Compilation of SCRA - APT Asynchronous Class - Cases Batch 1

7/17/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 341
740 SUPREME COURT REPORTS ANNOTATED

Heirs of Tan Eng Kee vs. Court of Appeals
*
G.R. No. 126881. October 3, 2000.
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF

APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY, respondents.
Appeals; Evidence; Findings of facts of the Court of Appeals

will not be disturbed on appeal if such are supported by the
evidence.—As a premise, we reiterate the oft-repeated rule that
findings of facts of the Court of Appeals will not be disturbed on
appeal if such are supported by the evidence. Our jurisdiction, it
must be emphasized, does not include review of factual issues.
Same; Same; Exceptions.—Admitted exceptions have been
recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered
judgment. Review of factual issues is therefore warranted: (1)
when the factual findings of the Court of Appeals and the trial
court are contradictory; (2) when the findings are
_______________
* SECOND DIVISION.
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VOL. 341, OCTOBER 3, 2000 741
grounded entirely on speculation, surmises, or conjectures; (3)

when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4)
when there is grave abuse of discretion in the appreciation of
facts; (5) when the appellate court, in making its findings, goes
beyond the issues of the case, and such findings are contrary to
https://central.com.ph/sfsreader/session/0000017ab28d15c87e5c2b57000d00d40059004a/t/?o=False 1/23
the admissions of both appellant and appellee; (6) when the

judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals fails to
notice certain relevant facts which, if properly considered, will
justify a different conclusion; (8) when the findings of fact are
themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they
are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record.
Partnerships; Words and Phrases; In order to constitute a
partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property or industry to a
common fund, and (2) they intended to divide the profits among
themselves.—The primordial issue here is whether Tan Eng Kee
and Tan Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where: x x x two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves. Two or more persons may also form a
partnership for the exercise of a profession. Thus, in order to
constitute a partnership, it must be established that (1) two or
more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the
profits among themselves. The agreement need not be formally
reduced into writing, since statute allows the oral constitution of
a partnership, save in two instances: (1) when immovable
property or real rights are contributed, and (2) when the
partnership has a capital of three thousand pesos or more. In both
cases, a public instrument is required. An inventory to be signed
by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.
Same; Same; Joint Ventures; “Partnership” and “Joint
Venture,” Distinguished.—The trial court determined that Tan
Eng Kee and Tan Eng Lay had entered into a joint venture, which
it said is akin to a particular partnership. A particular
partnership is distinguished from a joint adventure, to wit: (a) A
joint adventure (an American concept similar to our joint accounts
) is a sort of informal partnership, with no firm name and no legal
personality. In a joint account, the participating merchants can
742

transact business under their own name, and can be individually

liable therefor, (b) Usually, but not necessarily a joint adventure
is limited to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination may continue for a number
of years; a partnership generally relates to a continuing business
of various transactions of a certain kind.
Same; Same; Same; Same; A joint venture may be likened to a
particular partnership; The legal concept of a joint venture is of
common law origin and has no precise legal definition, but it has
been generally understood to mean an organization formed for
some temporary purpose.—A joint venture “presupposes generally
a parity of standing between the joint co-ventures or partners, in
which each party has an equal proprietary interest in the capital
or property contributed, and where each party exercises equal
rights in the conduct of the business.” Nonetheless, in Aurbach, et
al. v. Sanitary Wares Manufacturing Corporation, et al., we
expressed the view that a joint venture may be likened to a
particular partnership, thus: The legal concept of a joint venture
is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed
for some temporary purpose. (Gates v. Megargel, 266 Fed. 811
[1920]) It is hardly distinguishable from the partnership, since
their elements are similar—community of interest in the
business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F. 2d. 498 [1949];
Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The
main distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann, 116 Cal. App. 170, 2 P.2d. 500
[1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel, 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture
with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981).
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VOL. 341, OCTOBER 3, 2000 743
Same; Co-Ownership; A co-ownership or co-possession is not

an indicium of the existence of a partnership.—None of petitioners’
witnesses could suitably account for the beginnings of Benguet
Lumber Company, except perhaps for Dionisio Peralta whose
deceased wife was related to Matilde Abubo. He stated that when
he met Tan Eng Kee after the liberation, the latter asked the
former to accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers. Tan Eng Lay, however,
denied knowledge of this meeting or of the conversation between
Peralta and his brother. Tan Eng Lay consistently testified that
he had his business and his brother had his, that it was only later
on that his said brother, Tan Eng Kee, came to work for him. Be
that as it may, co-ownership or copossession (specifically here, of
the G.I. sheets) is not an indicium of the existence of a
partnership.
Same; The essence of a partnership is that the partners share
in the profits and losses; A demand for periodic accounting is
evidence of a partnership.—Besides, it is indeed odd, if not
unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an
accounting as long as the partnership exists. We have allowed a
scenario wherein “[i]f excellent relations exist among the partners
at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly
plausible.” But in the situation in the case at bar, the deferment,
if any, had gone on too long to be plausible. A person is presumed
to take ordinary care of his concerns, x x x A demand for periodic
accounting is evidence of a partnership. During his lifetime, Tan
Eng Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay.
Same; Where circumstances taken singly may be inadequate to
prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of
the existence of the parties’ intent.—In the instant case, we find
private respondent’s arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent
to form a partnership, nevertheless, the collective effect of these
circumstances may be such as to support a finding of the

existence of the parties’ intent. Yet, in the case at bench, even the
aforesaid circumstances when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan Eng Kee
was involved in the operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the likelihood that as a
member of the family, he occupied
744
a niche above the rank-and-file employees. He would have enjoyed

liberties otherwise unavailable were he not kin, such as his
residence in the Benguet Lumber Company compound. He would
have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may
even be that among his duties is to place orders with suppliers.
Again, the circumstances proffered by petitioners do not provide a
logical nexus to the conclusion desired; these are not inconsistent
with the powers and duties of a manager, even in a business
organized and run as informally as Benguet Lumber Company.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Lauro D. Gacayan for petitioner.
Soo, Gutierrez, Leogardo & Lee collaborating counsel
for petitioner.
Francisco S. Reyes Law Office for private
respondents.
DE LEON, JR., J .:
In this petition for review on1 certiorari, petitioners pray for

the reversal of the Decision
2
dated March 13, 1996 of the
former Fifth Division of the Court of Appeals in CA-G.R.
CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is

hereby set aside, and the complaint dismissed.
The facts are:

