, a demand was made
on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to
make a profit of P 87,293.79 and that by the year ending 1969, a profit of P
150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of
First Instance of Rizal against petitioner praying among others that the latter be
ordered:
1. to execute a public document embodying all the provisions of
the partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation
covering the period from May 6, 1966 up to December 21, 1968
and from January 1, 1969 up to the time the order is issued and
that the same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the
net profits of the business in an amount of no less than P
14
l50,000.00 with interest at the rate of 1% per month from date of
demand until full payment thereof for the entire duration of the
business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's
fees and costs of the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to
pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a
motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed presiding judge of the same branch, set
aside the aforesaid derision and rendered another decision in favor of said
respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975
is hereby reconsidered and a new judgment is hereby rendered in
favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument
embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided for in Article
1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the
business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the
plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P
5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as
the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven
(7) errors allegedly committed by the trial court. In due course, a decision was
rendered by the Court of Appeals on November 28,1978 affirming in toto the
decision of the lower court with costs against petitioner. * 
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by
way of this petition for certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-
a-vis the Additional Cash Pledge Agreement (Exhs. "B-2","6", and
"L"); and
2. In declaring that a partnership was established by and among
the petitioner and the private respondents as regards the
ownership and or operation of the gasoline service station
business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in
Transfer Certificates of Title Nos. 45071 and 71244 of the Register
of Deeds of Quezon City, in favor of the LESSEE - SHELL
COMPANY OF THE PHILIPPINES LIMITED a corporation duly
licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE
PHILIPPINE LIMITED advanced rentals in the total amount of
FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency,
so that we can use the said amount to augment our capital
investment in the operation of that gasoline station constructed ,by
the said company on our two lots aforesaid by virtue of an
outstanding Lease Agreement we have entered into with the said
company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE
LIMITED out of its benevolence and desire to help us in aumenting
15
our capital investment in the operation of the said gasoline station,
has agreed to give us the said amount of P 15,000.00, which
amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of
the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00)
from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be applied as monthly
rentals for the sai two lots under our Lease Agreement starting on
the 25th of May, 1966 until such time that the said of P 15,000.00
be applicable, which time to our estimate and one-half months
from May 25, 1966 or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the
SHELL COMPANY OF THE PHILIPPINES LIMITED execute an
instrument for us to sign embodying our conformity that the said
amount that it will generously grant us as requested be applied as
ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as
follows:
WHEREAS, under the lease Agreement dated 13th November,
1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66,
Book Nos. V & III, Series of 1963 in the Notarial Registers of
Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-
OWNERS and another Lease Agreement dated 19th March 1964 .
. . also executed in favour of SHELL by CO-OWNERS Remedios
and MARIA ESTANISLAO for the lease of adjoining portions of
two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the
CO OWNERS RECEIVE a total monthly rental of PESOS THREE
THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P
3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the
Shell Station constructed on the leased land, and as Dealer under
the Cash Pledge Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN THOUSAND (P
 10,000), Philippine Currency, to secure his purchase on credit of
Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an
increased the limit up to P 25,000, has secured the conformity of
his CO-OWNERS to waive and assign to SHELL the total monthly
rentals due to all of them to accumulate the equivalent amount of
P 15,000, commencing 24th May 1966, this P 15,000 shall be
treated as additional cash deposit to SHELL under the same terms
and conditions of the aforementioned Cash Pledge Agreement
dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing
premises,and the mutual covenants among the CO-OWNERS
herein and SHELL, said parties have agreed and hereby agree as
follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the
monthly rentals due to all CO-OWNERS, collectively, under the
above describe two Lease Agreements, one dated 13th November
1963 and the other dated 19th March 1964 to enable DEALER to
increase his existing cash deposit to SHELL, from P 10,000 to P
25,000, for such purpose, the SHELL CO-OWNERS and DEALER
hereby irrevocably assign to SHELL the monthly rental of P
3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly
rentals accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated
as additional cash deposit by DEALER to SHELL, thereby in
increasing his credit limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and supersedes the Joint affidavit
dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to
allow DEALER to purchase from SHELL petroleum products, on
credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same
terms and conditions of the above-mentioned Cash Pledge
16
Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6";
emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P 15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and one-
half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time
that the monthly rentals accumulated equal P 15,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to increase his credit
limit as dealer. As above-stated it provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the
CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this
argument. Said cancelling provision was necessary for the Joint Affidavit speaks of
P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P 15,000.00 hence the need to provide
in the subsequent document that it "cancels and supersedes" the previous one.
True it is that in the latter document, it is silent as to the statement in the Joint
Affidavit that the P 15,000.00 represents the "capital investment" of the parties in
the gasoline station business and it speaks of petitioner as the sole dealer, but this
is as it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by the testimonies of
private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to
private respondents periodic accounting of the business. 4 Petitioner gave a written
authority to private respondent Remedies Estanislao, his sister, to examine and
audit the books of their "common business' aming negosyo). 5 Respondent
Remedios assisted in the running of the business. There is no doubt that the
parties hereto formed a partnership when they bound themselves to contribute
money to a common fund with the intention of dividing the profits among
themselves.6 The sole dealership by the petitioner and the issuance of all
government permits and licenses in the name of petitioner was in compliance with
the afore-stated policy of SHELL and the understanding of the parties of having
only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordancewith the
applicable law.  A decree of insolvency begins to operate on the date it is issued. It is one thing to
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs
against petitioner. This decision is immediately executory and no motion for
extension of time to file a motion for reconsideration shag beentertained.
SO ORDERED.
G.R. No. L-18703             August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee, 
vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and
INTERNATIONAL BANKING CORPORATION,petitioners-appellants.
Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.
Antonio Sanz for appellee.
ROMUALDEZ, J.:
The record of this proceeding having been transmitted to this court by virtue of an
appeal taken herein, a motion was presented by the appellants praying this court
that this case be considered purely a moot question now, for the reason that
subsequent to the decision appealed from, the partnership Campos Rueda & Co.,
voluntarily filed an application for a judicial decree adjudging itself insolvent, which
is just what the herein petitioners and appellants tried to obtain from the lower
court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts
stated by the appellants in their motion aforesaid. The question raised in this case
is not purely moot one; the fact that a man was insolvent on a certain day does not
justify an inference that he was some time prior thereto.
17
Proof that a man was insolvent on a certain day does not justify an
inference that he was on a day some time prior thereto. Many
contingencies, such as unwise investments, losing contracts, misfortune,
or accident, might happen to reduce a person from a state of solvency
within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl.
Rep., 767.)
adjudge Campos Rueda & Co. insolvent in December, 1921, as prayed for in this
case, and another to declare it insolvent in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and
is, indebted to the appellants in various sums amounting to not less than P1,000,
payable in the Philippines, which were not paid more than thirty days prior to the
date of the filing by the petitioners of the application for involuntary insolvency now
before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged,
that the members of the aforesaid firm were insolvent at the time the application
was filed; and that was said partners are personally and solidarily liable for the
consequence of the transactions of the partnership, it cannot be adjudged
insolvent so long as the partners are not alleged and proven to be insolvent. From
this judgment the petitioners appeal to this court, on the ground that this finding of
the lower court is erroneous. 
The fundamental question that presents itself for decision is whether or not a
limited partnership, such as the appellee, which has failed to pay its obligation with
three creditors for more than thirty days, may be held to have committed an act of
insolvency, and thereby be adjudged insolvent against its will. 
Unlike the common law, the Philippine statutes consider a limited partnership as a
juridical entity for all intents and purposes, which personality is recognized in all its
acts and contracts (art. 116, Code of Commerce). This being so and the juridical
personality of a limited partnership being different from that of its members, it must,
on general principle, answer for, and suffer, the consequence of its acts as such
an entity capable of being the subject of rights and obligations. If, as in the instant
case, the limited partnership of Campos Rueda & Co. Failed to pay its obligations
with three creditors for a period of more than thirty days, which failure constitutes,
under our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicated, this partnership must
suffer the consequences of such a failure, and must be adjudged insolvent. We are
not unmindful of the fact that some courts of the United States have held that a
partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary
view. But it must be borne in mind that under the American common law,
partnerships have no juridical personality independent from that of its members;
and if now they have such personality for the purpose of the insolvency law, it is
only by virtue of general law enacted by the Congress of the United States on July
1, 1898, section 5, paragraph (h), of which reads thus:  obligations with the three petitioners herein, and it is ordered that this proceeding
In the event of one or more but not all of the members of a partnership
being adjudged bankrupt, the partnership property shall not be
administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt
shall settle the partnership business as expeditiously as its nature will
permit, and account for the interest of the partner or partners adjudged
bankrupt.
The general consideration that these partnership had no juridical personality and
the limitations prescribed in subsection (h) above set forth gave rise to the conflict
noted in American decisions, as stated in the case of In reSamuels (215 Fed.,
845), which mentions the two apparently conflicting doctrines, citing one from In
re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186 Fed.,
481). 
But there being in our insolvency law no such provision as that contained in
section 5 of said Act of Congress of July 1, 1898, nor any rule similar thereto, and
the juridical personality of limited partnership being recognized by our statutes
from their formation in all their acts and contracts the decision of American courts
on this point can have no application in this jurisdiction, nor we see any reason
why these partnerships cannot be adjudged bankrupt irrespective of the solvency
or insolvency of their members, provided the partnership has, as such, committed
some of the acts of insolvency provided in our law. Under this view it is
unnecessary to discuss the other points raised by the parties, although in the
particular case under consideration it can be added that the liability of the limited
partners for the obligations and losses of the partnership is limited to the amounts
paid or promised to be paid into the common fund except when a limited partner
should have included his name or consented to its inclusion in the firm name (arts.
147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed
for more than thirty days to pay its obligations to the petitioners the Pacific
Commercial Co. the Asiatic Petroleum Co. and the International Banking
18
Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956,
and consequently the petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the
limited partnership Campos Rueda & Co. is and was on December 28, 1921,
insolvent and liable for having failed for more than thirty days to meet its
be remanded to the Court of First Instance of Manila with instruction to said court
to issue the proper decrees under section 24 of Act No. 1956, and proceed
therewith until its final disposition.
It is so ordered without special finding as to costs.
G.R. No. L-8576             February 11, 1915
VARGAS and COMPANY, plaintiff-appellee, 
vs.
CHAN HANG CHIU, ET AL., defendants-appellants. 
Rohde and Wright for appellants. 
Escaler and Salas for appellee. 
MORELAND, J.:
This is an action brought to set aside a judgment of the justice's court of Manila on
the ground that the plaintiff here, the defendant in the action in which the judgment
was secured, was not served with summons and that, therefore, the justice's court
acquired no jurisdiction to render the judgment was that the same is null and void.
Judgment was entered in favor of plaintiff declaring the judgment in controversy
void and setting it aside. This appeal is from that judgment. 
It appears from the record that the plaintiff is a merchantile association duly
organized under the laws of the Philippine Islands and presumably registered as
required by law. On the 19th day of August, 1911, an action was begun by Chan
Hang Chiu against the plaintiff in this case to recover a sum of money. The
summons and complaint were placed in the hands of the sheriff, who certified that
on the 19th day of August, 1911, he served the same on Vargas & Co. by
delivering to and leaving with one Jose Macapinlac personally true copies thereof,
he being the managing agent of said Vargas & Co. at the time of such service. On
July 2. 1912, the justice's court rendered judgment against Vargas & Co. for the
sum of 372.28. Thereafter execution was duly issued and the property of Vargas &
Co. levied on for the payment thereof. Thereupon Vargas & Co. paid the amount of
the judgment and costs under protest, with notice that it would sue to recover the
amount paid. The execution was returned satisfied and there the matter rested
until the present action was brought.  be served with process, then the action should be brought in the individual names
The contention of plaintiff is, and that contention is supported by the decision of the
court below, that Vargas & Co. being a partnership, it is necessary, in bringing an
action against it, to serve the summons on all of the partners, delivering to each
one of them personally a copy thereof; and that the summons in this case having
been served on the managing agent of the company only, the service was of no
effect as against the company and the members thereof and the judgment entered
by virtue of such a service was void.  1. The corporation, associations, and institutions of public interest
Plaintiff also contends, and this contention is likewise supported by the court
below, that, even admitting that service on the managing agent of the plaintiff is
sufficient service, as a matter of fact no service was really made on the managing
agent of the company but, rather, on an employee or salesman of the company,
who had no powers of management or supervision and who was not competent to
receive service on behalf of the company within the provisions of section 396 of
the Code of Civil Procedure.  kinds, as well as contract obligations and institute civil or criminal actions in
We are of the opinion that neither of these contentions can be sustained. As to the
first, we may say that it has been the universal practice in the Philippine Islands
since American occupation, and was the practice prior to that time, to treat
companies of the class to which the plaintiff belongs as legal or juridicial entities
and to permit them to sue and be sued in the name of the company, the summons
being served solely on the managing agent or other official of the company
specified by the section of the Code of Civil Procedure referred to. This very action
is an illustration of the practice in vogue in the Philippine Islands. The plaintiff
brings this action in the company name and not in the name of the members of the
firm. Actions against companies of the class to which plaintiff belongs are brought,
according to the uninterrupted practice, against such companies in their company
names and not against the individual partners constituting the firm. In the States, in
which the individual members of the firm must be separately served with process,
the rule also prevails that they must be parties to the action, either plaintiffs or
defendant, and that the action cannot be brought in the name of or against the
company itself. This follows naturally for the reason that, if it is necessary to serve
the partners individually, they are entitled to be heard individually in the action and
they must, therefore, be made parties thereto so that they can be heard. It would
19
be idle to serve process on individual members of a partnership if the litigation
were to be conducted in the name of the partnership itself and by the duly
constituted officials of the partnership exclusively. 
From what has been said it is apparent that the plaintiff in this action is acting
contrary to its own contention by bringing the action in the name of the company
of the partners and not in the name of the company itself. 
Article 35 of the Civil Code provides: 
The following are judicial persons: 
recognized by law. 
2. The associations of private interest, be they civil, commercial, or
industrial, to which the law grants proper personality, independent of that
of each member thereof.
Article 38 provides: "Judicial persons may acquire and possess property of all
accordance with the laws and rules of their establishment." 
Article 116 of the Code of Commerce provides in part: "After a commercial
association has been established, it shall have legal representation in all its acts
and contracts." 
These provisions have been the foundation of the practice followed without
interruption for many years that association of the class to which plaintiff belongs
have an independent and separate legal entity sufficient to permit them to sue and
be sued in the company name and to be served with process through the chief
officer or managing agent thereof or any other official of the company specified by
law. 
As to the second contention, we may say that the presumption is that a judgment
rendered by a justice's court is a valid and enforceable judgment where the record
discloses that all of the steps necessary to confer jurisdiction on the court have
been taken. In the case before us it affirmatively appears that the service of
process was made on the person the sheriff certified was the managing agent of
the defendant company. The sheriff's certificate serves asprima facie  evidence of
the existence of the facts stated therein. The record, therefore, discloses, so far as
the fact of service is concerned, that it was duly made on the managing agent of
the company as required by section 396, paragraph 1, of the Code of Civil
Procedure. In attacking the judgement on the ground that service was not made on
the managing agent of the company, it is incumbent on the plaintiff to overcome
the presumption arising from the sheriff's certificate before the attack will succeed.
Endeavoring to overcome the presumption referred to, plaintiff offered as a witness
one Tomas O. Segovia, an employee of the plaintiff company. He testified that he
was a bookkeeper and that as such he was well acquainted with the business of
the company and that the person Macapinlac referred to in the sheriff's certificate
as managing agent of the plaintiff company was an agent for the sale of plows, of
which the plaintiff company was a manufacturer; and that he had no other relations
with the company than that stated. During the course of the examination this
question was put to and answer elicited from this witness: 
How do you know that they were not summoned, or that they did not know
of this case brought before the justice of the peace of the city of Manila?  NGO TIAN TEK and NGO HAY, petitioner,
I being the bookkeeper and the general attorney-in-fact to Vargas & Co., in
Iloilo, ought to know whether they have been notified or summoned, but I
only knew about it when the sheriff appeared in our office to make the levy.
This is the only witness who testified in the case. It does not appear when he
became the bookkeeper of the company, or that he was in such a position that he
could know or did know personally the acts of the company and its relations to
Macapinlac. He does not testify of his own knowledge to the essential facts
necessary to controvert the statements contained it the sheriff's certificate of
service. His testimony is rather negative than positive, it being at all times possible,
in spite of his evidence, indeed, in strict accord therewith, that Vargas & Co., of
which the witness was neither official nor manager, could have appointed a
managing agent for the company or could have removed him without the personal
knowledge of the witness. The witness had no personal knowledge of the relation
between the company and Macapinlac. He never saw the contract existing
between them. He did not hear the agreement between them nor did he know of
his own knowledge what the relations between the company and Macapinlac were.
His testimony besides being negative in character has in it many of the elements of
hearsay and is not at all satisfactory. It would have been very easy to present one
of the members of the company, or all of them, who engaged Macapinlac, who
know the relations between him and the company, to testify as to what those
relations were and to deny, if that were the fact, that Macapinlac was such an
agent or official of the company as is within the purview of section 396 above
referred to. The facts stated in the certificate of the sheriff will not be considered as
20
overcome and rebutted except on clear evidence showing the contrary. The
evidence of the bookkeeper, who is the only witness for the company, is not
satisfactory in any sense and is quite insufficient to overcome the presumption
established by the sheriff's certificate. 
In view of these considerations it is not necessary to consider the question
presented by the payment by the plaintiff company of the judgment. 
The judgment appealed from is reversed and the complaint dismissed on the
merits, without costs in this instance. So ordered. 
G.R. No. L-48113             April 7, 1947
 
vs.
PHILIPPINE EDUCATION CO., INC., respondent.
Tansinsin and Yatco for petitioner.
Marcial Esposo for respondent.
PARAS, J.:
The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance
of Manila an action against the defendants, Vicente Tan alias Chan Sy and the
partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14,
unpaid cost of merchandise purchased by Lee Guan Box Factory from the plaintiff
and five other corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with attorney's fees,
interest and costs. /by agreement of the parties, the case was heard before a
referee, Attorney Francisco Dalupan, who in due time submitted his report holding
the defendants jointly and severally liable to the plaintiff for the sum of P16,070.14
plus attorney's fees and interest at the rates specified in the report. On March 6,
1939, the Court of First Instance of Manila rendered judgment was affirmed by the
Court of Appeals in its decision of January 31, 1941, now the subject of our review
at the instance of the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals whose findings
of fact are conclusive, "as far back as the year 1925, the Modern Box Factory was
established at 603 Magdalena Street, Manila. It was at first owned by Ngo Hay,
who three years later was joined by Ngo Tian Tek as a junior partner. The modern
Box Factory dealt in pare and similar merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern Box Factory, Ngo Hay and
Co., Go Hay Box Factory, or Go Hay. Then about the year 1930, the Lee Guan
Box Factory was established a few meters from the Modern Box Factory, under the
management of Vicente Tan. When that concern, through Vicente Tan, sought
credit with the plaintiff and its assignors, Ngo Hay, in conversations and interviews
with their officers and employees, represented that he was the principal owner of
such factory, that the Lee Guan Box Factory and the Modern Box Factory
belonged to the same owner, and that the Lee Guan Box Factory was a subsidiary
of the Modern Box Factory. There is evidence that many goods purchased in the
name of the Lee Guan Box Factory were delivered to the Modern Box Factory by
the employees of the plaintiff and its assignors upon the express direction of
Vicente Tan. There is also evidence that the collectors of the sellers were
requested by Vicente Tan to collect — and did collect — from the Modern Box
Factory the bills against the Lee Guan Box Factory. In the fact the record shows
many checks signed by Ngo Hay or Ngo Tian Tek in payment of accounts of the
Lee Guan Box Factory. Furthermore, — and this seems to be conclusive-Ngo Hay,
testifying for the defense, admitted that 'he' was the owner of the Lee Guan Box
Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the
contract of sale Exhibit 7, to Vicente Tan, who had been his manager of the
business. Tan declared also that before January, 1935, the Lee Guan Box Factory
pertained to Ngo Hay and Ngo Tian Tek. The contract Exhibit 7 was found by the
referee, to be untrue and simulated, for various convincing reasons that need no
repetition here. And the quoted statements serve effectively to confirm the
evidence for the plaintiff that it was Ngo Hay's representations of ownership of, and
responsibility for, Lee Guan Box Factory that induced them to open credit for that
concern. It must be stated that in this connection — to answer appellant's fitting
observation — that the plaintiff and the assignors have considered Ngo Hay, the
Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts
of the partners themselves, and that the proof as to Ngo Hay's statements
regarding the ownership of Lee Guan Box Factory must be taken in that view. Ngo
Hay was wont to say 'he' owned the Modern Box Factory, meaning that he was the
principal owner, his other partner being Ngo Tian Tek. Now, it needs no
demonstration — for appellant does not deny it — that the obligations of the Lee
Guan Box Factory must rest upon its known owner. And that owner in Ngo Tian
Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals erred in holding
that Lee Guan Box Factory was a subsidiary of the Modern Box Factory and in
disregarding the fact that the contracts evidencing the debts in question were
signed by Vicente Tan alias Chan Sy, without any indication that tended to involve
21
the Modern Box Factory or the petitioner. In the first place, we are concluded by
the finding of the Court of Appeals regarding the ownership by the petitioner of Lee
Guan Box Factory. Secondly, the circumstances that Vicente Tan alias Chan Sy
acted in his own name cannot save the petitioner, in view of said ownership, and
because contracts entered into by a factor of a commercial establishment known to
belong to a well known enterprise or association, shall be understood as made for
the account of the owner of such enterprise or association, even when the factor
has not so stated at the time of executing the same, provided that such contracts
involve objects comprised in the line and business of the establishment. (Article
286, Code of Commerce.) The fact that Vicente Tan did not have any recorded
power of attorney executed by the petitioner will not operate to prejudice third
persons, like the respondent Philippine Education Co., Inc., and its assignors. (3
Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions which gave
rise to this suit, Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay
under the contract, Exhibit 7; and the petitioner assails, under the second
assignment of error, the conclusion of the Court of Appeals that said contract is
simulated. This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine Education Co., Inc.,
to sue for the credits assigned by the five entities with which Lee Guan Box
Factory originally contracted, it being argued that the assignment, intended only for
purposes of collection, did not make said respondent the real party in interest. The
petitioner has cited 5 Corpus Juris, section 144, page 958, which points out that
"under statutes authorizing only a bona fide assignee of choses in action to sue
thereon in his own name, an assignee for collection merely is not entitled to sue in
his own name."
The finding of the Court of Appeals that there is nothing "simulated in the
assignment," precludes us from ruling that respondent company is not a bona
fide assignee. Even assuming, however, that said assignment was only for
collection, we are not prepared to say that, under section 114 of the Code of Civil
Procedure, in force at the time this action was instituted, ours is not one of those
jurisdictions following the rule that "when a choose, capable of legal assignment, is
assigned absolutely to one, but the assignment is made for purpose of collection,
the legal title thereto vests in the assignee, and it is no concern of the debtor that
the equitable title is in another, and payment to the assignee discharges the
debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner could
indeed be prejudiced by such assignment, because section 114 of the Code of
Civil Procedure reserves to it "'any set-off or other defense existing at the time of or
before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is personal to the
contracting parties and does not follow assignment," and that the contracts
assigned to the respondent company "are immoral and against public policy and
therefore void," constitute defenses on the merits, but do not affect the efficacy of
the assignment. It is obvious that, apart from the fact that the petitioner can not
invoke fraud of its authorship to evade liability, the appealed decision is founded
on an obligation arising, not from fraud, but from the very contracts under which
merchandise had been purchased by Lee Guan Box Factory.
The fourth and fifth assignments of error relate to the refusal of the Court of
Appeals to hold that the writ of attachment is issued at the commencement of this
action by the Court of First Instance is illegal, and to award in favor of the petitioner
damages for such wrongful attachment. For us to sustain petitioner's contention
will amount to an unauthorized reversal of the following conclusion of fact of the
Court of Appeals: "The stereotyped manner in which defendants obtained goods
on credit from the six companies, Vicente Tan's sudden disappearance, the
execution of the fake sale Exhibit 7 to throw the whole responsibility upon the
absent or otherwise insolvent Tan, defendant's mercurial and unbelievable theories
as to the ownership of the Modern Box Factory and Lee Guan Box Factory —
obviously adopted in a vain effort to meet or explain away the evidentiary force of
plaintiff's documentary evidence — are much too significant to permit a declaration
that the attachment was not justified."
Regarding the suggestion in petitioner's memorandum that this case should be
dismissed because of the death of Ngo Hay, it is sufficient to state that the
petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a
personality distinct from any of the partners.
The appealed decision is affirmed, with costs against the petitioner. So ordered.
G.R. No. L-17295             July 30, 1962
ANG PUE & COMPANY, ET AL., plaintiffs-appellants,  From the decision of the lower court dismissing the action, with costs, the plaintiffs
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
DIZON, J.:
22
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and
Industry to secure judgment "declaring that plaintiffs could extend for five years the
term of the partnership pursuant to the provisions of plaintiffs' Amendment to the
Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for
another five years of the term of the plaintiffs' partnership would be in violation of
the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May
1, 1953, extendible by their mutual consent. The purpose of the partnership was
"to maintain the business of general merchandising, buying and selling at
wholesale and retail, particularly of lumber, hardware and other construction
materials for commerce, either native or foreign." The corresponding articles of
partnership (Exhibit B) were registered in the Office of the Securities & Exchange
Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail
business. It provided, among other things, that, after its enactment, a partnership
not wholly formed by Filipinos could continue to engage in the retail business until
the expiration of its term.
On April 15, 1958 — prior to the expiration of the five-year term of the partnership
Ang Pue & Company, but after the enactment of the Republic Act 1180, the
partners already mentioned amended the original articles of part ownership
(Exhibit B) so as to extend the term of life of the partnership to another five years.
When the amended articles were presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958, registration was refused
upon the ground that the extension was in violation of the aforesaid Act.
interposed this appeal.
The question before us is too clear to require an extended discussion. To organize
a corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which
may be enjoyed only under such terms as the State may deem necessary to
impose. That the State, through Congress, and in the manner provided by law, had
the right to enact Republic Act No. 1180 and to provide therein that only Filipinos
and concerns wholly owned by Filipinos may engage in the retail business can not
be seriously disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law is clearly
showing by its provision giving them the right to continue engaging in their retail
business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners
could extend the term of the partnership, the provisions of Republic Act 1180
cannot be adversely affect appellants herein, is to erroneously assume that the
aforesaid provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The agreement contain
therein must be deemed subject to the law existing at the time when the partners
came to agree regarding the extension. In the present case, as already stated,
when the partners amended the articles of partnership, the provisions of Republic
Act 1180 were already in force, and there can be not the slightest doubt that the
right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law
aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,  relieve them from the tax liability of the unregistered partnership. Hence, the
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents 
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in
1968 toMarenir Development Corporation, while the three parcels of land were
23
sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.
Petitioners realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale made in
1970. The corresponding capital gains taxes were paid by petitioners in 1973 and
1974 by availing of the tax amnesties granted in the said years. 
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren
I. Plana, petitioners were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and
1970. 
Petitioners protested the said assessment in a letter of June 26, 1979 asserting
that they had availed of tax amnesties way back in 1974. 
In a reply of August 22, 1979, respondent Commissioner informed petitioners that
in the years 1968 and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the National Internal Revenue Code 1 that the
unregistered partnership was subject to corporate income tax as distinguished
from profits derived from the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their individual income tax liabilities but did not
petitioners were required to pay the deficiency income tax assessed. 
Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a
majority decision of March 30, 1987, 2 affirmed the decision and action taken by
respondent commissioner with costs against petitioners. 
It ruled that on the basis of the principle enunciated in Evangelista 3 an
unregistered partnership was in fact formed by petitioners which like a corporation
was subject to corporate income tax distinct from that imposed on the partners. 
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-
ownership between the petitioners, there was no adequate basis for the conclusion
that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code. 
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:  on corporations provided for in section 24 of Commonwealth Act
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE
DETERMINATION OF THE RESPONDENT COMMISSIONER,
TO THE EFFECT THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE
INCOME TAX, AND THAT THE BURDEN OF OFFERING
EVIDENCE IN OPPOSITION THERETO RESTS UPON THE
PETITIONERS.  Sec. 24. Rate of the tax on corporations.—There shall be levied,
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF
ISOLATED SALE TRANSACTIONS, THAT AN UNREGISTERED
PARTNERSHIP EXISTED THUS IGNORING THE
REQUIREMENTS LAID DOWN BY LAW THAT WOULD
WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS. 
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE
EVANGELISTA CASE AND THEREFORE SHOULD BE
DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE
THE PETITIONERS FROM PAYMENT OF OTHER TAXES FOR
THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13,
Rollo.)  By the contract of partnership two or more persons bind
The petition is meritorious.  common fund, with the intention of dividing the profits among
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.
They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the payment of income
tax on a corporation, among others, from them. 
In resolving the issue, this Court held as follows: 
24
The issue in this case is whether petitioners are subject to the tax
No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate
dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and
partnership as used in sections 24 and 84 of said Code, the
pertinent parts of which read: 
assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including
duly registered general co-partnerships (companies collectives), a
tax upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participation), associations or insurance
companies, but does not include duly registered general co-
partnerships (companies colectivas). 
Article 1767 of the Civil Code of the Philippines provides: 
themselves to contribute money, property, or industry to a
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.  offer an explanation therefor.
2. They invested the same, not merely in one transaction, but in a
series of transactions. On February 2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days
later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transcations undertaken, as well
as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design
that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by
petitioners in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain. 
3. The aforesaid lots were not devoted to residential purposes or
to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely, Simeon Evangelists, with full
power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business
enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.  Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he
25
6. Petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. They did not even try to
 
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership,  the collective effect of these
circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of
the aforementioned circumstances were present in the cases cited
by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and that
they intended to divide the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be present on the
basis of the fact that petitioners purchased certain parcels of land and became co-
owners thereof. 
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the
purpose of gain was present. 
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not
sell the same nor make any improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only 1968 when they sold the two
(2) parcels of land after which they did not make any additional or new purchase.
The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition
existed for over fifteen (15) years. None of the circumstances are present in the
case at bar. The co-ownership started only in 1965 and ended in 1970. 
said: 
 I wish however to make the following observation Article 1769 of
the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides;  A joint purchase of land, by two, does not constitute a co-
(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;  682,12 Ct. 327, 35 L. Ed., 1157.)
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived;
From the above it appears that the fact that those who agree to
form a co- ownership share or do not share any profits made by
the use of the property held in common does not convert their
venture into a partnership. Or the sharing of the gross returns
does not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in
the property. This only means that, aside from the circumstance of
profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the
others (Padilla, Civil Code of the Philippines Annotated, Vol. I,
1953 ed., pp. 635-636)  purpose of making gains; and they may, without becoming
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.  The sharing of returns does not in itself establish a partnership whether or not the
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
26
proceeds derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.) 
partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the
parties are only tenants in common. (Clark vs. Sideway, 142 U.S.
 