Following the death of Tan Eng Kee on September 13,
1984, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita,

Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against
the decedent’s brother TAN ENG LAY on
_______________
1 Rollo, pp. 129-147.

2 Justice Bernardo LL. Salas, ponente, with Justices Pedro A. Ramirez
and Ma. Alicia Austria-Martinez, concurring.
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VOL. 341, OCTOBER 3, 2000 745

3
February 19, 1990. The complaint, docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was
for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng
Kee and Tan Eng Lay. On March 4
18, 1991, the petitioners
filed an amended complaint impleading private respondent
herein BENGUET LUMBER COMPANY, as represented
by Tan Eng Lay. The amended complaint was5 admitted by
the trial court in its Order dated May 3, 1991.
The amended complaint principally alleged that after
the second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into
a partnership engaged in the business of selling lumber
and hardware and construction supplies. They named their
enterprise “Benguet Lumber” which they jointly managed
until Tan Eng Kee’s death. Petitioners herein averred that
the business prospered due to the hard work and thrift of
the alleged partners. However, they claimed that in 1981,
Tan Eng Lay and his children caused the conversion of the
partnership “Benguet Lumber” into a corporation called
“Benguet Lumber Company.” The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber.
After trial, Regional
6
Trial Court of Baguio City, Branch
7 rendered judgment on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby

rendered:
Declaring that Benguet Lumber is a joint venture which is

a) akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng
Lay are joint adventurers and/or partners in a business
venture and/or particular
_______________
3 Records, pp. 1-4.

4 Records, pp. 123-126.
5 Records, p. 130.
6 Records, pp. 632-647.
746

its and/or losses of the business venture or particular

partnership;
c) Declaring that the assets of Benguet Lumber are the same
assets turned over to Benguet Lumber Co., Inc. and as
such the heirs or legal representatives of the deceased Tan
Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng
Kee as joint adventurer and/or as partner in a particular
partnership have descended to the plaintiffs who are his
legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President
and/or General Manager of Benguet Lumber Company,
Inc. to render an accounting of all the assets of Benguet
Lumber Company, Inc. so the plaintiffs know their proper
share in the business;
f) Ordering the appointment of a receiver to preserve and/or
administer the assets of Benguet Lumber Company, Inc.
until such time that said corporation is finally liquidated
are directed to submit the name of any person they want
to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is
qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of
proof except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of
merit.
SO ORDERED.
Private respondent sought relief before the Court of

Appeals which, on March 13, 1996, rendered the assailed
decision reversing the judgment of7 the trial court.
Petitioners’ motion for reconsideration
8
was denied by the
Court of Appeals in a Resolution dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed
Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents in
a judicial proceeding. Petitioners complained that Exhibits
“4” to “4-U” offered by the defendants before the trial court,
consisting of payrolls indicating that Tan
_______________
7 Rollo, pp. 148-149.

8 Rollo, p. 173.
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VOL. 341, OCTOBER 3, 2000 747

Eng Kee was a mere employee of Benguet Lumber, were

fake, based on the discrepancy in the signatures of Tan Eng
Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary
and Willy, all surnamed Tan, for alleged falsification of
commercial documents by a private individual. On March
20, 1999, the Municipal Trial Court of Baguio City, Branch9
1, wherein the charges were filed, rendered judgment
dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
THE HONORABLE COURT OF APPEALS ERRED IN

HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE
WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE;
(C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR THE DURATION
OF THE PARTNERSHIP (PAGE 13, DECISION).
II

RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE
WAS ONLY AN EMPLOYEE THEREOF.
III

HOLDING THAT THE FOLLOWING FACTS WHICH WERE
DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO
NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN

ENG LAY WERE ALL LIVING AT THE BENGUET
LUMBER COMPOUND;
_______________
9 Rollo, pp. 412-419.
748

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE

WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY
WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO
BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV

HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH
THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT
THEY DO NOT KNOW WHEN THE ESTABLISHMENT

KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS
STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF
BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00
AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE
BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that

findings of facts of the Court of Appeals will not be 10
disturbed on appeal if such are supported by the evidence.
Our jurisdiction, it must be emphasized, does not include
review of factual issues. Thus:
_______________
10 Brusas v. Court of Appeals, 313 SCRA 176, 188 (1999); Guerrero v.