Where plaintiff, his brother, and another agreed to become owners
of a single tract of realty, holding as tenants in common, and to
divide the profits of disposing of it, the brother and the other not
being entitled to share in plaintiffs commission, no partnership
existed as between the three parties, whatever their relation may
have been as to third parties. (Magee vs. Magee 123 N.E. 673,
233 Mass. 341.) 
In order to constitute a partnership inter sese there must be: (a)
An intent to form the same; (b) generally participating in both
profits and losses; (c) and such a community of interest, as far as
third persons are concerned as enables each party to make
contract, manage the business, and dispose of the whole
property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III
470.) 
The common ownership of property does not itself create a
partnership between the owners, though they may use it for the
partners, agree among themselves as to the management, and
use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they thereby
formed an unregistered partnership. The two isolated transactions whereby they
purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their
capital gains taxes on their net profits and availed of the tax amnesty thereby.
Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in
these transactions, they are thereby relieved of any further tax liability arising
therefrom.  surviving spouse was appointed administrator of the estate of said
WHEREFROM, the petition is hereby GRANTED and the decision of the
respondent Court of Tax Appeals of March 30, 1987 is hereby REVERSED and
SET ASIDE and another decision is hereby rendered relieving petitioners of the
corporate income tax liability in this case, without pronouncement as to costs.  surnamed Oña, were still minors when the project of partition was
SO ORDERED
G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B.
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B.
OÑA, JR., petitioners, 
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Felicisimo R. Rosete, and Special Attorney Purificacion Ureta for respondent.
BARREDO, J.:p
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
27
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
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
approved, Lorenzo T. Oña, their father and administrator of the
estate, filed a petition in Civil Case No. 9637 of the Court of First
Instance of Manila for appointment as guardian of said minors. On
November 14, 1949, the Court appointed him guardian of the
persons and property of the aforenamed minors (See p. 3, BIR
rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.)
shows that the heirs have undivided one-half (1/2) interest in ten
parcels of land with a total assessed value of P87,860.00, six
houses with a total assessed value of P17,590.00 and an
undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the
amount of P50,000.00, more or less. This amount was not divided
among them but was used in the rehabilitation of properties owned
by them in common (t.s.n., p. 46). Of the ten parcels of land
aforementioned, two were acquired after the death of the decedent
with money borrowed from the Philippine Trust Company in the
amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally
with Lorenzo T. Oña, the administrator thereof, in the obligation of
 P94,973.00, consisting of loans contracted by the latter with the (See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
From said investments and properties petitioners derived such
Although the project of partition was approved by the Court on incomes as profits from installment sales of subdivided lots, profits
May 16, 1949, no attempt was made to divide the properties from sales of stocks, dividends, rentals and interests (see p. 3 of
therein listed. Instead, the properties remained under the Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
management of Lorenzo T. Oña who used said properties in recorded in the books of account kept by Lorenzo T. Oña where
business by leasing or selling them and investing the income the corresponding shares of the petitioners in the net income for
derived therefrom and the proceeds from the sales thereof in real the year are also known. Every year, petitioners returned for
properties and securities. As a result, petitioners' properties and income tax purposes their shares in the net income derived from
investments gradually increased from P105,450.00 in 1949 to said properties and securities and/or from transactions involving
P480,005.20 in 1956 as can be gleaned from the following year- them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did
end balances: 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
Y Inve La Bui real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-
e stme nd ldin 104).
a nt g 
r On the basis of the foregoing facts, respondent (Commissioner of
Internal Revenue) decided that petitioners formed an unregistered
  Acco Ac Ac partnership and therefore, subject to the corporate income tax,
unt co co pursuant to Section 24, in relation to Section 84(b), of the Tax
un unt  Code. Accordingly, he assessed against the petitioners the
t amounts of P8,092.00 and P13,899.00 as corporate income taxes
for 1955 and 1956, respectively. (See Exhibit 5, amended by
1949 — P87,860.00 P17,590.00 Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against
the assessment and asked for reconsideration of the ruling of
1950 P24,657.65 128,566.72 96,076.26 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
1951 51,301.31 120,349.28 110,605.11
Respondent, June 12, 1961).
1952 67,927.52 87,065.28 152,674.39
The original assessment was as follows:
1953 61,258.27 84,925.68 161,463.83
1955
1954 63,623.37 99,001.20 167,962.04
Net income as per investigation ................ P40,209.89
1955 100,786.00 120,249.78 169,262.52 Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
1956 175,028.68 135,714.68 169,262.52

28
 Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was
eliminated in line with the ruling of the Supreme Court in Collector
v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the income tax
proper for the years 1955 and 1956 and the "Compromise for non-
filing," the latter item obviously referring to the compromise in lieu
of the criminal liability for failure of petitioners to file the corporate
income tax returns for said years. (See Exh. 17, page 86, BIR
records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
THE PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING
THAT THE PETITIONERS WERE CO-OWNERS OF THE
PROPERTIES INHERITED AND (THE) PROFITS DERIVED
FROM TRANSACTIONS THEREFROM (sic);
III.
29
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
PETITIONERS WERE LIABLE FOR CORPORATE INCOME
TAXES FOR 1955 AND 1956 AS AN UNREGISTERED
PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS
CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE
COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT
THE PETITIONERS WERE AN UNREGISTERED PARTNERSHIP
TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS
FROM THE PROPERTIES OWNED IN COMMON AND THE
LOANS RECEIVED USING THE INHERITED PROPERTIES AS
COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN
UNREGISTERED PARTNERSHIP, THE COURT OF TAX
APPEALS ERRED IN NOT DEDUCTING THE VARIOUS
AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL
INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1)
Under the facts found by the Court of Tax Appeals, should petitioners be
considered as co-owners of the properties inherited by them from the deceased
Julia Buñales and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming
they have formed an unregistered partnership, should this not be only in the sense
that they invested as a common fund the profits earned by the properties owned by
them in common and the loans granted to them upon the security of the said
properties, with the result that as far as their respective shares in the inheritance
are concerned, the total income thereof should be considered as that of co-owners
and not of the unregistered partnership? And (3) assuming again that they are
taxable as an unregistered partnership, should not the various amounts already
paid by them for the same years 1955 and 1956 as individual income taxes on
their respective shares of the profits accruing from the properties they owned in
common be deducted from the deficiency corporate taxes, herein involved,
assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court is that
whereas petitioners' predecessor in interest died way back on March 23, 1944 and
the project of partition of her estate was judicially approved as early as May 16,
1949, and presumably petitioners have been holding their respective shares in
their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oña, the
assessment in question refers to the later years 1955 and 1956. We believe this
point to be important because, apparently, at the start, or in the years 1944 to
1954, the respondent Commissioner of Internal Revenue did treat petitioners as
co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is
nothing in the record indicating that an earlier assessment had already been made.
Such being the case, and We see no reason how it could be otherwise, it is easily
understandable why petitioners' position that they are co-owners and not
unregistered co-partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition approved in 1949, "the
properties remained under the management of Lorenzo T. Oña who used said
properties in business by leasing or selling them and investing the income derived
therefrom and the proceed from the sales thereof in real properties and securities,"
as a result of which said properties and investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to
P175,028.68 in "investment account," P135.714.68 in "land account" and
P169,262.52 in "building account" in 1956. And all these became possible
because, admittedly, petitioners never actually received any share of the income or
profits from Lorenzo T. Oña and instead, they allowed him to continue using said
shares as part of the common fund for their ventures, even as they paid the
corresponding income taxes on the basis of their respective shares of the profits of
their common business as reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their contention,
merely limit themselves to holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved, some of the said properties
were sold at considerable profit, and that with said profit, petitioners engaged, thru
30
Lorenzo T. Oña, in the purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the inheritance. In
these circumstances, it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of the inheritance but
even the inherited properties themselves to be used by Lorenzo T. Oña as a
common fund in undertaking several transactions or in business, with the intention
of deriving profit to be shared by them proportionally, such act was tantamonut to
actually contributing such incomes to a common fund and, in effect, they thereby
formed an unregistered partnership within the purview of the above-mentioned
provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs
can be considered as co-owners rather than unregistered co-partners within the
contemplation of our corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof does belong
commonly to all the heirs, obviously, without them becoming thereby unregistered
co-partners, but it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their respective shares in the
partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the
easiest thing for heirs in any inheritance to circumvent and render meaningless
Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the
reasons for holding the appellants therein to be unregistered co-partners for tax
purposes, that their common fund "was not something they found already in
existence" and that "it was not a property inherited by them  pro indiviso," but it is
certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in
all instances where an inheritance is not actually divided, there can be no
unregistered co-partnership. As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by the
court in the corresponding testate or intestate proceeding. The reason for this is
simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them
to manage and dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if
no document or instrument were executed for the purpose, for tax purposes, at
least, an unregistered partnership is formed. This is exactly what happened to
petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil
Code, providing that: "The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived," and, for that matter,
on any other provision of said code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated the concept of partnerships
under the Civil Code from that of unregistered partnerships which are considered
as "corporations" under Sections 24 and 84(b) of the National Internal Revenue
Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point
thus:
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said Code exempts from
the aforementioned tax "duly registered general partnerships,"
which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in confirmity with the
usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that
personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly
31
registered general co-partnerships" — which are possessed of the
aforementioned personality — have been expressly excluded by
law (sections 24 and 84[b]) from the connotation of the term
"corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership.
Under the term "partnership" it includes not only a
partnership as known in common law but, as well,
a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any
business, financial operation, or venture, and
which is not, within the meaning of the Code, a
trust, estate, or a corporation. ... . (7A Merten's
Law of Federal Income Taxation, p. 789;
emphasis ours.)
The term "partnership" includes a syndicate,
group, pool, joint venture or other unincorporated
organization, through or by means of which any
business, financial operation, or venture is carried
on. ... . (8 Merten's Law of Federal Income
Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships — with the exception
only of duly registered general copartnerships — within the
purview of the term "corporation." It is, therefore, clear to our mind
that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for
corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of
Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein
the Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the
purposes of the corporate taxes in question, of their inherited properties from those
acquired by them subsequently, We consider as justified the following ratiocination
of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there
was an unregistered partnership, the holding should be limited to
the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership
should be limited to the income derived from the acquisition and
sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is
admitted that the inherited properties and the income derived
therefrom were used in the business of buying and selling other
real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from
the purchase and sale of other properties 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 alleges:
Even if we were to yield to the decision of this
Honorable Court that the herein petitioners have
formed an unregistered partnership and,
therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual
income tax returns reported their shares of the
profits of the unregistered partnership. We think it
only fair and equitable that the various amounts
paid by the individual petitioners as income tax on
32
their respective shares of the unregistered
partnership should be deducted from the
deficiency income tax found by this Honorable
Court against the unregistered partnership. (page
7, Memorandum for the Petitioner in Support of
Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership
profits. This is not correct; rather, it should be the other way
around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income
tax assessed against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his income tax for the
years in question, but the income tax due from the partnership has
been correctly assessed. Since the individual income tax liabilities
of petitioners are not in issue in this proceeding, it is not proper for
the Court to pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess
they might have paid as individual income tax cannot be credited as part payment
of the taxes herein in question. It is argued that to sanction the view of the Tax
Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income
taxes, they may already be barred by prescription from recovering their
overpayments in a separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that of a taxpayer who
has paid the wrong tax, assuming that the failure to pay the corporate taxes in
question was not deliberate. Of course, such taxpayer has the right to be
reimbursed what he has erroneously paid, but the law is very clear that the claim
and action for such reimbursement are subject to the bar of prescription. And since
the period for the recovery of the excess income taxes in the case of herein
petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely
because the taxpayers failed to make the proper return and payment of the
corporate taxes legally due from 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 affirm with costs against petitioners.
G.R. No. L-45425             April 29, 1939 4. Guillermo
.13
Tapia ...................................................................................................
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, 
vs. 5. Jesus
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. Legaspi ..................................................................................................... .15
.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee. 6. Jose
Silva .......................................................................................................... .07
...
IMPERIAL, J.:
7. Tomasa
The plaintiff brought this action to recover from the defendant Collector of Internal .08
Mercado ................................................................................................
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under
protest by way of income tax. They appealed from the decision rendered in the 8. Julio
case on October 23, 1936 by the Court of First Instance of the City of Manila, Gatchalian ................................................................................................ .13
which dismissed the action with the costs against them. ...

The case was submitted for decision upon the following stipulation of facts: 9. Emiliana
.13 
Santiago ................................................................................................
Come now the parties to the above-mentioned case, through their 10. Maria C.
respective undersigned attorneys, and hereby agree to respectfully submit .16
Legaspi ...............................................................................................
to this Honorable Court the case upon the following statement of facts:
11. Francisco
.13
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and Cabral ...............................................................................................
that defendant is the Collector of Internal Revenue of the Philippines;
12. Gonzalo
.14
2. That prior to December 15, 1934 plaintiffs, in order to enable them to Javier ....................................................................................................
purchase one sweepstakes ticket valued at two pesos (P2), subscribed
13. Maria
and paid therefor the amounts as follows: .17
Santiago ...................................................................................................

1. Jose 14. Buenaventura

.13
Gatchalian ................................................................................................ P0.18 Guzman ......................................................................................
....
15. Mariano
.14
2. Gregoria Santos .................................................................................................
.18
Cristobal ...............................................................................................

3. Saturnina Total ........................................................................................................ 2.00

.08
Silva ....................................................................................................

33
 3. That immediately thereafter but prior to December 15, 1934, plaintiffs
purchased, in the ordinary course of business, from one of the duly
authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket
was registered in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15,
1934, the above-mentioned ticket bearing No. 178637 won one of the third
prizes in the amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was drawn by the National
Charity Sweepstakes Office in favor of Jose Gatchalian & Company
against the Philippine National Bank, which check was cashed during the
latter part of December, 1934 by Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income
tax examiner Alfredo David to file the corresponding income tax return
covering the prize won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by Jose Gatchalian, a
copy of which return is enclosed as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against
Jose Gatchalian & Company requesting the payment of the sum of
P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until January 20, 1935 within which to
pay the said amount of P1,499.94, a copy of which letter marked Exhibit B
is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made
a part hereof, requesting exemption from payment of the income tax to
which reply there were enclosed fifteen (15) separate individual income tax
returns filed separately by each one of the plaintiffs, copies of which
returns are attached and marked Exhibit D-1 to D-15, respectively, in order
of their names listed in the caption of this case and made parts hereof; a
statement of sale signed by Jose Gatchalian showing the amount put up
by each of the plaintiffs to cover up the attached and marked as Exhibit E
and made a part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and marked Exhibit F
and made part thereof;
34
8. That the defendant in his letter dated January 28, 1935, a copy of which
marked Exhibit G is enclosed, denied plaintiffs' request of January 20,
1935, for exemption from the payment of tax and reiterated his demand for
the payment of the sum of P1,499.94 as income tax and gave plaintiffs
until February 10, 1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand made
by defendant upon the plaintiffs through their attorney on March 23, 1935,
a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935
issued a warrant of distraint and levy against the property of the plaintiffs,
a copy of which warrant marked Exhibit I is enclosed and made a part
hereof;
10. That to avoid embarrassment arising from the embargo of the property
of the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria
Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the sum
of P601.51 as part of the tax and penalties to the municipal treasurer of
Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is
attached and marked Exhibit J and made a part hereof, and requested
defendant that plaintiffs be allowed to pay under protest the balance of the
tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was
granted by defendant subject to the condition that plaintiffs file the usual
bond secured by two solvent persons to guarantee prompt payment of
each installments as it becomes due; 
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked
Exhibit K is enclosed and made a part hereof, to guarantee the payment of
the balance of the alleged tax liability by monthly installments at the rate of
P118.70 a month, the first payment under protest to be effected on or
before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the
payment of the sum of P602.51, a copy of which protest is attached and
marked Exhibit L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond filed by
 them, the defendant in his letter dated July 23, 1935, copy of which is 2. Buenaventura Guzman ............................... .13 - Do -
attached and marked Exhibit M, ordered the municipal treasurer of Pulilan,
Bulacan to execute within five days the warrant of distraint and levy issued 3. Maria Santiago ............................................ .17 - Do -
against the plaintiffs on May 13, 1935;
4. Gonzalo Javier .............................................. .14 - Do -
15. That in order to avoid annoyance and embarrassment arising from the
levy of their property, the plaintiffs on August 28, 1936, through Jose 5. Francisco Cabral .......................................... .13 - Do -
Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid
under protest to the municipal treasurer of Pulilan, Bulacan the sum of 6. Maria C. Legaspi .......................................... .16 - Do -
P1,260.93 representing the unpaid balance of the income tax and
7. Emiliana Santiago ......................................... .13 - Do -
penalties demanded by defendant as evidenced by income tax receipt No.
35811 which is attached and marked Exhibit N and made a part hereof; 8. Julio Gatchalian ............................................ .13 - Do -
and that on September 3, 1936, the plaintiffs formally protested to the
defendant against the payment of said amount and requested the refund 9. Jose Silva ...................................................... .07 - Do -
thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest 10. Tomasa Mercado ....................................... .08 - Do -
and denied the refund thereof; copy of which is attached and marked
Exhibit P and made a part hereof; and  11. Jesus Legaspi ............................................. .15 - Do -

16. That plaintiffs demanded upon defendant the refund of the total sum of 12. Guillermo Tapia ........................................... .13 - Do -
one thousand eight hundred and sixty three pesos and forty-four centavos
13. Saturnina Silva ............................................ .08 - Do -
(P1,863.44) paid under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the plaintiffs' demands. 14. Gregoria Cristobal ....................................... .18 - Do -

17. The parties hereto reserve the right to present other and additional 15. Jose Gatchalian ............................................ .18 - Do -
evidence if necessary.

Exhibit E referred to in the stipulation is of the following tenor: 2.00 Total cost of said

To whom it may concern:

ticket; and that, therefore, the persons named above are entitled to the
parts of whatever prize that might be won by said ticket.
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby
certify, that on the 11th day of August, 1934, I sold parts of my shares on
Pulilan, Bulacan, P.I.
ticket No. 178637 to the persons and for the amount indicated below and
the part of may share remaining is also shown to wit:
(Sgd.) JOSE GATCHALIAN

Purchaser Amount Address And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as
follows:
1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.