Court of Appeals, 285 SCRA 670, 678 (1998); Atillo III v. Court of Appeals
266 SCRA 596, 605-606 (1997); Mallari v. Court of Appeals, 265 SCRA
456, 461 (1996).
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VOL. 341, OCTOBER 3, 2000 749

Filing of petition with Supreme Court.—A party desiring to appeal

by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The
petition shall
11
raise only questions of law which must be distinctly
set forth. [italics supplied]
Admitted exceptions have been recognized, though, and

when present, may compel us to analyze the evidentiary
basis on which the lower court rendered judgment. Review
of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals

and the trial court are contradictory;
when the findings are grounded entirely on

(2)
speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals
from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the
appreciation of facts;
(5) when the appellate court, in making its findings,
goes beyond the issues of the case, and such
findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is
premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain
relevant facts which, if properly considered, will
justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without
citation of the specific evidence on which they are
based; and
(10) when the findings of fact of the Court of Appeals
are premised on the absence of evidence but such
findings
12
are contradicted by the evidence on
record.
_______________
11 1997 RULES OF CIVIL PROCEDURE, Rule 45, Sec. 1.

12 Fuentes v. Court of Appeals, 268 SCRA 703, 708-709 (1997).
750

In reversing the trial court, the Court of Appeals ruled, to

wit:
We note that the Court a quo over extended the issue because
while the plaintiffs mentioned only the existence of a partnership,
the Court in turn went beyond that by justifying the existence of a
joint venture.
When mention is made of a joint venture, it would presuppose
parity of standing between the parties, equal proprietary interest
and the exercise by the parties equally of the conduct of the
business, thus:
x x x x x x x x x x x x

We have the admission that the father of the plaintiffs was not
a partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because
during the war, the entire stocks of the pre-war Benguet Lumber
were confiscated if not burned by the Japanese. After the war,
because of the absence of capital to start a lumber and hardware
business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so
that the common fund would be enough to form a partnership,
both in the lumber and hardware business. That Lay and Kee
actually established the Benguet Lumber in Baguio City, was
even testified to by witnesses. Because of the pooling of resources,
the postwar Benguet Lumber was eventually established. That
the father of the plaintiffs and Lay were partners, is obvious from
the fact that: (1) they conducted the affairs of the business during
Kee’s lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the
suppliers, (4) their families stayed together at the Benguet
Lumber compound, and (5) all their children were employed in the
business in different capacities.
It is obvious that there was no partnership whatsoever. Except
for a firm name, there was no firm account, no firm letterheads
submitted as evidence, no certificate of partnership, no agreement
as to profits and losses, and no time fixed for the duration of the
partnership. There was even no attempt to submit an accounting
corresponding to the period after the war until Kee’s death in
1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the
existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a
proprietorship. The certification dated March 4, 1971, Exhibit “2,”
mentioned codefendant Lay as the only registered owner of the
Benguet Lumber and Hardware. His application for registration,
effective 1954, in fact mentioned that his business started in 1945
until 1985 (thereafter, the incor-
751
VOL. 341, OCTOBER 3, 2000 751

poration). The deceased, Kee, on the other hand, was merely an

employee of the Benguet Lumber Company, on the basis of his
SSS coverage effective 1958, Exhibit “3.” In the Payrolls, Exhibits
“4” to “4-U,” inclusive, for the years 1982 to 1983, Kee was
similarly listed only as an employee; precisely, he was on the
payroll listing. In the Termination Notice, Exhibit “5,” Lay was

mentioned also as the proprietor.
We would like to refer to Arts. 771 and 772, NCC, that a
partner [sic] may be constituted in any form, but when an
immovable is constituted, the execution of a public instrument
becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also
necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume
that the business establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded
P3,000.00, in addition to the accumulation of real properties and
to the fact that it is now a compound. The execution of a public
instrument, on the other hand, was never established by the
appellees.
And then in 1981, the business was incorporated and the
incorporators were only Lay and the members of his family. There
is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then
have been treated as a part of the latter’s capital assets, contrary
to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a
partnership:
1) That Kee was living in a bunk house just across the lumber
store, and then in a room in the bunk house in Trinidad, but
within the compound of the lumber establishment, as testified to
by Tandoc; 2) that both Lay and Kee were seated on a table and
were “commanding people” as testified to by the son, Elpidio Tan;
3) that both were supervising the laborers, as testified to by
Victoria Choi; and 4) that Dionisio Peralta was supposedly being
told by Kee that the proceeds of the 80 pieces of the G.I. sheets
were added to the business.
Partnership presupposes the following elements [citation
omitted]: 1) a contract, either oral or written. However, if it
involves real property or where the capital is P3,000.00 or more,
the execution of a contract is necessary; 2) the capacity of the
parties to execute the contract; 3) money property or industry
contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in
the benefits; and 5) intention to divide the profits, being the true
test of
752

the partnership. The intention to join in the business venture for

the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial
evidence of the appellees.
As can be seen, the appellate court disputed and differed

from the trial court which had adjudged that TAN ENG
KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a
partnership exists is a factual matter; consequently, since
the appeal is brought to us under Rule 45, we cannot
entertain inquiries relative to the correctness 13
of the
assessment of the evidence by the court a quo. Inasmuch
as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and
Tan Eng Lay were partners in Benguet Lumber. A contract
of partnership is defined by law as one where:
x x x two or more persons bind themselves to contribute money,

property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons 14
may also form a partnership for the
exercise of a profession.
Thus, in order to constitute a partnership, it must be

established that (1) two or more persons bound themselves
to contribute money, property, or industry to a common
fund, and 15(2) they intend to divide the profits among
themselves. The agreement need not be formally reduced
into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1)16 when immovable
property or real rights are contributed, and (2) when the 17
partnership has a capital of three thousand pesos or more.
In both
_______________
13 Cf. Alicbusan v. Court of Appeals, 269 SCRA 336, 340-341 (1997)

14 CIVIL CODE, Art. 1767.
15 Yulo v. Yang Chiao Seng, 106 Phil. 110, 116 (1959).
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VOL. 341, OCTOBER 3, 2000 753

18
cases, a public instrument is required. An inventory to be
signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership
whenever immovable
19
property is contributed to the
partnership.
The trial court determined that Tan Eng Kee and Tan
Eng Lay had entered into a joint20 venture, which it said is
akin to a particular partnership. A particular partnership
is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to

our joint accounts) is a sort of informal partnership,
with no firm name and no legal personality. In a
joint account, the participating merchants can
transact business under their own name, and can
be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination
may continue for a number of years; a partnership
generally relates to a continuing
21
business of various
transactions of a certain kind.
A joint venture “presupposes generally a parity of standing

between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or
property contributed, and where each party
22
exercises equal
rights in the conduct of the business.” Nonetheless, in
Aurbach, et al. 23 v. Sanitary Wares Manufacturing
Corporation, et al. we expressed the view that a joint
venture may be likened to a particular partnership, thus:
_______________
18 Note, however, Article 1768 of the Civil Code which provides: “The
partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the
requirements of Article 1772, first paragraph.”
20 “A particular partnership has for its object determinate things, their
use or fruits, or a specific undertaking, or the exercise of a profession or
vocation.” (CIVIL CODE, Art. 1783)
21 V.E. PARAS, CIVIL CODE OF THE PHILIPPINES ANNOTATED
546 (13th ed., 1995).
22 Sevilla v. Court of Appeals, 160 SCRA 171, 181 (1988).
23 180 SCRA 130, 146-147 (1989).
754

The legal concept of a joint venture is of common law origin. It has

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

contract of partnership itself, or the articles of partnership,
but there is none. The alleged partnership, though, was
never formally organized. In addition, petitioners point out
that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing
prevented the parties from complying with the provisions
of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is
that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review
of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The
evidence presented by petitioners falls short of the
quantum of proof required to establish a partnership.
755
VOL. 341, OCTOBER 3, 2000 755

Unfortunately for petitioners, Tan Eng Kee has passed

away. Only he, aside from Tan Eng Lay, could have
expounded on the precise nature of the business
relationship between them. In the absence of evidence, we
cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for
the purpose of establishing a partnership. The testimonies
to that effect of petitioners’ witnesses is directly
controverted by Tan Eng Lay. It should be noted that it is
not 24with the number of witnesses wherein preponderance
lies; the quality of their testimonies is to be considered.
None of petitioners’ witnesses could suitably account for
the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta 25
whose deceased wife was
related to Matilde Abubo. He stated that when he met
Tan Eng Kee after the liberation, the latter asked the
former to accompany him to get 80 pieces 26
of G.I. sheets
supposedly owned by both brothers. Tan Eng Lay,
however, denied knowledge of this meeting 27or of the
conversation between Peralta and his brother. Tan Eng
Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said
brother, Tan Eng Kee, came to work for him. Be that as it
may, co-ownership or co-possession (specifically here, of the
G.I. sheets) 28 is not an indicium of the existence of a
partnership.
Besides, it is indeed odd, if not unnatural, that despite
the forty years the partnership was allegedly in existence,
Tan Eng Kee never asked for an accounting. The essence of
a partnership
29
is that the partners share in the profits and
losses. Each has the right to 30
demand an accounting as
long as the partnership exists. We have allowed a scenario
wherein “[i]f excellent relations exist among the partners at
the start of the business and all the partners are more
_______________
24 REVISED RULES ON EVIDENCE, Rule 133, Sec. 1.

25 TSN, June 23, 1990, p. 9.
26 TSN, January 28, 1993, p. 85.
27 TSN, July 1, 1993, p. 13; TSN, July 8, 1993, p. 4.
28 Navarro v. Court of Appeals, 222 SCRA 675, 679 (1993); CIVIL

CODE, Art. 1769.
29 Moran v. Court of Appeals, 133 SCRA 88, 95 (1984).
30 Fue Lung v. Intermediate Appellate Court, 169 SCRA 746, 755
(1989).
756

interested in seeing the firm grow rather than get

immediate returns, a 31
deferment of sharing in the profits is
perfectly plausible.” But in the situation in the case at
bar, the deferment, if any, had gone on too long to be
plausible.32A person is presumed to take ordinary care of his
concerns. As we explained in another case:
In the first place, plaintiff did not furnish the supposed

P20,000.00 capital. In the second place, she did not furnish any
help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from
defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have
been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc.
She was absolutely silent with respect to any of the acts that a
partner should have done; all that she did was to receive her
share of P3,000.00 a month, which cannot be interpreted in any
manner than a payment for the use of the premises which she had
leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945
(Exh. “A”), which shows that both
33
parties considered this offer as
the real contract between them. [italics supplied]
A demand 34for periodic accounting is evidence of a

partnership. During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting from
his brother, Tang Eng Lay.
This brings us to the matter of Exhibits “4” to “4-U” for
private respondents, consisting of payrolls purporting to
show that Tan Eng Kee was an ordinary employee of
Benguet Lumber, as it was then called. The authenticity of
these documents was questioned by petitioners, to the
extent that they filed criminal charges against Tan Eng
Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits
“4” to “4-U” in fact shows that Tan Eng Kee received sums
as wages of an employee. In connection therewith, Article

1769 of the Civil Code provides:
_______________
31 Id., at 754.
32 1997 RULES OF CIVIL PROCEDURE, Rule 131, Sec. 3, Par. (d).
33 Yulo v. Yang Chiao Seng, 106 Phil. 110, 117 (1959).
34 Estanislao, Jr. v. Court of Appeals, 160 SCRA 830, 837 (1988).
757
VOL. 341, OCTOBER 3, 2000 757