35
 RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR Legaspi ..................................
1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE ....
COLLECTOR OF INTERNAL REVENUE.
11. Francisco
Exhibit  Purchas Cabral .................................... D-11 .13 3,325 360 2,965
Price  Net  ..
Name e  Expenses
Won prize
No. Price
12. Gonzalo
1. Jose Javier ..................................... D-12 .14 3,325 360 2,965
P4,42 .....
Gatchalian ............................. D-1 P0.18 P 480 3,945
5
.............
13. Maria
2. Gregoria Santiago ................................ D-13 .17 4,350 360 3,990
Cristobal ................................ D-2 .18 4,575 2,000 2,575 ..........
......
14. Buenaventura
D-14 .13 3,325 360 2,965
3. Saturnina Guzman ...........................
Silva ....................................... D-3 .08 1,875 360 1,515
15. Mariano
......
Santos ................................... D-15 .14 3,325 360 2,965
4. Guillermo .....
Tapia ...................................... D-4 .13 3,325 360 2,965
<="" td=""
....
style="font
5. Jesus Legaspi by Maria -size:
D-5 .15 3,825 720 3,105 14px; text-
Cristobal .........
decoration:
6. Jose none;
50,00 color:
Silva ....................................... D-6 .08 1,875 360 1,515 2.00
0 rgb(0, 0,
.............
128); font-
7. Tomasa family:
Mercado ................................. D-7 .07 1,875 360 1,515 arial,
...... verdana;">

8. Julio Gatchalian by Beatriz

D-8 .13 3,150 240 2,910 The legal questions raised in plaintiffs-appellants' five assigned errors may
Guzman .......
properly be reduced to the two following: (1) Whether the plaintiffs formed a
9. Emiliana partnership, or merely a community of property without a personality of its own; in
Santiago ................................ D-9 .13 3,325 360 2,965 the first case it is admitted that the partnership thus formed is liable for the
...... payment of income tax, whereas if there was merely a community of property, they
are exempt from such payment; and (2) whether they should pay the tax
10. Maria C. D-10 .16 4,100 960 3,140

36
collectively or whether the latter should be prorated among them and paid
individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No.
2833, as last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company, partnership, joint
account (cuenta en participacion), association or insurance company,
organized in the Philippine Islands, no matter how created or organized,
but not including duly registered general copartnership (compañias
colectivas), a tax of three per centum upon such income; and a like tax
shall be levied, assessed, collected, and paid annually upon the total net
income received in the preceding calendar year from all sources within the
Philippine Islands by every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association, or insurance company
organized, authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing obligations of
residents, corporate or otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of the income derived
from dividends or net profits on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real,
personal, or mixed, shall be ascertained in accordance with subsections
(c) and (d) of section two of Act Numbered Two thousand eight hundred
and thirty-three, as amended by Act Numbered Twenty-nine hundred and
twenty-six.
The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to
the stipulation facts the plaintiffs organized a partnership of a civil nature because
each of them put up money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in fact in the amount of
37
P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon
the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as
co-partner, as such collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is
the one bound to pay the income tax which the defendant collected under the
aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No.
3761. There is no merit in plaintiff's contention that the tax should be prorated
among them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So ordered.
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner, 
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents. 
Y.G. Villaruz & Associates for petitioner. 
Pelagio R. Lachica for private respondent. 
REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the
respondent Court 2 should have written finis  to this case without further recourse
to Us. The assignment of errors and arguments raised in the respondent Court by
herein private respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its conclusions,
the present petition must fail. 
The assailed decision details the facts and proceedings which spawned the
present controversy as follows: 
 Petitioner brought an action in the City Court of Dipolog for
collection of a sum of P5,217.25 based on promissory notes
executed by the herein private respondent Nobio Sardane in favor
of the herein petitioner. Petitioner bases his right to collect on
Exhibits B, C, D, E, F, and G executed on different dates and
signed by private respondent Nobio Sardane. Exhibit B is a printed
promissory note involving Pl,117.25 and dated May 13, 1972.
Exhibit C is likewise a printed promissory note and denotes on its
face that the sum loaned was Pl,400.00. Exhibit D is also a printed
promissory note dated May 31, 1977 involving an amount of
P100.00. Exhibit E is what is commonly known to the layman as
'vale' which reads: 'Good for: two hundred pesos (Sgd) Nobio
Sardane'. Exhibit F is stated in the following tenor: 'Received from
Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred
(P2,200.00) ONLY, to be paid on or before December 25, 1975.
(Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving
the same amount of one hundred pesos, and dated August 25,
1972 and September 12, 1972 respectively.  del Norte which reversed the decision of the lower court by dismissing the
It has been established in the trial court that on many occasions,
the petitioner demanded the payment of the total amount of
P5,217.25. The failure of the private respondent to pay the said
amount prompted the petitioner to seek the services of lawyer who
made a letter (Exhibit 1) formally demanding the return of the sum
loaned. Because of the failure of the private respondent to heed
the demands extrajudicially made by the petitioner, the latter was
constrained to bring an action for collection of sum of money.  Acojedo are admissible to vary the meaning of the abovementioned promissory
During the scheduled day for trial, private respondent failed to
appear and to file an answer. On motion by the petitioner, the City
Court of Dipolog issued an order dated May 18, 1976 declaring the
private respondent in default and allowed the petitioner to present
his evidence ex-parte. Based on petitioner's evidence, the City
Court of Dipolog rendered judgment by default in favor of the
petitioner.  question", hence "the appellant can avail of the parol evidence rule to prove his
Private respondent filed a motion to lift the order of default which
was granted by the City Court in an order dated May 24, 1976,
taking into consideration that the answer was filed within two hours
after the hearing of the evidence presented ex-parte  by the
petitioner.
38
After the trial on the merits, the City Court of Dipolog rendered its
decision on September 14, 1976, the dispositive portion of which
reads: 
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of the plaintiff and against the defendant as follows: 
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five
centavos (P5,217.25) plus legal interest to commence from April
23, 1976 when this case was filed in court; and 
(b) Ordering the defendant to pay the plaintiff the sum of P200.00
as attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga
complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-
appellant P500.00 each for actual damages, moral damages, exemplary damages
and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the respondent Court. 
The assignment of errors in said petition for review can be capsulized into two
decisive issues, firstly, whether the oral testimony for the therein private
respondent Sardane that a partnership existed between him and therein petitioner
notes; and, secondly, whether because of the failure of therein petitioner to cross-
examine therein private respondent on his sur-rebuttal testimony, there was a
waiver of the presumption accorded in favor of said petitioner by Section 8, Rule 8
of the Rules of Court. 
On the first issue, the then Court of First Instance held that "the pleadings of the
parties herein put in issue the imperfection or ambiguity of the documents in
side of the case, that is, the said amount taken by him from appellee is or was not
his personal debt to appellee, but expenses of the partnership between him and
appellee." 
Consequently, said trial court concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld the
claim that there was ambiguity in the promissory notes, hence parol evidence was contracts with the government for the construction of wharfs and
allowable to vary or contradict the terms of the represented loan contract.  seawall; and a member of the City Council of Dapitan (TSN, July
20, 1976, pp. 57-58).<äre||anº•1àw>  It indeed puzzles us how the
The parol evidence rule in Rule 130 provides:  private respondent could have been misled into signing a
document containing terms which he did not mean them to be. ...
Sec. 7. Evidence of written agreements.—When the terms of an
agreement have been reduced to writing, it is to be considered as xxx xxx xxx
containing all such terms, and, therefore, there can be, between
the parties and their successors in interest, no evidence of the The private respondent admitted during the cross-examination
terms of the agreement other than the contents of the writing made by petitioner's counsel that he was the one who was
except in the following cases:  responsible for the printing of Exhibits B, C, and D (TSN, July 28,
1976, p. 64). How could he purportedly rely on such a flimsy
(a) Where a mistake or imperfection of the writing or its failure to pretext that the promissory notes were receipts of the petitioner's
express the the true intent and agreement of the parties, or the contribution? 4 
validity of the agreement is put in issue by the pleadings; 
The Court of Appeals held, and We agree, that even if evidence aliunde other than
(b) When there is an intrinsic ambiguity in the writing.  the promissory notes may be admitted to alter the meaning conveyed thereby, still
the evidence is insufficient to prove that a partnership existed between the private
parties hereto. 
As correctly pointed out by the respondent Court the exceptions to the rule do not
apply in this case as there is no ambiguity in the writings in question, thus: 
As manager of the basnig Sarcado naturally some degree of control over the
operations and maintenance thereof had to be exercised by herein petitioner. The
In the case at bar, Exhibits B, C, and D are printed promissory
fact that he had received 50% of the net profits does not conclusively establish that
notes containing a promise to pay a sum certain in money,
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code
payable on demand and the promise to bear the costs of litigation
is explicit that while the receipt by a person of a share of the profits of a business
in the event of the private respondent's failure to pay the amount
is prima facie evidence that he is a partner in the business, no such inference shall
loaned when demanded extrajudicially. Likewise, the vales denote
be drawn if such profits were received in payment as wages of an employee.
that the private respondent is obliged to return the sum loaned to
Furthermore, herein petitioner had no voice in the management of the affairs of
him by the petitioner. On their face, nothing appears to be vague
the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
or ambigous, for the terms of the promissory notes clearly show
Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in
that it was incumbent upon the private respondent to pay the
the business of the defendant, declared: 
amount involved in the promissory notes if and when the petitioner
demands the same. It was clearly the intent of the parties to enter
into a contract of loan for how could an educated man like the This contention cannot be sustained. It was a mere contract of
private respondent be deceived to sign a promissory note yet employment. The plaintiff had no voice nor vote in the
intending to make such a writing to be mere receipts of the management of the affairs of the company. The fact that the
petitioner's supposed contribution to the alleged partnership compensation received by him was to be determined with
existing between the parties? reference to the profits made by the defendant in their business
did not in any sense make him a partner therein. ... 
It has been established in the trial court that, the private
respondent has been engaged in business for quite a long period The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which
of time--as owner of the Sardane Trucking Service, entering into involved the same factual and legal milieu. 

39
There are other considerations noted by respondent Court which negate herein His arguments on this score reflect a misapprehension of the rule on parol
petitioner's pretension that he was a partner and not a mere employee indebted to evidence as distinguished from the rule on actionable documents. As the
the present private respondent. Thus, in an action for damages filed by herein respondent Court correctly explained to herein petitioner, what he presented in the
private respondent against the North Zamboanga Timber Co., Inc. arising from the trial Court was testimonial evidence that the promissory notes were receipts of his
operations of the business, herein petitioner did not ask to be joined as a party supposed contributions to the alleged partnership which testimony, in the light of
plaintiff. Also, although he contends that herein private respondent is the treasurer Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning
of the alleged partnership, yet it is the latter who is demanding an accounting. The conveyed by said promissory notes. On the other hand, the presumed
advertence of the Court of First Instance to the fact that the casco bears the name genuineness and due execution of said promissory notes were not affected,
of herein petitioner disregards the finding of the respondent Court that it was just a pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all
concession since it was he who obtained the engine used in the Sardaco from the questioned but, on the contrary, were admitted by herein petitioner.
Department of Local Government and Community Development. Further, the use
by the parties of the pronoun "our" in referring to "our basnig, our catch", "our Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which
deposit", or "our boseros" was merely indicative of the camaraderie and not was reiterated in  Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does
evidentiary of a partnership, between them.  not sustain his thesis that the herein private respondent had "waived the mantle of
protection given him by Rule 8, Sec. 8". It is true that such implied admission of
The foregoing factual findings, which belie the further claim that the aforesaid genuineness and due execution may be waived by a party but only if he acts in a
promissory notes do not express the true intent and agreement of the parties, are manner indicative of either an express or tacit waiver thereof. Petitioner, however,
binding on Us since there is no showing that they fall within the exceptions to the either overlooked or ignored the fact that, as held in Yu Chuck, and the same is
rule limiting the scope of appellate review herein to questions of law.  true in other cases of Identical factual settings, such a finding of waiver is proper
where a case has been tried in complete disregard of the rule and the plaintiff
On the second issue, the pertinent rule on actionable documents in Rule 8, for having pleaded a document by copy, presents oral evidence to prove the due
ready reference, reads:  execution of the document and no objections are made to the defendant's
evidence in refutation. This situation does not obtain in the present case hence
said doctrine is obviously inapplicable. 
Sec. 8. How to contest genuineness of such documents.—When
an action or defense is founded upon a written instrument, copied
in or attached to the corresponding pleading as provided in the Neither did the failure of herein private respondent to cross-examine herein
preceding section, the genuineness and due execution of the petitioner on the latter's sur-rebuttal testimony constitute a waiver of the aforesaid
instrument shall be deemed admitted unless the adverse party, implied admission. As found by the respondent Court, said sur-rebuttal testimony
under oath, specifically denies them, and sets forth what he claims consisted solely of the denial of the testimony of herein private respondent and no
to be the facts; but this provision does not apply when the adverse new or additional matter was introduced in that sur-rebuttal testimony to exonerate
party does not appear to be a party to the instrument or when herein petitioner from his obligations under the aforesaid promissory notes.
compliance with an order for the inspection of the original
instrument is refused.  On the foregoing premises and considerations, the respondent Court correctly
reversed and set aside the appealed decision of the Court of First Instance of
The record shows that herein petitioner did not deny under oath in his answer the Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog
authenticity and due execution of the promissory notes which had been duly City in Civil Case No. A-1838, dated September 14, 1976.
pleaded and attached to the complaint, thereby admitting their genuineness and
due execution. Even in the trial court, he did not at all question the fact that he Belatedly, in his motion for reconsideration of said decision of the respondent
signed said promissory notes and that the same were genuine. Instead, he Court, herein petitioner, as the private respondent therein, raised a third
presented parol evidence to vary the import of the promissory notes by alleging unresolved issue that the petition for review therein should have been dismissed
that they were mere receipts of his contribution to the alleged partnership.  for lack of jurisdiction since the lower Court's decision did not affirm in full the
judgment of the City Court of Dipolog, and which he claimed was a sine qua
40
non for such a petition under the law then in force. He raises the same point in his
present appeal and We will waive the procedural technicalities in order to put this
issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative
relief from the respondent Court praying that it sustain the decision of the trial
Court, thereby invoking and submitting to its jurisdiction which he would now
assail. Furthermore, the objection that he raises is actually not one of jurisdiction
but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the
provisions of Section 29, Republic Act 296 as amended by Republic Act 5433
effective September 9, 1968. Subsequently, the procedure for appeal to the Court
of Appeals from decisions of the then courts of first instance in the exercise of their
appellate jurisdiction over cases originating from the municipal courts was provided
for by Republic Act 6031, amending Section 45 of the Judiciary Act effective
August 4, 1969. The requirement for affirmance in full of the inferior court's
decision was not adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or mode of appeal in the
cases therein contemplated, the Court of Appeals en banc provided thereof in its
Resolution of August 12, 1971, by requiring a petition for review but which also did
not require for its availability that the judgment of the court of first instance had
affirmed in full that of the lower court. Said mode of appeal and the procedural
requirements thereof governed the appeal taken in this case from the aforesaid
Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint
on this issue is, therefore, devoid of merit.  the area covered by Casteel's application.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and
the order of May 21, 1956, all of the Court of First Instance of Davao, in civil case
629. The basic action is for specific performance, and damages resulting from an
alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land
in the then Sitio of Malalag (now the Municipality of Malalag), Municipality of
Padada, Davao. No action was taken thereon by the authorities concerned. During
the Japanese occupation, he filed another fishpond application for the same area,
but because of the conditions then prevailing, it was not acted upon either. On
December 12, 1945 he filed a third fishpond application for the same area, which,
after a survey, was found to contain 178.76 hectares. Upon investigation
conducted by a representative of the Bureau of Forestry, it was discovered that the
area applied for was still needed for firewood production. Hence on May 13, 1946
this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion,
unless he filed a new application for the area concerned. So he filed on May 27,
1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10
with costs against herein petitioner.  hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
SO ORDERED.  purposes by the Bureau of Forestry.

G.R. No. L-21906      December 24, 1968 Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion
of the land applied for by Casteel. Alejandro Cacam's fishpond application 1276,
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,  filed on December 26, 1946, was given due course on December 9, 1947 with the
vs. issuance to him of fishpond permit F-539-C to develop 30 hectares of land
NICANOR CASTEEL and JUAN DEPRA, defendants,  comprising a portion of the area applied for by Casteel, upon certification of the
NICANOR CASTEEL, defendant-appellant.  Bureau of Forestry that the area was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond application for the area
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees. covered by Casteel's application.
Ruiz Law Offices for defendant-appellant.
41
Because of the threat poised upon his position by the above applicants who
entered upon and spread themselves within the area, Casteel realized the urgent
necessity of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the
land. But lacking financial resources at that time, he sought financial aid from his
uncle Felipe Deluao who then extended loans totalling more or less P27,000 with
which to finance the needed improvements on the fishpond. Hence, a wide
productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to
wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-
appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio
Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative
cases that Casteel had already introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director
of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. Failing to secure a
favorable resolution of his motion for reconsideration of the Director's order,
Casteel appealed to the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be
taken up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract —
denominated a "contract of service" — the salient provisions of which are as
follows:
That the Party of the First Part in consideration of the mutual covenants
and agreements made herein to the Party of the Second Part, hereby
enter into a contract of service, whereby the Party of the First Part hires
and employs the Party of the Second Part on the following terms and
conditions, to wit:
42
That the Party of the First Part will finance as she has hereby financed the
sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine
Currency, to the Party of the Second Part who renders only his services for
the construction and improvements of a fishpond at Barrio Malalag,
Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all
the produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she
having financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with all
the above-mentioned conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed
a special power of attorney in favor of Jesus Donesa, extending to the latter the
authority "To represent me in the administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao, Philippines, which has been applied for
fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated
his claim over the same area in the two administrative cases (DANR Cases 353
and 353-B) and asked for reinvestigation of the application of Nicanor Casteel over
the subject fishpond. However, by letter dated March 15, 1950 sent to the
Secretary of Commerce and Agriculture and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao withdrew his petition for
reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources
issued a decision in DANR Case 353, the dispositive portion of which reads as
follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No.
1717) of Nicanor Casteel should be, as hereby it is, reinstated and given
due course for the area indicated in the sketch drawn at the back of the
 last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain
rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and
Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as they are
hereby cancelled and revoked; Nicanor Casteel is required to pay the
improvements introduced thereon by said permittees in accordance with
the terms and dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado),
Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on
April 3, 1951 filed an action in the Court of First Instance of Davao for specific
performance and damages against Nicanor Casteel and Juan Depra (who, they
alleged, instigated Casteel to violate his contract), praying inter alia, (a) that
Casteel be ordered to respect and abide by the terms and conditions of said
contract and that Inocencia Deluao be allowed to continue administering the said
fishpond and collecting the proceeds from the sale of the fishes caught from time
to time; and (b) that the defendants be ordered to pay jointly and severally to
plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency of the
case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts complained
of, and that after trial the said injunction be made permanent. The lower court on
April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive portion of which reads
as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden,
usted, el demandado y todos usu abogados, agentes, mandatarios y
demas personas que obren en su ayuda, desista de impedir a la
demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma continue
43
recibiendo los productos de la venta de los pescados provenientes de
dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor
Casteel a desahuciar mediante fuerza al encargado de los demandantes
llamado Jesus Donesa de la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among
others, that he was the owner, lawful applicant and occupant of the fishpond in
question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by
the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A
reply to the defendants' amended answer was filed by the plaintiffs on January 31,
1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to
him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground
that the plaintiffs' complaint failed to state a claim upon which relief may be
granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied
for lack of merit by the lower court in its order of October 22, 1951. The
defendants' motion for reconsideration filed on October 31, 1951 suffered the
same fate when it was likewise denied by the lower court in its order of November
12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A.
Fernandez) finally issued on March 21, 1956 an order in open court, reading as
follows: .
Upon petition of plaintiffs, without any objection on the part of defendants,
the hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30
o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this
Court will not entertain any other transfer of hearing of this case and if the
parties will not be ready on that day set for hearing, the court will take the
necessary steps for the final determination of this case. (emphasis
supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April
21, 1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of
Court) of the Court of First Instance of Davao, setting the hearing of the case for
May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants,
thru counsel, on April 26, 1956 filed a motion for postponement. Acting on this
motion, the lower court (Branch II, presided by Judge Gomez) issued an order
dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2
and 3, 1956. The motion is filed by the counsel for the defendants and has
the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was
initiated as early as April 1951 and that the same has been under
advisement of the Honorable Enrique A. Fernandez, Presiding Judge of
Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various
occasions. The last order issued by Judge Fernandez on this case was
issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case should
be referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch
I, with Judge Fernandez presiding), when informed about the defendants' motion
for postponement filed on April 26, 1956, issued an order reiterating its previous
order handed down in open court on March 21, 1956 and directing the plaintiffs to
introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes
y en contra del demandado Nicanor Casteel:
44
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad (½) del "fishpond" en cuestion con todas las
mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion
de los 30 dias de la promulgacion de esta decision hasta que entregue la
posesion y administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de
P2,000.00 valor de los pescado beneficiados, mas los intereses legales de
la fecha de la incoacion de la demanda de autos hasta el completo pago
de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de
P2,000.00, por gastos incurridos por aquella durante la pendencia de esta
causa;
(f) Condena al demandado a pagar a la demandante, en concepto de
honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de
pruebas, en tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por
falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the
case for trial. The petition, however, was denied by the lower court in its order of
May 21, 1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether
the trial of this case has been transferred or not, but to inquire from the
 presiding Judge, particularly because his motion asking the transfer of this
case was not set for hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21,
1956, which reads as follows:
Upon petition of the plaintiff without any objection on the part of
the defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance
this Court will not entertain any other transfer of the hearing of this
case, and if the parties will not be ready on the day set for hearing,
the Court will take necessary steps for the final disposition of this
case.
In view of the order above-quoted, the Court will not accede to any transfer
of this case and the duty of Atty. Ruiz is no other than to be present in the
Sala of this Court and to call the attention of the same to the existence of
his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the
defendant, not well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it
ordered reception of the appellees' evidence in the absence of the
appellant at the trial on May 2, 1956, thus depriving the appellant of his
day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it
denied the verified petition for relief from judgment filed by the appellant on
May 11, 1956 in accordance with Rule 38, Rules of Court; and
45
(3) Whether the lower court erred in ordering the issuance ex parte of a
writ of preliminary injunction against defendant-appellant, and in not
dismissing appellees' complaint.
1. The first and second issues must be resolved against the appellant. 
The record indisputably shows that in the order given in open court on March 21,
1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock
in the morning and empathically stated that, since the case had been pending
since April 3, 1951, it would not entertain any further motion for transfer of the
scheduled hearing.
An order given in open court is presumed received by the parties on the very date
and time of promulgation,1 and amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open court, was a valid notice to
the parties, and the notice of hearing dated April 21, 1956 or one month thereafter,
was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing
signed by a "special deputy clerk of court" setting the hearing in another branch of
the same court, the former's order was the one legally binding. This is because the
incidents of postponements and adjournments are controlled by the court and not
by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the
Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court
or to transfer the cage from one sala to another without authority or order from the
court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court.
His duty as such clerk of court, in so far as the incident in question was concerned,
was simply to prepare the trial calendar. And this duty devolved upon the clerk of
court and not upon the "special deputy clerk of court" who purportedly signed the
notice of hearing.
It is of no moment that the motion for postponement had the conformity of the
appellees' counsel. The postponement of hearings does not depend upon
agreement of the parties, but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers,
none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order
dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3,
1956, was sufficient notice to all the appellant's eleven other counsel of record.
This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the
appellant himself, to appear before Judge Fernandez on the scheduled dates of
hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers
cannot pretend ignorance of the recorded fact that since September 24, 1953 until
the trial held on May 2, 1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was, therefore, no necessity to "re-
assign" the same to Branch II because Judge Fernandez had exclusive control of
said case, unless he was legally inhibited to try the case — and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court
— not of the Court — to prepare the trial calendar. But the assignment or
reassignment of cases already pending in one sala to another sala, and the setting
of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the
office of the clerk of court of the Court of First Instance of Davao was located
directly below Branch I. If the appellant and his counsel had exercised due
diligence, there was no impediment to their going upstairs to the second storey of
the Court of First Instance building in Davao on May 2, 1956 and checking if the
case was scheduled for hearing in the said sala. The appellant after all admits that
on May 2, 1956 his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of
trial, is correct. But he was properly accorded this right. He was notified in open
court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to
the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there
had already been a series of postponements. Unlike the case at bar,
the Siochi case was not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 — after almost five years had
elapsed from the filing of the complaint on April 3, 1951.
46
The pretension of the appellant and his 12 counsel of record that they lacked
ample time to prepare for trial is unacceptable because between March 21, 1956
and May 2, 1956, they had one month and ten days to do so. In effect, the
appellant had waived his right to appear at the trial and therefore he cannot be
heard to complain that he has been deprived of his property without due process of
law.7 Verily, the constitutional requirements of due process have been fulfilled in
this case: the lower court is a competent court; it lawfully acquired jurisdiction over
the person of the defendant (appellant) and the subject matter of the action; the
defendant (appellant) was given an opportunity to be heard; and judgment was
rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in ordering
the issuance ex parte  of a writ of preliminary injunction against him, and in not
dismissing the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo  relied on exhibit A — the so-called "contract of service"
— and the appellees' contention that it created a contract of co-ownership and
partnership between Inocencia Deluao and the appellant over the fishpond in
question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to such
rule, that the parties entered into the so-called "contract of service" cognizant of
the mandatory and prohibitory laws governing the filing of applications for fishpond
permits. And since they were aware of the said laws, it must likewise be assumed
— in fairness to the parties — that they did not intend to violate them. This view
must perforce negate the appellees' allegation that exhibit A created a contract of
co-ownership between the parties over the disputed fishpond. Were we to admit
the establishment of a co-ownership violative of the prohibitory laws which will
hereafter be discussed, we shall be compelled to declare altogether the nullity of
the contract. This would certainly not serve the cause of equity and justice,
considering that rights and obligations have already arisen between the parties.
We shall therefore construe the contract as one of partnership, divided into two
parts — namely, a contract of partnership to exploit the fishpond pending its award
to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide
the fishpond between them after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant
entered into the so-called "contract of service" on November 25, 1949, there were
two pending applications over the fishpond. One was Casteel's which was
appealed by him to the Secretary of Agriculture and Natural Resources after it was
disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe
Deluao's application over the same area which was likewise rejected by the
Director of Fisheries on November 29, 1949, refiled by Deluao and later on
withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture
and Natural Resources. Clearly, although the fishpond was then in the possession
of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over
the area. But be that as it may, they were not however precluded from exploiting
the fishpond pending resolution of Casteel's appeal or the approval of Deluao's
application over the same area — whichever event happened first. No law, rule or
regulation prohibited them from doing so. Thus, rather than let the fishpond remain
idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership — Inocencia
Deluao as capitalist partner and Casteel as industrial partner — the ultimate
undertaking of which was to divide into two equal parts such portion of the
fishpond as might have been developed by the amount extended by the plaintiffs-
appellees, with the further provision that Casteel should reimburse the expenses
incurred by the appellees over one-half of the fishpond that would pertain to him.
This can be gleaned, among others, from the letter of Casteel to Felipe Deluao on
November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will
redound to your benefit because you are the ones interested in half of the
work we have done so far, besides I did not insist on our being partners in
my fishpond permit, but it was you "Tatay" Eping the one who wanted that
we be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to
you. Therefore so that each of us may be secured, let us have a document
prepared to the effect that we are partners in the fishpond that we caused
to be made here in Balasinon, but it does not mean that you will treat me
as one of your "Bantay" (caretaker) on wage basis but not earning wages
at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker)
instead, do not blame me if I withdraw all my cases and be left without
even a little and you likewise.  of a partnership, "... any event which makes it unlawful for the business of the
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a "contract of service," was
actually the memorandum of their partnership agreement. That it was not a
contract of the services of the appellant, was admitted by the appellees
47
themselves in their letter10 to Casteel dated December 19, 1949 wherein they
stated that they did not employ him in his (Casteel's) claim but because he used
their money in developing and improving the fishpond, his right must be divided
between them. Of course, although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he was so entitled — this being
one of the conditions he specified for the execution of the document of
partnership.11
Further exchanges of letters between the parties reveal the continuing intent to
divide the fishpond. In a letter,12dated March 24, 1950, the appellant suggested
that they divide the fishpond and the remaining capital, and offered to pay the
Deluaos a yearly installment of P3,000 — presumably as reimbursement for the
expenses of the appellees for the development and improvement of the one-half
that would pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the
latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw
no further need to maintain his petition for the reinvestigation of Casteel's
application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of
Agriculture and Natural Resources, he withdrew his petition on the alleged ground
that he was no longer interested in the area, but stated however that he wanted his
interest to be protected and his capital to be reimbursed by the highest bidder. 
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership. Moreover,
subsequent events likewise reveal the intent of both parties to terminate the
partnership because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution
partnership to be carried on or for the members to carry it on in partnership." The
approval of the appellant's fishpond application by the decisions in DANR Cases
353 and 353-B brought to the fore several provisions of law which made the
continuation of the partnership unlawful and therefore caused its ipso
facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which
states that "The permittee shall not transfer or sublet all or any area herein granted
or any rights acquired therein without the previous consent and approval of this
Office." Parenthetically, we must observe that in DANR Case 353-B, the permit
granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely
for the reason that his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that due to lack of capital, he
allowed one Lino Estepa to develop with the latter's capital the area covered by his
fishpond permit F-289-C with the understanding that he (Aradillos) would be given
a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the violation of
this condition shall avoid the contract; Provided, That assignment,
encumbrance, or subletting for purposes of speculation shall not be
permitted in any case: Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment,
encumbrance, or subletting of lands leased under this Act, or under any
previous Act, to persons, corporations, or associations which under this
Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture
and Natural Resources issued in August 1937, prohibits a transfer or sublease
unless first approved by the Director of Lands and under such terms and
conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. —
If the permittee or lessee had, unless otherwise specifically provided, held
the permit or lease and actually operated and made improvements on the
area for at least one year, he/she may request permission to sub-lease or
transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. — A sub-lease or transfer shall only be
valid when first approved by the Director under such terms and conditions
48
as may be prescribed, otherwise it shall be null and void. A transfer not
previously approved or reported shall be considered sufficient cause for
the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in
subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been awarded
to the latter, and therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was dissolved by the approval
of his application and the award to him of the fishpond. The approval was an event
which made it unlawful for the business of the partnership to be carried on or for
the members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or
confirmed their property right to one-half of the fishpond by virtue of the contract of
service, exhibit A. But the untenability of this argument would readily surface if one
were to consider that the Secretary of Agriculture and Natural Resources did not
do so for the simple reason that he does not possess the authority to violate the
aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto  of their partnership, succeeding events reveal the intent of
both parties to terminate the partnership by refusing to share the fishpond with the
other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing
his desire to divide the fishpond so that he could administer his own share, such
division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950,18 the appellee Felipe Deluao
demurred to Casteel's proposition because there were allegedly no appropriate
grounds to support the same and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself
because the decision of the Government was in his favor and the only reason why
administration had been granted to the Deluaos was because he was indebted to
them. In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that
only the competent agencies of the government are in a better position to render
any equitable arrangement relative to the present case; hence, any action we may
privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other — in direct
violation of the undertaking for which they have established their partnership —
each must be deemed to have expressly withdrawn from the partnership, thereby
causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner at
any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification,
lease, sale or any other form of concession or disposition and management of the
lands of the public domain, and, more specifically, with regard to the grant or
withholding of licenses, permits, leases and contracts over portions of the public
domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al.
(L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture
and Natural Resources, et al.  Consequently, the lower court erred in issuing the preliminary mandatory
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce
(Natural Resources) by law regarding the disposition of public lands such
as granting of licenses, permits, leases, and contracts, or approving,
rejecting, reinstating, or cancelling applications, or deciding conflicting
applications, are all executive and administrative in nature. It is a well-
recognized principle that purely administrative and discretionary functions
may not be interfered with by the courts (Coloso v. Board of Accountancy,
G.R. No. L-5750, April 20, 1953). In general, courts have no supervising
power over the proceedings and action of the administrative departments
of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-
559) Findings of fact by an administrative board or official, following a
hearing, are binding upon the courts and will not be disturbed except
where the board or official has gone beyond his statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without
regard to his duty or with grave abuse of discretion... (emphasis supplied)
49
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's decision
in DANR Cases 353 and 353-B, and considering the absence of any proof that the
said official exceeded his statutory authority, exercised unconstitutional powers, or
acted with arbitrariness and in disregard of his duty, or with grave abuse of
discretion, we can do no less than respect and maintain unfettered his official acts
in the premises. It is a salutary rule that the judicial department should not dictate
to the executive department what to do with regard to the administration and
disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the
land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for its
issuance, its continuation, and, worse, its declaration as permanent, was improper
in the face of the knowledge later acquired by the lower court that it was the
appellant's application over the fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources approved the appellant's
application, he became to all intents and purposes the legal permittee of the area
with the corresponding right to possess, occupy and enjoy the same.
injunction. We cannot overemphasize that an injunction should not be granted to
take property out of the possession and control of one party and place it in the
hands of another whose title has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties
for the exploitation of the fishpond before it was awarded to Casteel, this case
should be remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the court
to determine (a) the profits realized by the partnership, (b) the share (in the profits)
of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist
partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao
to Casteel for the development and improvement of the fishpond have already
been liquidated. Besides, since the appellee Inocencia Deluao continued in
possession and enjoyment of the fishpond even after it was awarded to Casteel,
she did so no longer in the concept of a capitalist partner but merely as creditor of
the appellant, and therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes harvested from the
fishpond from September 16, 1950 until Casteel shall have been finally given the
possession and enjoyment of the same. In the event that the appellee Deluao has
received more than her lawful credit of P27,000 (or whatever amounts have been
advanced to Casteel), plus 6% interest thereon per annum, then she should
reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in litigation, and (3) remanding
this case to the court of origin for the reception of evidence relative to the
accounting that the parties must perforce render in the premises, at the termination
of which the court shall render judgment accordingly. The appellant's counterclaim
is dismissed. No pronouncement as to costs.
G.R. No. 21639           September 25, 1924
ALBERT F. KIEL, plaintiff-appellee,  you." But Sabert's death came before any amicable arrangement could be reached
vs.
ESTATE OF P. S. SABERT, defendant-appellant.
J. F. Yeager for appellant.
J. S. Alano for appellee. 
MALCOLM, J.:
This action relates to the legal right of Albert F. Kiel to secure from the estate of P.
S. Sabert the sum of P20,000, on a claim first presented to the commissioners and
disallowed, then on appeal to the Court of First Instance allowed, and ultimately
the subject-matter of the appeal taken to this court.  said alleged resulting trust was created.
A skeletonized statement of the case and the facts based on the complaint, the
findings of the trial judge, and the record, may be made in the following manner:  in the case.
In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain
public lands situated in the municipality of Parang, Province of Cotabato, known as
Parang Plantation Company. Kiel subsequently took over the interest of Milfeil. In
1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang
Plantation Company. Sabert was to furnish the capital to run the plantation and
Kiel was to manage it. They were to share and share alike in the property. It seems
that this partnership was formed so that the land could be acquired in the name of
Sabert, Kiel being a German citizen and not deemed eligible to acquire public
lands in the Philippines. 
50
By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed
the plantation. During the World War, he was deported from the Philippines. 
On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan
Plantation Company, with a subscribed capital of P40,000. On April 10, 1922, P. S.
Sabert transferred all of his rights in two parcels of land situated in the municipality
of Parang, Province of Cotabato, embraced within his homestead application No.
21045 and his purchase application No. 1048, in consideration of the sum of P1, to
the Nituan Plantation Company. 
In this same period, Kiel appears to have tried to secure a settlement from Sabert.
At least in a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell
all property that I have for P40,000 or take in a partner who is willing to develop the
plantation, to take up the K. & S. debt no matter which way I will straiten out with
and before an action by Kiel against Sabert could be decided. So these
proceedings against the estate of Sabert. 
In this court, the defendant-appellant assigns the following errors: 
The lower court erred — 
(1) In finding this was an action to establish a resulting trust in land. 
(2) In finding a resulting trust in land could have been established in public
lands in favor of plaintiff herein who was an alien subject at the same time
 