In determining whether a partnership exists, these rules shall

apply:
(1) Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do
or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude

that Tan Eng Kee was only an employee, not a partner.
Even if the payrolls as evidence were discarded, petitioners
would still be back to square one, so to speak, since they
did not present and offer evidence that would show that
Tan Eng Kee received amounts of money allegedly
representing his share in the profits of the enterprise.
Petitioners failed to show how much their father, Tan Eng
Kee, received, if any, as his share in the profits of Benguet
Lumber Company for any particular period. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between
themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or
believe the alleged existence of a partnership from this set
of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the
employees; that both
758

were the ones who determined the price at which the stocks
were to be sold; and that both placed orders to the
suppliers of the Benguet Lumber Company. They also point
out that the families of the brothers Tan Eng Kee and Tan
Eng Lay lived at the Benguet Lumber Company compound,
a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the

above enumerated powers and privileges granted in favor of Tan
Eng Kee, were indicative of his being a partner in Benguet
Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store

gives orders and directions to his subordinates. So long,
therefore, that an employee’s position is higher in rank, it
is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials
from suppliers for and in behalf of Benguet Lumber.
Furthermore, even a partner does not necessarily have to
perform this particular task. It is, thus, not an indication
that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in
the lumber compound and this privilege was not accorded
to other employees, the undisputed fact remains that Tan
Eng Kee is the brother of Tan Eng Lay. Naturally, close
personal relations existed between them. Whatever

privileges Tan Eng Lay gave his brother, and which were
not given the other employees, only proves the kindness
and-generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was
quarrelling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the
existence of a partnership relation between them. Even
highly confidential employees and the owners of a
company sometimes argue with respect to certain matters
which, in no
35
way indicates that they are partners as to
each other.
In the instant case, we find private respondent’s arguments

to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership,
nevertheless, the
_______________
35 Private Respondent’s Memorandum, Rollo, p. 390.
759
VOL. 341, OCTOBER 3, 2000 759

collective effect of these circumstances may be such as to 36

support a finding of the existence of the parties’ intent.
Yet, in the case at bench, even the aforesaid circumstances
when taken together are not persuasive indicia of a
partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the likelihood that
as a member of the family, he occupied a niche above the
rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his
residence in the Benguet Lumber Company compound. He
would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to
place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to
the conclusion desired; these are not inconsistent with the
powers and duties of a manager, even in a business
organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no

dissolution, winding up or liquidation to speak of. Hence,
the petition must fail.
WHEREFORE, the petition is hereby denied, and the
appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Quisumbing and

Buena, JJ ., concur.
Petition denied, judgment affirmed in toto.
Notes.—A general professional partnership, unlike an

ordinary business partnership, is not itself an income
taxpayer, as the income tax is imposed not on the
professional partnership but on the partners themselves in
their individual capacity. (Tan vs. Del Rosario, Jr., 237
SCRA 324 [1994])
_______________
36 Evangelista, et al. v. Collector of Internal Revenue, et al., 102 Phil.

141, 146 (1957).
760

Reyes vs. Sisters of Mercy Hospital
Absent a clear showing that a barbershop owner and a

barber had intended to pursue a relationship of industrial
partnership, the Court entertains no doubt that the latter
was employed by the former as caretaker-barber—
undoubtedly, the services performed by a barber is related
to, and in the pursuit of the principal business activity of
the former. (Jo vs. National Labor Relations Commission,
324 SCRA 437 [2000])
——o0o——
© Copyright 2021 Central Book Supply, Inc. All rights reserved.

Pascual vs. Commissioner of Internal Revenue
*
No. L-78133. October 18, 1988.
MARIANO P. PASCUAL and RENATO P. DRAGON,

petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS, respondents.
Taxation; Co-ownership; Unregistered Partnership; Elements

of Partnership; Case at bar.—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 Evangelista, 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.
Same; Same; Same; Same; The sharing of returns does not in
itself establish a partnership; Reasons.—“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, 50 111 470.) The common ownership of
property does not itself create a partnership between the owners,
though they may use it for purpose of making gains; and they
may, without becoming partners, agree among themselves as to
the management and use of such property and the application of
the proceeds therefrom.’—(Spurlock vs. Wilson, 142 S. W. 363,
160 No. App. 14.)” The sharing of returns does not in itself
establish a partnership whether or not the persons sharing
therein have a joint or common right of interest in the property.
There must be clear intent to form a partnership, the existence of
https://central.com.ph/sfsreader/session/0000017ab28f004a49800666000d00d40059004a/t/?o=False 1/12
a juridical personality different from the individual partners, and

the freedom of each party to transfer or assign the whole
property.
_______________
* FIRST DIVISION.
561
VOL. 166, OCTOBER 18, 1988 561
Same; Same; Same; Same; Petitioners, not liable for corporate

income tax since they cannot be considered to have formed an
unregistered partnership but only a co-ownership; Reasons.—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.
Same; Same; Same; Same; 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.—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. 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.
PETITION to review the decision of the Court of Tax

Appeals.

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 to
562

Marenir Development Corporation, while the three parcels

of land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19, 1970. Petitioners realized a net profit
in the sale made in 1968 in the amount of P165,224.70,
while they realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital gains taxes were
paid by petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then
Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70
as alleged deficiency corporate income taxes for the years
1968 and 1970.
Petitioners protested the said assessment in a letter of
June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner
informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income
was subject to the taxes prescribed under Section
1
24, both
of the National Internal Revenue Code; that the
unregistered partnership was subject to corporate income
tax as distinguished from profits derived from the
partnership by them which is subject to individual income
tax; and that the availment of tax amnesty under P.D. No.
23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them
from the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the deficiency

income tax assessed.
Petitioners filed a petition for review with the
respondent Court of Tax Appeals docketed as CTA Case
No. 3045. In due course, the respondent
2
court by a majority
decision of March 30, 1987, affirmed the decision and
action taken by respon-
_______________
1 Annex “C” of the Petition, citing Evangelista v. Collector, G.R. No.

9996, Oct. 15, 1957, 102 Phil. 140.
2 Penned by Presiding Judge Amante Filler, concurred in by Associate
Judge Alex Z. Reyes, Associate Judge Roaquin dissented in a separate
opinion.
563
VOL. 166, OCTOBER 18, 1988 563

dent commissioner with costs against petitioners.

It ruled that
3
on the basis of the principle enunciated in
Evangelista, 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 them liable for
corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis
thereof the following alleged errors of the respondent court:
“A. IN HOLDING AS PRESUMPTIVELY CORRECT

THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT P
ETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE
INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION
THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE
BASIS OF ISOLATED SALE TRANSACTIONS,
THAT AN UNREGISTERED PARTNERSHIP
EXISTED, THUS IGNORING THE

REQUIREMENTS LAID DOWN BY LAW THAT
WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS
SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA CASE. D. IN
RULING THAT THE TAX AMNESTY DID NOT
RELIEVE THE PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE PERIOD COVERED
BY SUCH AMNESTY.” (pp. 12-13, Rollo.)
The petition is meritorious.

The basis of the subject decision of the4 respondent court
is the ruling of this Court in Evangelista.
In the said case, petitioners borrowed a sum of money
from their father which together with their own personal
funds they
_______________
3 Supra.
4 Supra.
564

used in buying several real properties. They appointed

their brother to manage their properties with full power to
lease, collect, rent, issue receipts, etc. They had the real
properties rented or leased to various tenants for several
years and they gained net profits from the rental income.
Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others,
from them.
In resolving the issue, this Court held as follows:
“The issue in this case is whether petitioners are subject to the

tax on corporations provided for in section 24 of Commonwealth
Act No. 466, otherwise known as the National Internal Revenue
Code, as well as to the residence tax for corporations and the real
estate dealers’ fixed tax. With respect to the tax on corporations,
the issue hinges on the meaning of the terms corporation’ and
‘partnership’ as used in sections 24 and 84 of said Code, the

pertinent parts of which read:
‘Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed,

collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no matter how created
or organized but not including duly registered general co-partnerships
(companias colectivas), a tax upon such income equal to the sum of the
following: x x x.’
‘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 (companias colectivas).’
“Article 1767 of the Civil Code of the Philippines provides: ‘By the
contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.’
“Pursuant to this article, the essential elements of a partnership

are two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed
to, and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did.
Upon considera-
565
VOL. 166, OCTOBER 18, 1988 565

tion of all the facts and circumstances surrounding the case, we

are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found already

in existence. It was not a property inherited by them pro
indiviso. They created it purposely. What is more they
jointly borrowed a substantial portion thereof in order to
establish said common fund.
2. They invested the same, not merely in one transaction, but
in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This was soon followed,
on April 23, 1944, by the acquisition of another real estate
for P108,825.00. Five (5) days later (April 28, 1944), they
got a fourth lot for P237,234.14. The number of lots (24)

acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common
design that was not limited to the conservation and
preservation of the aforementioned common fund or even of
the property acquired by petitioners in February, 1943. In
other words, one cannot but perceive a character of
habituality peculiar to business transactions engaged in
for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes,
or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who,
from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still
being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely, Simeon Evangelista,
with full power to lease, to collect rents, to issue receipts,
to bring suits, to sign letters and contracts, and to indorse
and deposit notes and checks. Thus, the affairs relative to
said properties have been handled as if the same belonged
to a corporation or business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten
(10) years, or, to be exact, over fifteen (15) years, since the
first property was acquired, and over twelve (12) years,
since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence,
either on their purpose in creating the set up already
adverted to, or on the causes for its continued existence.
They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the

intent necessary to constitute a partnership, the collective effect of
566

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 5
by
petitioners herein, and, hence, those cases are not in point.”
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 Evangelista, there was a series of transactions where
petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation
of the common fund or even the properties acquired by
them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of
land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three
(3) parcels of land from one seller. It was only 1968 when
they sold the two (2) parcels of land after which they did
not make any additional or new purchase. The remaining
three (3) parcels were sold by them in 1970. The
transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain
was not present.
In Evangelista, the properties were leased out to tenants
for several years. The business was under the management
of one of the partners. Such condition existed for over
fifteen (15) years. None of the circumstances are present in
the case at bar. The co-ownership started only in 1965 and
ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista he said:
“I wish however to make the following observation; Article 1769 of

the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides;
_______________
5 Supra, pp. 144-146; italics supplied.
567
VOL. 166, OCTOBER 18, 1988 567