(3) In finding a resulting trust in land had been established by the evidence
 
(4) In admitting the testimony of the plaintiff herein. 
(5) In admitting the testimony of William Milfeil, John C. Beyersdorfer,
Frank R. Lasage, Oscar C. Butler and Stephen Jurika with reference to
alleged statements and declarations of the deceased P. S. Sabert. 
(6) In finding any copartnership existed between plaintiff and the deceased
Sabert. 
 (7) In rendering judgment for the plaintiff herein.
Errors 1, 2, and 3, relating to resulting trusts. — These three errors discussing the
same subject may be resolved together. In effect, as will soon appear, we reach
the conclusion that both parties were in error in devoting so much time to the
elaboration of these questions, and that a ruling on the same is not needed. 
It is conceivable, that the facts in this case could have been so presented to the
court by means of allegations in the complaint, as to disclose characteristics of a
resulting trust. But the complaint as framed asks for a straight money judgment
against an estate. In no part of the complaint did plaintiff allege any interest in land,
claim any interest in land, or pretend to establish a resulting trust in land. That the
plaintiff did not care to press such an action is demonstrated by the relation of the
fact of alienage with the rule, that a trust will not be created when, for the purpose
of evading the law prohibiting one from taking or holding real property, he takes a
conveyance thereof in the name of a third person. (26 R. C. L., 1214-1222;
Leggett vs. Dubois [1835], 5 Paige, N. Y., 114; 28 Am. Dec., 413.)  Error 6, relating to the existence of a copartnership between Kiel and Sabert. —
The parties are wrong in assuming that the trial judge found that this was an action
to establish a resulting trust in land. In reality, all that the trial judge did was to
ground one point of his decision on an authority coming from the Supreme Court of
California, which discussed the subject of resulting trusts.  by Kiel and Sabert has been proved, if we eliminate the testimony of Kiel and only
Error 4, relating to the admission of testimony of the plaintiff herein. — Well taken.  not unaware of the rule of partnership that the declarations of one partner, not
The Code of Civil Procedure in section 383, No. 7, names as incompetent
witnesses, parties to an action or proceeding against an executor or administrator
of a deceased person upon a claim or demand against the estate of such
deceased person, who "cannot testify as to any matter of fact occuring before the
death of such deceased person." But the trial judge, misled somewhat by the
decision of the Supreme Court of California in the city of Myers vs.
Reinstein  ([1885], 67 Cal., 89), permitted this testimony to go in, whereas if the
decision had been read more carefully, it would have been noted that "the action
was not on a claim or demand against the estate of Reinstein." Here this is exactly
the situation which confronts us.  Even more primary than any of the rules of partnership above announced, is the
The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours
with the case at bar. It was there held that "A party to an action against an
executor or administrator of a deceased person, upon a claim against the estate of
the latter, is absolutely prohibited by law from giving testimony concerning such
51
claim or demand as to anything that occurred before the death of the person
against whose estate the action is prosecuted." 
Error 5, relating to the testimony of five witnesses with reference to alleged
statements and declarations of the deceased P. S. Sabert. — Not well taken. 
By section 282 of the Code of Civil Procedure, the declaration, act, or omission of
a deceased person having sufficient knowledge of the subject, against his
pecuniary interest, is admissible as evidence to that extent against his successor
in interest. By section 298, No. 4, of the same Code, evidence may be given up a
trial of the following facts: ". . . the act or declaration of a deceased person, done or
made against his interest in respect to his real property."
(See  Leonardo vs.  Santiago [1907], 7 Phil., 401.) The testimony of these
witnesses with reference to the acts or declarations of Sabert was, therefore,
properly received for whatever they might be worth. 
Not well taken. 
No partnership agreement in writing was entered into by Kiel and Sabert. The
question consequently is whether or not the alleged verbal copartnership formed
consider the relevant testimony of other witnesses. In performing this task, we are
made in the presence of his copartner, are not competent to prove the existence of
a partnership between them as against such other partner, and that the existence
of a partnership cannot be established by general reputation, rumor, or hearsay.
(Mechem on Partnership, sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon
Company vs. Bliss [1901], 132 Ala., 253.) 
The testimony of the plaintiff's witnesses, together with the documentary evidence,
leaves the firm impression with us that Kiel and Sabert did enter into a partnership,
and that they were to share equally. Applying the tests as to the existence of
partnership, we feel that competent evidence exists establishing the partnership.
injunction to seek out the intention of the parties, as gathered from the facts and as
ascertained from their language and conduct, and then to give this intention effect.
(Giles vs. Vette [1924], 263 U. S., 553.) 
Error 7, relating to the judgment rendered for the plaintiff. — Well taken in part. 
The judgment handed down, it will be remembered, permitted the plaintiff to No appearance for petitioner and appellee. 
recover from the estate the full amount claimed, presumably on the assumption Jose A. Espiritu and Felipe Ysmael as amici curiae. 
that Sabert having sold by property to the Nituan Plantation Company for P40,000,
Kiel should have one-half of the same, or P20,000. There is, however, extant in the MALCOLM, J.:
record absolutely no evidence as to the precise amount received by Sabert from
the sale of this particular land. If it is true that Sabert sold all his land to the Nituan Following the presentation of an application to be adjudged an insolvent by the
Plantation Company for P40,000, although this fact was not proven, what part of "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial
the P40,000 would correspond to the property which belonged to Kiel and Sabert Company, Piñol & Company, Riu Hermanos, and W. H. Anderson & Company,
under their partnership agreement? It impresses us further that Kiel under the facts filed a motion in which the Court was prayed to enter an order: "(A) Declaring the
had no standing in court to ask for any part of the land and in fact he does not do individual partners as described in paragraph 5 parties to this proceeding; (B) to
so; his only legal right is to ask for what is in effect an accounting with reference to require each of said partners to file an inventory of his property in the manner
its improvements and income as of 1917 when Sabert became the trustee of the required by section 51 of Act No. 1956; and (C) that each of said partners be
estate on behalf of Kiel.  adjudicated insolvent debtors in this proceeding." The trial judge first granted the
motion, but, subsequently, on opposition being renewed, denied it. It is from this
As we have already intimated, we do not think that Kiel is entitled to any share in last order that an appeal was taken in accordance with section 82 of the
the land itself, but we are of the opinion that he has clearly shown his right to one- Insolvency Law. 
half of the value of the improvements and personal property on the land as to the
date upon which he left the plantation. Such improvements and personal property There has been laid before us for consideration and decision a question of some
include buildings, coconut palms, and other plantings, cattle and other animals, importance and of some intricacy. The issue in the case relates to a determination
implements, fences, and other constructions, as well as outstanding collectible of the nature of the mercantile establishment which operated under the name of
credits, if any, belonging to the partnership. The value of these improvements and Teck Seing & co., Ltd., and this issue requires us to look into, and analyze, the
of the personal property cannot be ascertained from the record and the case must document constituting Teck Seing & Co., Ltd. It reads: 
therefore be remanded for further proceedings. 
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and
we find not well taken, errors 5 and 6. 
Sepan todos por la presente:
The judgment appealed from is set aside and the record is returned to the lower
court where the plaintiff, if he so desires, may proceed further to prove his claim Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante,
against the estate of P. S. Sabert. Without costs. So ordered.  vecino y residente del municipio de Tabogon Provincia de Cebu, Islas
Filipinas, Go Tayco, mayor de edad, comerciante, vecino y residente del
municipio de Cebu Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor
G.R. No. 19892           September 6, 1923 de edad, comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y
TECK SEING AND CO., LTD., petitioner-appellee.  residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo
SANTIAGO JO CHUNG, ET AL., partners,  Ybec, mayor de edad, comerciante, vecino y residente del municipio de
vs. Jagna, Provincia de Bohol, Islas Filipinas, hacemos constar por la
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants. presente, que constituimos y formamos una sociedad mercantil limitada,
bajo las leyes vigentes en las Islas Filipinas y para ser registrada de
Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.  acuerdo con los reglamentos vigentes del Codigo de Comercio en
F. V. Arias for appellants Jo Ibec and Go Tayco.  Filipinas.