‘(2) Co-ownership or co-possession does not itself establish a

partnership, whether such co-owners or co-possessors do
or do not share any profits made by the use of the

property;
‘(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;’
“From the above it appears that the fact that those who agree to
form a co-ownership share or do not share any profits made by the
use of the property held in common does not convert their venture
into a partnership. Or the sharing of the gross returns does not of
itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary,
such as the clear intent to form a partnership, the existence of a
juridical personality different from that of the individual partners,
and the freedom to transfer or assign any interest in the property
by one with the consent of the others (Padilla. Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636).
“It is evident that an isolated transaction whereby two or more
persons contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention
cannot be considered a partnership.
‘Persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that enterprise
in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business
itself which the proceeds derived. (Elements of the Law of
Partnership by Fiord D. Mechem, 2nd Ed., section 83, p. 74.)
‘A joint purchase of land, by two, does not constitute a co-
partnership in respect thereto; nor does an agreement to share
the profits and losses on the sale of land create a partnership; the
parties are only tenants in common.’ (Clark vs. Sideway, 142 U.S.
682, 12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become
owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the
other not being entitled to share in plaintiff’s 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.)
568
‘In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally participating in both profits
and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract,
manage the business, and dispose of the whole property.’—
(Municipal Paving Co. vs. Herring, 150 P. 1067, 50 III 470.)
‘The common ownership of property does not itself create a
partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and use
of such property and the application of the proceeds therefrom.’—
6
(Spurlock vs. Wilson, 142 S.W. 363, 160 No. App. 14.)”
The sharing of returns does not in itself establish a

partnership whether or not the persons sharing therein
have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the
existence of a juridical personality different from the
individual partners, and the freedom of each party to
transfer or assign the whole property.
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
7
partners for
this unpaid obligation of the partnership. However, as
petitioners have availed of
_______________
6 Supra, pp. 150-151; italics supplied.

7 Article 1816. All partners, including industrial ones, shall be liable
pro rata with all their property and after all the partnership
569
VOL. 166, OCTOBER 18, 1988 569

the benefits of tax amnesty as individual taxpayers in these

transactions, they are thereby relieved of any farther tax
liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and
the decision of the respondent Court of Tax Appeals of
March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of
the corporate income tax liability in this case, without
pronouncement as to costs.
SO ORDERED.
Cruz, Griño-Aquino and Medialdea, JJ., concur.

Narvasa, J., no part by reason of relation to a party.
Petition granted. Decision reversed and set aside.
Notes.—Effecting a partition of the disputed properties

when issue of ownership is not definitely & finally resolved
is premature. (Fabrica vs. CA, 146 SCRA 250.)
View that undivided portion of a lot sold to a daughter-
in-law is a sale to the conjugal partnership of gains, hence,
her sisters and brothers-in-law cannot exercise the co-
owner’s right of redemption. (Villanueva vs. Florendo, 139
SCRA 329.)
——o0o——
_______________
assets have been exhausted, for the contracts which may be entered
into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However,
any partner may enter into a separate obligation to perform a partnership
contract. (Civil Code of the Philippines)
See also Articles 1817 and 1818, Supra.
570
7/17/2021 PHILIPPINE REPORTS ANNOTATED VOLUME 102
[No. L-9996. October 15, 1957]
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA

and FRANCISCA EVANGELISTA, petitioners, vs. THE
COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.
1. TAXATION; TAX ON CORPORATIONS INCLUDES

ORGANIZATIONS WHICH ARE NOT NECESSARILY
PARTNERSHIP.—"Corporations" strictly speaking are
distinct and different from "partnerships." When our
Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", it must allude
to organizations which are not necessarily "partnerships"
in the technical sense of the term.
2. ID.; DULY REGISTERED GENERAL PARTNERSHIPS

ARE EXEMPTED FROM TAX UPON CORPORATIONS.
—Section 24 of the Internal Revenue Code exempts from
the tax imposed upon corporations "duly registered
general partnerships", which constitute precisely one of
the most typical forms of partnerships in this jurisdiction.
3. ID. ; CORPORATION INCLUDES PARTNERSHIPS NO

MATTER HOW ORGANIZED.—As defined in section 84
(b) of the Internal Revenue Code "the term corporation
includes partnerships, no matter how created or
organized," This qualifying expression clearly indicates
that a joint venture need not be undertaken in any of the
standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporations.
4. ID.; CORPORATION INCLUDES "JOINT ACCOUNT"

AND ASSOCIATIONS WITHOUT LEGAL
PERSONALITY.—Pursuant to Section 84 (b) of the
Internal Revenue Code, the term "corporation" includes,
among others, "joint accounts (cuenta en participación)"
and "associations", none of which has a legal personality of
its own independent of that of its members. For
https://central.com.ph/sfsreader/session/0000017ab28ffb9c58707661000d00d40059004a/t/?o=False 1/13
141
VOL. 102, OCTOBER 15, 1957 141
Evangelista, et al. vs. Coll. of Int. Rev., et al.
purposes of the tax on corporations, our National Internal

Revenue Code includes these partnerships.—with the
exception only of duly registered general partnerships—
within the purview of the term "corporation." Held: That
the petitioners in the case at bar, who are engaged in real
estate transactions for monetary gain and divide the same
among themselves, constitute a partnership, so far as the
said Code is concerned, and are subject to the income tax
for corporation.
5. ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL

PERSONALITY SUBJECT TO RESIDENCE TAX ON
CORPORATION.—The pertinent part of the provision of
Section 2 of Commonwealth Act No. 465 which says: "The
term corporation as used in this Act includes joint-stock
company, partnership, joint account (cuentas en
participación), association or insurance company, no
matter how created or organized" is analogous to that of
Sections 24 and 84 (b) of our National Internal Revenue
Code, which was approved the day immediately after the
approval of said Commonwealth Act No. 465. Apparently,
the terms "cor'poration" and "Partnership" are used in
both statutes with substantially the same meaning, Held:
That the petitioners are subject also to the residence tax
for corporations.
PETITION for review by certiorari of a decision of the

Court of Tax Appeals.