52
 Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su
domicilio principal en la Calle Magallanes No. 94, de la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda legal de
las Islas Filipinas, dividido en cinco acciones de a P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .  6,000.00
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . .  6,000.00
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . .  6,000.00
Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00
Que la duracion de la sociedad sera la de seis años, a contar de la fecha
de esta escritura, pudiendo prorrogarse este tiempo a discrecion unanime
de todos los accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en
general.
El administrador o administradores de la sociedad podran, previa
conformidad de los accionistas, establecer cuantas sucursales o
establecimientos considere necesarios para facilitar sus negocios y el
mayor desarrollo del comercio a que se dedica la sociedad, verificando
todas las operaciones que crean convenientes para el fomento de su
capital.
Las ganancias o perdidas que resultaren durante cada año comercial, se
distribuiran proporcionalmente entre los accionistas, de acuerdo con el
capital aportado por cada uno de los mismos.
Las ganancias que resultaren en cada año comercial, si resultaren
algunas ganancias, no podran ser retiradas pors los accionistas hasta
53
dentro del termino de tres años a contar de la fecha del primer balance
anual del negocio, quedadno por tanto estas ganancias en reserva, para
ampliar el capital aportado opor los accionistas y ampliar por tanto la
esfera de accion emprendida por la misma sociedad. Al pasar o expirar el
termino de tres años, cada accionista podra retirar o depositar en poder de
la sociedad, las ganancias que le debiera corresponder durante dicho
termino de tres años.
Que los accionistas no podran extraer ni disponer en ningun tiempo
cualesquiera cantidad o cantidades de la sociedad, que haya sido
aportado por los mismos, para atender sus gastos particulares ni aun
pagando redito alguno sobre la cantidad que intenen disponer o extraer de
dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente
Jocson Jo, la administracion de la Compañia, quienes podran usar
indistintamente la firma social, quedando por consiguiente autorizados
amobs para hacer en nombre de ella toda calse de operaciones, negocios
y especulaciones mercantiles, practicando judicial y extra-judicialment
cuantos actos se requieran para el bien de la sociedad, nombrar
procuradores o abogados para reclamaciones y cobro de creditos y
proponer ante los tribunales las demandas, convenios, transacciones y
excepciones procdentes. En caso de ausencia, enfermedad o cualquier
otro impedimento del accionista administrador Sr. Lim Yogsing, este podra
conferir poder general o especial al accionista que crea conveniente para
que en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran
ambos administrar convenientemente los negocios de la sociedad. Que
los administradores podran tener los empleados necesarios para el mejor
que debieran percibir dichos empleados por servicios rendidos a la
sociedad.
Que ambos administradores podran disponer de mil discientos
pesos (P1,200) moneda filipina, anualmente, para sus gastos particulares,
siendo dicha cantidad de P1,200 la que corresponde a cada uno de dichos
administradores, como emolumentos o salarios que se les asigna a cas
uno, por sus trabajos en la administracion de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de añola gratificacion quese
concedera a cada administrador, si los negocios del año fueran boyantes
y justifiquen la concesion de una gratificacion especial, aparte del salario
aqui dispuesto y especificado.
 Que pasado el termino de seis años, y es de la conveniencia de los
accionistas la continuacion del negocio de esta sociedad, dicho termino
sera prorrogado por igual numero de años, sin necesidas del otorgamiento
de ulteriores escrituras, quedando la presente en vigor hasta el termino
dispuesto por todos los accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea
por razon de lo estipulado en esta en ella comprendidos, se procurara
arreglar entre los mismos amistosa y extrajudicialmente, y si no se
consiguiere un arreglo de este modo, dichos accionistas nombraran un
arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando
ulteriores recursos.
En cuyos terminos dejamos formalizada esta escritura de sociedad
mercantillimitada, y prometemos cumplirla fiel y estrictamente segun los
pactos que hemos establecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia
de Cebu, Islas Filipinas, hoy 31 de octubre de mil novecientos diez y
nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
           (Fdos.) "ATILANO LEYSON
           "JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS 
"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31
de octubre de 1919, A.D., ante mi, Notario Publico que subscribe,
comprecieron personalmente Santiago Jo Chung Cang, Go Tayco, Yap
Gueco, Lim Yogsing y Jo Ybec, representado este ultimo por Ho Seng
54
Sian, segun autorizacion hecha en telegrama de fecha 27 de septiembre
de 1919 que se me ha presentado en este mismo acto, de quienes doy fe
de que les conozco por ser las mismas personas que otorgaron el
preinserto documento, ratificando ant emi su contenido y manifestando ser
el mismo un acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo
Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F.
el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien
me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de
1919 bajo el No. G2042490, Yap Gueco tambien me exhibio la suya
expedida en Cebu, Cebu, I.F. el dia 20 de enero de 1919 bajo el No.
F1452296, Lim Yogsing tambien me exhibio la suya expedida en Cebu,
Cebu, I.F., el dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng
Sian representante de Jo Ybec, me exhibio su cedula personal expedida
en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.
Ante mi, 
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º
Presentado a las diez y cuarenta y tres minutos de la mañana de hoy,
segun el asiento No. 125, pagina 9 del Tomo 1.º del Libro Diario. Cebu, 11
de febrero de 1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a
del Tomo 3.º del Libro Registro de Sociedades Mercantiles. Cebu, 11 de
febrero de 1920. Honorarios treinta pesos con cincuenta centavos. Art.
197, Ley No. 2711, Codigo Administrativo.
 each partner contributes in cash, credits, or property, stating the value given the
(Fdo.) "QUIRICO ABETO latter or the basis on which their appraisement is to be made; the duration of the
[SELLO] "Registrador Mercantil Ex-Officio" copartnership; and the amounts which, in a proper case, are to be given to each
managing partner annually for his private expenses, while the succeeding article of
the Code provides that the general copartnership must transact business under the
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd.,
name of all its members, of several of them, or of one only. Turning to the
is not a corporation. Neither is it contended by any one that Teck Seing & Co., Ltd.,
document before us, it will be noted that all of the requirements of the Code have
is accidental partnership denominated cuenta en participacion  (joint account
been met, with the sole exception of that relating to the composition of the firm
association). 
name. We leave consideration of this phase of the case for later discussion. 
Counsel for the petitioner and appellee described his client in once place in his
The remaining possibility is the revised contention of counsel for the petitioners to
opposition to the motion of the creditors as "una verdadera sociedad anonima" (a
the effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto"
true sociedad anonima). The provisions of the Code of Commerce relating
solamente" (only a de facto commercial association), and that the decision of the
to sociedades anonimas were, however, repealed by section 191 of the
Supreme court in the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6
Corporation Law (Act No. 1459), with the exceptions the sociedades
Phil., 498), is controlling. It was this argument which convinced the trial judge, who
anonimas lawfully organized at the time of the passage of the Corporation Law
gave effect to his understanding of the case last cited and which here must be
were recognized, which is not our case. 
given serious attention.
The document providing for the partnership contract purported to form "una
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the
sociedad mercantil limitada,"  and counsel for the petitioner's first contention was
firm Kieng-Chiong-Seng was not organized by means of any public document; that
that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni siquiera
the partnership had not been recorded in the mercantile registry; and that Kieng-
comanditaria, sino una sociedad mercantil limitada."  Let us see if the partnership
Chiong-Seng was not proven to be the firm name, but rather the designation of the
contract created a "sociedad en comandita," or, as it is known in English, and will
partnership. The conclusion then was, that the partnership in question was
hereafter be spoken of, "a limited partnership." 
merely de facto  and that, therefore, giving effect to the provisions of article 120 of
the Code of Commerce, the right of action was against the persons in charge of
To establish a limited partnership there must be, at least, one general partner and the management of the association. 
the name of the least one of the general partners must appear in the firm name.
(Code of Commerce, arts. 122 [2], 146, 148.) But neither of these requirements
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side
have been fulfilled. The general rule is, that those who seek to avail themselves of
by side with the facts before us, a marked difference is at once disclosed. In the
the protection of laws permitting the creation of limited partnerships must show a
cited case, the organization of the partnership was not evidenced by any public
substantially full compliance with such laws. A limited partnership that has not
document; here, it is by a public document. In the cited case, the partnership
complied with the law of its creation is not considered a limited partnership at all,
naturally could not present a public instrument for record in the mercantile registry;
but a general partnership in which all the members are liable. (Mechem, Elements
here, the contract of partnership has been duly registered. But the two cases are
of Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.) 
similar in that the firm name failed to include the name of any of the partners. 
The contention of the creditors and appellants is that the partnership contract
We come then to the ultimate question, which is, whether we should follow the
established a general partnership. 
decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should
differentiate the two cases, holding Teck Seing & Co., Ltd., a general
Article 125 of the Code of Commerce provides that the articles of general copartnership, notwithstanding the failure of the firm name to include the name of
copartnership must estate the names, surnames, and domiciles of the partners; one of the partners. Let us now notice this decisive point in the case. 
the firm name; the names, and surnames of the partners to whom the
management of the firm and the use of its signature is instrusted; the capital which
55
Article 119 of the Code of Commerce requires every commercial association
before beginning its business to state its article, agreements, and conditions in a
public instrument, which shall be presented for record in the mercantile registry.
Article 120, next following, provides that the persons in charge of the management
of the association who violate the provisions of the foregoing article shall be
responsible in solidum to the persons not members of the association with whom
they may have transacted business in the name of the association. Applied to the
facts before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the
provisions of article 119. Moreover, to permit the creditors only to look to the
person in charge of the management of the association, the partner Lim Yogsing,
would not prove very helpful to them.  business under an assumed name. It is not unilateral in its application. It
What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members or of several
of them or of one only, is wisely included in our commercial law. It would appear,
however, that this provision was inserted more for the protection of the creditors
than of the partners themselves. A distinction could well be drawn between the
right of the alleged partnership to institute action when failing to live up to the
provisions of the law, or even the rights of the partners as among themselves, and
the right of a third person to hold responsible a general copartnership which merely
lacks a legal firm name in order to make it a partnership de jure.  violation thereof are void. . . .
The civil law and the common law alike seem to point to a difference between the
rights of the partners who have failed to comply with the law and the rights of third
persons who have dealt with the partnership.  violation of it unlawful and unforceable at the instance of the offending
The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members to register the articles of association in the commercial
registry, agreements containing all the essential requisites are valid as between
the contracting parties, whatever the form adopted, and that, while the failure to
register in the commercial registry necessarily precludes the members from
enforcing rights acquired by them against third persons, such failure cannot
prejudice the rights of third persons. (See decisions of December 6, 1887, January
25, 1888, November 10, 1890, and January 26, 1900.) The same reasoning would
be applicable to the less formal requisite pertaining to the firm name.  purposes. It fails to comply with the requirements of article 119. A creditor
The common law is to the same effect. The State of Michigan had a statute
prohibiting the transaction of business under an assumed name or any other than
the real name of the individual conducting the same, unless such person shall file
with the county clerk a certificate setting forth the name under which the business
is to be conducted and the real name of each of the partners, with their residences
56
and post-office addresses, and making a violation thereof a misdemeanor. The
supreme Court of Michigan said: 
The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their identity by
doing business under an assumed name, making it unlawful to use other
than their real names in transacting business without a public record of
who they are, available for use in courts, and to punish those who violate
the prohibition. The object of this act is not limited to facilitating the
collection of debts, or the protection of those giving credit to persons doing
applies to debtor and creditor, contractor and contractee, alike. Parties
doing business with those acting under an assumed name, whether they
buy or sell, have a right, under the law, to know who they are, and who to
hold responsible, in case the question of damages for failure to perform or
breach of warranty should arise. 
The general rule is well settled that, where statutes enacted to protect the
public against fraud or imposition, or to safeguard the public health or
morals, contain a prohibition and impose a penalty, all contracts in
 
As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
party only, but not as designed to take away the rights of innocent parties
who may have dealt with the offenders in ignorance of their having
violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas.
[1913-C, 697.) 
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations: 
Another case may be supposed. A partnership is organized for commercial
sues the partnership for a debt contracted by it, claiming to hold the
partners severally. They answer that their failure to comply with the Code
of Commerce makes them a civil partnership and that they are in
accordance with article 1698 of the Civil Code only liable jointly. To allow
such liberty of action would be to permit the parties by a violation of the
Code to escape a liability which the law has seen fit to impose upon
 persons who organized commercial partnership; "Because it would be
contrary to all legal principles that the nonperformance of a duty should
redound to the benefit of the person in default either intentional or
unintentional." (Mercantile Law, Eixala, fourth ed., p. 145.)" (See
also Lichauco vs. Lichauco [1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following
comment after articles 121 and 126 of the Code:  liberty in its selection, not only by prescribing the requisites, but also by
From the decisions cited in this and in the previous comments, the
following is deduced: 1st. Defects in the organization cannot affect
relations with third persons. 2d. Members who contract with other persons
before the association is lawfully organized are liable to these persons. 3d.
The intention to form an association is necessary, so that if the intention of
mutual participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no association.
4th. An association, the articles of which have not been registered, is valid
in favor of third persons. 5th. The private pact or agreement to form a
commercial association is governed not by the commercial law but by the
civil law. 6th. Secret stipulations expressed in a public instrument, but not
inserted in the articles of association, do not affect third persons, but are
binding on the parties themselves. 7th. An agreement made in a public
instrument, other than the articles of association, by means of which one of
the partners guarantees to another certain profits or secures him from
losses, is valid between them, without affecting the association.
8th. Contracts entered into by commercial associations defectively
organized are valid when they are voluntarily executed by the parties, if
the only controversy relates to whether or not they complied with the
agreement.  other requisites are present and the requisite regarding registration of the
xxx           xxx           xxx
The name of the collective merchant is called firm name. By this name, the
new being is distinguished from others, its sphere of action fixed, and the
juridical personality better determined, without constituting an exclusive
character of the general partnership to such an extent as to serve the
purpose of giving a definition of said kind of a mercantile partnership, as is
the case in our Code.  intended to use it, the acts and contracts done and entered into under
Having in mind that these partnerships are prevailingly of a personal
character, article 126 says that they must transact business under the
57
name of all its members, of some of them, or of one only, the words "and
company" to be added in the latter two cases. 
It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link,
the solidary and unlimited responsibility of the members of this partnership
with the formation of its name, and imposes a limitation upon personal
prohibiting persons not members of the company from including their
names in its firm name under penalty of civil solidary responsibility. 
Of course, the form required by the Code for the adoption of the firm name
does not prevent the addition thereto of any other title connected with the
commercial purpose of the association. The reader may see our
commentaries on the mercantile registry about the business names and
firm names of associations, but it is proper to establish here that, while the
business name may be alienated by any of the means admitted by the law,
it seems impossible to separate the firm names of general partnerships
from the juridical entity for the creation of which it was formed. (Vol. 2, pp.
197, 213.) 
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd."
does not contain the name of all or any of the partners as prescribed by the Code
of Commerce prevents the creation of a general partnership, Professor Jose A.
Espiritu, as amicus curiæ, states: 
My opinion is that such a fact alone cannot and will not be a sufficient
cause of preventing the formation of a general partnership, especially if the
articles of association in the Commercial Registry has been complied with,
as in the present case. I do not believe that the adoption of a wrong name
is a material fact to be taken into consideration in this case; first, because
the mere fact that a person uses a name not his own does not prevent him
from being bound in a contract or an obligation he voluntarily entered into;
second, because such a requirement of the law is merely a formal and not
necessarily an essential one to the existence of the partnership, and as
long as the name adopted sufficiently identity the firm or partnership
such a name bind the firm to third persons; and third, because the failure
of the partners herein to adopt the correct name prescribed by law cannot
shield them from their personal liabilities, as neither law nor equity will
permit them to utilize their own mistake in order to put the blame on third
 persons, and much less, on the firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of the parties controls in determining
the existence of a partnership. If they intend to do a thing which in law constitutes
a partnership, they are partners, although their purpose was to avoid the creation
of such relation. Here, the intention of the persons making up Teck Seing & co.,
Ltd. was to establish a partnership which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges resorted to in order to evade
liability for possible losses, while assuming their enjoyment of the advantages to
be derived from the relation, must be disregarded. The partners who have
disguised their identity under a designation distinct from that of any of the
members of the firm should be penalized, and not the creditors who presumably
have dealt with the partnership in good faith. 
Articles 127 and 237 of the Code of Commerce make all the members of the
general copartnership liable personally and in solidum with all their property for the
results of the transactions made in the name and for the account of the
partnership. Section 51 of the Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of each of the partners liable. In
other words, if a firm be insolvent, but one or more partners thereof are solvent,
the creditors may proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the property of the
partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and
Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs.
Pacific Commercial Co. [1922], 44 Phil., 916).  receiver to be appointed therefor.
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a
partnership as this word is used in the Insolvency Law.  not been perfected, despite the execution of Annex "A", because Agad had
Wherefore, the order appealed from is reversed, and the record shall be returned
to the court of origin for further proceedings pursuant to the motion presented by
the creditors, in conformity with the provisions of the Insolvency Law. Without
special findings as to the costs in this instance, it is ordered.
G.R. No. L-24193           June 28, 1968
MAURICIO AGAD, plaintiff-appellant,  determination of rights over public lands. After due hearing, the court issued the
vs.
58
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-
appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
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
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
allegedly failed to give his P1,000 contribution to the partnership capital. Mabato
prayed, therefore, that the complaint be dismissed; that Annex "A" be declared
void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
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
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 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.
xxx     xxx     xxx
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
59
remanded to the lower court for further proceedings, with the costs of this instance
against defendant-appellee, Severino Mabato. It is so ordered.
G.R. No. L-4935             May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER,
GREGORIA ARANETA, INC., plaintiff-appellee, 
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon
City Branch, to recover possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described
the land as a portion of a lot registered in plaintiff's name under Transfer Certificate
of Title No. 37686 of the land record of Rizal Province and as containing an area of
13 hectares more or less. But the complaint was amended by reducing the area of
6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors
the portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as shown in his
Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute)
under claim of ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer further alleges that
registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest either personal
or thru publication to defendant and/or predecessors in interest." The answer
therefore prays that the complaint be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the
case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and
lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the
plaintiff the amount of P132.62 monthly from January, 1940, until he
vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be brought in the name
of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the
60
practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case,
since the complaint is signed by the law firm of Araneta and Araneta, "counsel for
plaintiff" and commences with the statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is
illegal for two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that
venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.)
There is nothing in the record to indicate that the venture in which plaintiff is
represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with
the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by
the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at my time, even of the trial of these issues. If evidence
is objected to at the trial on the ground that it is not within the issues made
by the pleadings, the court may allow the pleadings to be amended and
shall be so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action
or defense upon the merits. The court may grant a continuance to enable
the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of
rendering judgment on issues proved though not alleged. Thus, commenting on
the provision, Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief
 other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery
is based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually
amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without
merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in
Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños,"
defendant later changed his lawyer and also his theory and tried to prove that the
land in dispute was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff is the
registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an
area of 5,297,429.3 square meters, more or less, covered by transfer certificate of
title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated
in the same barrio, having an area of 74,789 square meters, more or less, covered
by transfer certificate of title No. 37677 of the land records of the same province,
both lots having been originally registered on July 8, 1914 under original certificate
of title No. 735. The identity of the lots was established by the testimony of Antonio
Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the
portion thereof claimed by defendant was established by the testimony of his own
witness, Quirico Feria. The combined testimony of these three witnesses clearly
shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C
and major on portion of lot 4-B-4, and is well within the area covered by the two
transfer certificates of title already mentioned. This fact also appears admitted in
defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the
decree be collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz.,
3819.) Nor could title to that land in derogation of that of plaintiff, the registered
owner, be acquired by prescription or adverse possession. (Section 46, Act No.
496.) Adverse, notorious and continuous possession under claim of ownership for
the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of
CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the
right to secure possession under a decree of registration does not prescribed.
61
(Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this
Court on this point is that rendered in the case of Jose Alcantara et al., vs.
Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January,
1940, until he vacates the premises.' But it appears from the record that that
reasonable compensation for the use and occupation of the premises, as
stipulated at the hearing was P10 a month for each hectare and that the area
occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the testimony of
J. A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of
ejectment had already been filed against defendant. And it cannot be supposed
that defendant has been paying rents, for he has been asserting all along that the
premises in question 'have always been since time immemorial in open,
continuous, exclusive and public and notorious possession and under claim of
ownership adverse to the entire world by defendant and his predecessors in
interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for
further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has
filed a motion to dismiss alleging that there is pending before the Court of First
Instance of Rizal another action between the same parties and for the same cause
and seeking to sustain that allegation with a copy of the complaint filed in said
action. But an examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action in the two suits
does not appear. That other case is one for recovery of ownership, while the
present one is for recovery of possession. And while appellant claims that he is
also involved in that order action because it is a class suit, the complaint does not
show that such is really the case. On the contrary, it appears that the action seeks
relief for each individual plaintiff and not relief for and on behalf of others. The
motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Mont
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and choice of its three (3) nominees; that, on the other hand, the Filipino stockholders
CHARLES CHAMSAY, petitioners,  can nominate only six (6) candidates and in the event they cannot agree on the six
vs. (6) nominees, they shall vote only among themselves to determine who the six (6)
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. nominees will be, with cumulative voting to be allowed but without interference
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, from ASI. 
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents. The antecedent facts can be summarized as follows: 

G.R. No. 75951 December 15, 1989 In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. Mr. Baldwin Young went abroad to look for foreign partners, European or American
LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, who could help in its expansion plans. On August 15, 1962, ASI, a foreign
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,  corporation domiciled in Delaware, United States entered into an Agreement with
vs. Saniwares and some Filipino investors whereby ASI and the Filipino investors
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID agreed to participate in the ownership of an enterprise which would engage
P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO primarily in the business of manufacturing in the Philippines and selling here and
SALAZAR, respondents. abroad vitreous china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated enterprise and
G.R. Nos. 75975-76 December 15, 1989 that the name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation." 
LUCIANO E. SALAZAR, petitioner, 
vs. The Agreement has the following provisions relevant to the issues in these cases
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. on the nomination and election of the directors of the corporation: 
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ 3. Articles of Incorporation
and the COURT OF APPEALS, respondents. 
(a) The Articles of Incorporation of the Corporation shall be
Belo, Abiera & Associates for petitioners in 75875.  substantially in the form annexed hereto as Exhibit A and, insofar
as permitted under Philippine law, shall specifically provide for 
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar. 
(1) Cumulative voting for directors: 

xxx xxx xxx

GUTIERREZ, JR., J.:
5. Management
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier (a) The management of the Corporation shall be vested in a Board
decision dated June 5, 1986, of the then Intermediate Appellate Court and directed of Directors, which shall consist of nine individuals. As long as
that in all subsequent elections for directors of Sanitary Wares Manufacturing American-Standard shall own at least 30% of the outstanding
Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more stock of the Corporation, three of the nine directors shall be
than three (3) directors; that the Filipino stockholders shall not interfere in ASI's designated by American-Standard, and the other six shall be
62
 designated by the other stockholders of the Corporation. (pp. 51 &
53, Rollo of 75875)  namely, Luciano E. Salazar and Charles Chamsay. The ASI
At the request of ASI, the agreement contained provisions designed to protect it as
a minority group, including the grant of veto powers over a number of corporate
acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.  Chamsay, and instructed the Secretary to so vote. Luciano E.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was
also registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals. 
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture groups in the countries
where Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young. The
minutes were taken by the Secretary, Avelino Cruz. After disposing of the
preliminary items in the agenda, the stockholders then proceeded to the election of
the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto
R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza
then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles
Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of directors, and the legal advice
of Saniwares' legal counsel. The following events then, transpired:  continue the meeting at the elevator lobby of the American
... There were protests against the action of the Chairman and
heated arguments ensued. An appeal was made by the ASI
representative to the body of stockholders present that a vote be
taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling
was taken. The Chairman then instructed the Corporate Secretary
to cast all the votes present and represented by proxy equally for
the 6 nominees of the Philippine Investors and the 3 nominees of
63
ASI, thus effectively excluding the 2 additional persons nominated,
representative, Mr. Jaqua protested the decision of the Chairman
and announced that all votes accruing to ASI shares, a total of
1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles
Salazar and other proxy holders announced that all the votes
owned by and or represented by them 467,197 shares (p. 27,
Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The
representative of ASI then moved to recess the meeting which
was duly seconded. There was also a motion to adjourn (p. 28,
Rollo, AC-G.R. SP No. 05617). This motion to adjourn was
accepted by the Chairman, Baldwin Young, who announced that
the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been
ignored, Mr. Jaqua the ASI representative, stated that the meeting
was not adjourned but only recessed and that the meeting would
be reconvened in the next room. The Chairman then threatened to
have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI
Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to
Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary.
On the basis of the cumulative votes cast earlier in the meeting,
the ASI Group nominated its four nominees; Wolfgang Aurbach,
John Griffin, David Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five directors were certified
as elected directors by the Acting Secretary, Andres Gatmaitan,
with the explanation that there was a tie among the other six (6)
nominees for the four (4) remaining positions of directors and that
 the body decided not to break the tie. (pp. 37-39, Rollo of 75975- II. THE COURT OF APPEALS PROHIBITS THE
76)  STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
These incidents triggered off the filing of separate petitions by the parties with the SANIWARES, THUS DEPRIVING PETITIONERS AND THE
Securities and Exchange Commission (SEC). The first petition filed was for CORPORATION THEY REPRESENT OF THEIR PROPERTY
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul RIGHTS WITHOUT DUE PROCESS OF LAW. 
A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee
against Luciano Salazar and Charles Chamsay. The case was denominated as III. THE COURT OF APPEALS IMPOSES CONDITIONS AND
SEC Case No. 2417. The second petition was for quo warranto and application for READS PROVISIONS INTO THE AGREEMENT OF THE
receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
Salazar and Charles Chamsay against the group of Young and Lagdameo CANNOT LEGALLY DO. (p. 17, Rollo-75875) 
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed
as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision
the legitimate directors of the corporation.  on the following grounds: 

The two petitions were consolidated and tried jointly by a hearing officer who 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
rendered a decision upholding the election of the Lagdameo Group and dismissing binding contractual agreements entered into by stockholders and
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar the replacement of the conditions of such agreements with terms
appealed the decision to the SEC en banc which affirmed the hearing officer's never contemplated by the stockholders but merely dictated by the
decision.  CA .

The SEC decision led to the filing of two separate appeals with the Intermediate 11.2. The Amended decision would likewise sanction the
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and deprivation of the property rights of stockholders without due
Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. process of law in order that a favored group of stockholders may
Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated be illegally benefitted and guaranteed a continuing monopoly of
and the appellate court in its decision ordered the remand of the case to the the control of a corporation. (pp. 14-15, Rollo-75975-76) 
Securities and Exchange Commission with the directive that a new stockholders'
meeting of Saniwares be ordered convoked as soon as possible, under the On the other hand, the petitioners in G.R. No. 75951 contend that: 
supervision of the Commission. 
I 
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles THE AMENDED DECISION OF THE RESPONDENT COURT,
Chamsay in G.R. No. 75875 assign the following errors:  WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE AND THE LAW. 
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.  II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE

THAT PRIVATE PETITIONERS HEREIN WERE THE DULY
64
 ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL The parol evidence Rule under Rule 130 provides: 
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-
75951)  Evidence of written agreements-When the terms of an agreement
have been reduced to writing, it is to be considered as containing
The issues raised in the petitions are interrelated, hence, they are discussed all such terms, and therefore, there can be, between the parties
jointly.  and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing, except in the
The main issue hinges on who were the duly elected directors of Saniwares for the following cases: 
year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined: (1) the nature of (a) Where a mistake or imperfection of the writing, or its failure to
the business established by the parties whether it was a joint venture or a express the true intent and agreement of the parties or the validity
corporation and (2) whether or not the ASI Group may vote their additional 10% of the agreement is put in issue by the pleadings. 
equity during elections of Saniwares' board of directors. 
(b) When there is an intrinsic ambiguity in the writing. 
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
upon their actual intention which is determined in accordance with the rules Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement
governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. failed to express the true intent of the parties, to wit: 
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)  xxx xxx xxx

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the 4. While certain provisions of the Agreement would make it appear
actual intention of the parties should be viewed strictly on the "Agreement" dated that the parties thereto disclaim being partners or joint venturers
August 15,1962 wherein it is clearly stated that the parties' intention was to form a such disclaimer is directed at third parties and is not inconsistent
corporation and not a joint venture.  with, and does not preclude, the existence of two distinct groups of
stockholders in Saniwares one of which (the Philippine Investors)
They specifically mention number 16 under Miscellaneous Provisions which shall constitute the majority, and the other ASI shall constitute the
states:  minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to
xxx xxx xxx enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the
c) nothing herein contained shall be construed to constitute any of parties, the latter shall prevail over the former (Art. 1370, New Civil
the parties hereto partners or joint venturers in respect of any Code). The various stipulations of a contract shall be interpreted
transaction hereunder. (At P. 66, Rollo-GR No. 75875)  together attributing to the doubtful ones that sense which may
result from all of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the contracting parties,
They object to the admission of other evidence which tends to show that the
their contemporaneous and subsequent acts shall be principally
parties' agreement was to establish a joint venture presented by the Lagdameo
considered. (Art. 1371, New Civil Code). (Part I, Original Records,
and Young Group on the ground that it contravenes the parol evidence rule under
SEC Case No. 2417) 
section 7, Rule 130 of the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their pleading that the "Agreement"
failed to express the true intent of the parties.  It has been ruled: 
65
 In an action at law, where there is evidence tending to prove that
the parties joined their efforts in furtherance of an enterprise for
their joint profit, the question whether they intended by their
agreement to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v. Kessler v 200
App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238
SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)  of the right to designate certain officers of the corporation; the
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation.
The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:  stockholders who own the balance of 60%, and that 2) ASI is
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine
nationals. He testified that ASI agreed to accept the role of
minority vis-a-vis the Philippine National group of investors, on the
condition that the Agreement should contain provisions to protect
ASI as the minority. 
An examination of the Agreement shows that certain provisions
were included to protect the interests of ASI as the minority. For
example, the vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member of the
Executive Committee and the vote of this member is required for
certain transactions [Sec. 3 (b) (i)].  or joint venturers in respect of any transaction hereunder" was merely to obviate
The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a)
(iv) and (b) (iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is
normally followed by ASI [Sec. 13 (a)] and that Saniwares should
not export "Standard" products otherwise than through ASI's
Export Marketing Services [Sec. 13 (6)]. Under the Agreement,
ASI agreed to provide technology and know-how to Saniwares and
the latter paid royalties for the same. (At p. 2).  sole or monopolistic operations and merely uses the joint venture arrangement to
66
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement
requiring a 7 out of 9 votes of the board of directors for certain
actions, in effect gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore, the grant to ASI
super-majority voting requirements for amendments of the articles
and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the
other stockholders shall designate the other 6, clearly indicate that
there are two distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine National
given certain protections as the minority stockholder. 
Premises considered, we believe that under the Agreement there
are two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the
parties, i.e., ASI and the other stockholders. (pp. 4-5) 
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board. 
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties. 
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of
a firm in exchange for its manufacturing expertise, use of its brand names, and
other such assistance. However, there is always a danger from such
arrangements. The foreign group may, from the start, intend to establish its own
gain a foothold or test the Philippine waters, so to speak. Or the covetousness may
come later. As the Philippine firm enlarges its operations and becomes profitable,
the foreign group undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This undermining of
joint ventures is not consistent with fair dealing to say the least. To the extent that
such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements
reserve controlling ownership to Filipino citizens.  In the United States, many courts have taken a realistic approach
The Lagdameo Group stated in their appellees' brief in the Court of Appeal  of corporation law designed primarily for public issue corporations.
In fact, the Philippine Corporation Code itself recognizes the right
of stockholders to enter into agreements regarding the exercise of
their voting rights.  and with more consideration given to the nature of the agreement
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing
and signed by the parties thereto, may provide that in exercising
any voting rights, the shares held by them shall be voted as
therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the
Corporation Code's chapter on close corporations and Saniwares
cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the
disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing
a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo
family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family
for 7 stockholders, etc. If the members of one family and/or
business or interest group are considered as one (which, it is
respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum
dated 11 December 1984 and Annex "A" thereof). 
67
Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the
undeniable fact is that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares is a public issue
or a widely held corporation. 
to joint venture corporations and have not rigidly applied principles
These courts have indicated that express arrangements between
corporate joint ventures should be construed with less emphasis
on the ordinary rules of law usually applied to corporate entities
between the joint venturers (Please see Wabash Ry v. American
Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v.
Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline
Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy
v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty
Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American
cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture
corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture
agreement rather than the litigants who relied on the orthodox
principles of corporation law. 
As correctly held by the SEC Hearing Officer: 
It is said that participants in a joint venture, in organizing the joint
venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in
close corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder
and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3)
give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of
disputes by arbitration (See I O' Neal, Close Corporations, 1971
 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer,
P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
necessarily imply that agreements regarding the exercise of voting
rights are allowed only in close corporations. As Campos and
Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular.
Does this provision necessarily imply that these agreements can
be valid only in close corporations as defined by the Code?
Suppose that a corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the
election of directors? It is submitted that there is no reason for
denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect their
interests, as long as they do not intend to commit any wrong, or
fraud on the other stockholders not parties to the agreement. Of
course, voting or pooling agreements are perhaps more useful and
more often resorted to in close corporations. But they may also be
found necessary even in widely held corporations. Moreover, since
the Code limits the legal meaning of close corporations to those
which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close
corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts
like voting agreements if these are otherwise valid. (Campos &
Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to
the designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon
the signatories thereto, which include appellants. (Rollo No.
75951, pp. 90-94)  cumulative voting should also be protected.
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:  proper and just solution to give due consideration to both factors
68
As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is spelled out in
the Agreement. Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. This allocation of
board seats is obviously in consonance with the minority position
of ASI. 
Having entered into a well-defined contractual relationship, it is
imperative that the parties should honor and adhere to their
respective rights and obligations thereunder. Appellants seem to
contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may
interfere with the stockholder's rights to cumulative voting as
provided in Section 24 of the Corporation Code. This Court should
not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties
thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special relationships with
each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so
long as such agreements do not adversely affect third parties. 
In any event, it is believed that we are not here called upon to
make a general rule on this question. Rather, all that needs to be
done is to give life and effect to the particular contractual rights
and obligations which the parties have assumed for themselves. 
On the one hand, the clearly established minority position of ASI
and the contractual allocation of board seats Cannot be
disregarded. On the other hand, the rights of the stockholders to
 
In our decision sought to be reconsidered, we opted to uphold the
second over the first. Upon further reflection, we feel that the
suggests itself quite clearly. This Court should recognize and
uphold the division of the stockholders into two groups, and at the
 same time uphold the right of the stockholders within each group
to cumulative voting in the process of determining who the group's
nominees would be. In practical terms, as suggested by appellant
Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his
votes. ASI, however, should not be allowed to interfere in the
voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the
contractual intent of the parties.  venture is formed for the execution of a single transaction, and is
Such a ruling will give effect to both the allocation of the board
seats and the stockholder's right to cumulative voting. Moreover,
this ruling will also give due consideration to the issue raised by
the appellees on possible violation or circumvention of the Anti-
Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI
is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)  should thus be governed by the law of partnerships. The Supreme
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI
Group has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-
Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof
which provides:  Moreover, the usual rules as regards the construction and operations of contracts
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or
associations engaging in partially nationalized activities shall be
allowed in proportion to their allowable participation or share in the
capital of such entities. (amendments introduced by Presidential
Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:  the process of determining who the group's nominees would be under Section 3
69
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits and
losses, and a mutual right of control. Blackner v. Mc Dermott, 176
F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d.
242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint
thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation
is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint
venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981) 
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev.
(167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of
the question of whether or not the ASI Group may vote their additional equity lies
in the agreement of the parties. 
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in
(a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while With these findings, we the decisions of the SEC Hearing Officer and SEC which
Section 3 (a) (1) relates to the manner of voting for these nominees.  were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin
This is the proper interpretation of the Agreement of the parties as regards the young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
election of members of the board of directors. George F. Lee as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting. 
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as On the other hand, the Lagdameo and Young Group (petitioners in G.R. No.
agreed upon by the parties. As aptly stated by the appellate court:  75951) object to a cumulative voting during the election of the board of directors of
the enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
... ASI, however, should not be allowed to interfere in the voting
section 5 (a) of the Agreement which uses the word "designate" meaning
within the Filipino group. Otherwise, ASI would be able to
"nominate, delegate or appoint." 
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the They also stress the possibility that the ASI Group might take control of the
contractual intent of the parties.  enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their group. 
Such a ruling will give effect to both the allocation of the board
seats and the stockholder's right to cumulative voting. Moreover, Section 5 (a) of the Agreement which uses the word designates in the allocation of
this ruling will also give due consideration to the issue raised by board directors should not be interpreted in isolation. This should be construed in
the appellees on possible violation or circumvention of the Anti- relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
Dummy Law (Com. Act No. 108, as amended) and the relates to the manner of voting  for these nominees which is cumulative
nationalization requirements of the Constitution and the laws if ASI voting while section 5(a) relates to the manner of nominating the members of the
is allowed to nominate more than three directors. (At p. 39, Rollo, board of directors. The petitioners in G.R. No. 75951 agreed to this procedure,
75875)  hence, they cannot now impugn its legality. 

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats in the 9-
man board of directors there are provisions already agreed upon and embodied in
the parties' Agreement to protect the interests arising from the minority status of
the foreign investors.  DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists
under its original agreement. Cumulative voting may not be used as a device to
enable ASI to achieve stealthily or indirectly what they cannot accomplish openly.
There are substantial safeguards in the Agreement which are intended to preserve
the majority status of the Filipino investors as well as to maintain the minority
status of the foreign investors group as earlier discussed. They should be
maintained. 
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are

70
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875

71