Santiago F. Alidio and Angel S. Dakila, Jr., for
petitioner.
Solicitor General Ambrosio Padilla, Assistant Solicitor
General Esmeraldo Umali and Solicitor Felicísimo R.
Rosete for the respondents.
CONCEPCIÓN, J.:
This is a petition, filed by Eufemia Evangelista, Manuela

Evangelista and Francisca Evangelista, for review of a
decision of the Court of Tax Appeals, the dispositive part of
which reads:
"FOR ALL THE FOREGOING, we hold that the petitioners are

liable for the income tax, real estate dealer's tax and the residence
tax for the years 1945 to 1949, inclusive, in accordance with the
respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review
filed by petitioners is hereby dismissed with costs against
petitioners."
142
142 PHILIPPINE REPORTS ANNOTATED

It apears from the stipulation submitted by the parties:
"1. That the petitioners borrowed from their father the

sum of P59,140.00 which amount together with
their personal monies was used by them for the
purpose of buying real properties,
"2. That on February 2, 1943 they bought from Mrs.
Josefina Florentino a lot with an area of 8,718.40
sq. m. including improvements thereon for the sum
of P100,000.00; this property has an assessed value
of P57,517.00 as of 1948;
"3. That on April 3, 1944 they purchased from Mrs.
Josefa Oppus 21 parcels of land with an aggregate
area of 3,718.40 sq. m. including improvements
thereon for P18,000.00; this property has an
assessed value of P8,255.00 as of 1948;
"4. That on April 23, 1944 they purchased from the
Insular Investments, Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00.
This property has an assessed value of P4,983.00 as
of 1948;
"5. That on April 28, 1944 they bought from Mrs.
Valentin Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.14. This
property has an assessed value of P59,140.00 as of
1948;
"6. That in a document dated August 16, 1945, they
appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against
the defaulting tenant; to sign all letters, contracts,
etc., for and in their behalf, and to endorse and
deposit all notes and checks for them;
"7. That after having bought the above-mentioned real

properties, the petitioners had the same rented or
leased to various tenants;
"8. That from the month of March, 1945 up to and
including December, 1945, the total amount
collected as rents on their real properties was
P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income
of P5,948.33;
"9. That in 1946, they realized a gross rental income in
the sum of P24,786.30, out of which amount was
deducted the sum of P16,288.27 for expenses
thereby leaving them a net rental income of
P7,498.13;
"10. That in 1948 they realized a gross rental income of
P17,453.00 out of the which amount was deducted
the sum of P4,837.65 as expenses, thereby leaving
them a net rental income of P12,615.35."
It further appears that on September 24, 1954, respondent

Collector of Internal Revenue demanded the payment of
income tax on corporations, real estate dealer's fixed tax
and corporation residence tax for the years
143
VOL. 102, OCTOBER 15, 1957 143

1945-1949, computed, according to the assessments made

by said officer, as follows:
INCOME TAXES
1945 ........................................................... P614.84
1946 ........................................................... 1,144.71
1947 .............................................................. 910.34
1948 ........................................................... 1,912.30
1949 ........................................................... 1,575.90
Total including surcharge and compromise P6,157.09
.......
REAL ESTATE DEALER'S FIXED TAX
1946 ............................................................. P37.50
1947 ............................................................. 150.00
1948 ............................................................. 150.00
1949 ............................................................. 150.00

Total including penalty P527.50
........................................
RESIDENCE TAXES OF CORPORATION
1945 ............................................................. P38.75
1946 ............................................................. 38.75
1947 ............................................................. 38.75
1948 ............................................................. 38.75
1949 ............................................................. 38.75
Total including surchage P193.75
........................................
TOTAL TAXES DUE ........................................ P6,878.34
Said letter of demand and the corresponding assessments

were delivered to petitioners on December 3, 1954,
whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that "the decision of the
respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved
from the payment of the taxes in question, with costs
against the respondent.
After appropriate proceedings, the Court of Tax Appeals
rendered the above-mentioned decision for the respondent,
144

and, a petition for reconsideration and new trial having

been subsequently denied, the case is now before Us for
review at the instance of the petitioners.
The issue in this case is whether petitioners are subject
to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers'
fixed tax. With respect to the tax on corporations, the issue
hinges on the meaning of the terms "corporation" and
"partnership", as used in sections 24 and 84 of said Code,
the pertinent parts of which read:
"SEC. 24. Rate of tax on corporations.—There shall be levied,

assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the

Philippines, no matter how created or organized but not including
duly registered general co-partnerships. (compañias colectivas), a
tax upon such income equal to the sum of the following: * * *."
"SEC. 84(6). The term 'corporation' includes partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participación), associations or insurance
companies, but does not include duly registered general
copartnerships (companias colectivas)."
Article 1767 of the Civil Code of the Philippines provides:
"By the contract of partnership two or more persons bind

themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves."
Pursuant to this article, the essential elements of a

partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the
case at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and
145
VOL. 102, OCTOBER 15, 1957 145

circumstances surrounding the case, we are fully satisfied

that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found
already in existence. It was not a property inherited by
them pro indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof in order
to establish said common fund.
2. They invested the same, not merely in one
transaction, but in a series of transactions. On February 2,
1943, they bought a lot for ?100,000.00. On April 3, 1944,
they purchased 21 lots for P18,000.000. This was soon
followed, on April 23, 1944, by the acquisition of another
real estate for P108,825.00. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as
the brief interregnum between each, particularly the last

three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation
and preservation of the aforementioned common fund or
even of the property acquired by petitioners in February,
1943. In other words, one cannot but perceive a character
of habituality peculiar to business transactions engaged in
for purposes of gain.
3. The aforesaid lots were not devoted to residential
purposes, or to other personal uses, of petitioners herein.
The properties were leased separately to several persons,
who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still
being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under
the management of one person, namely, Simeon
Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts,
and
146

to indorse and deposit notes and checks. Thus, the affairs

relative to said properties have been handled as if the same
belonged to a corporation or business enterprise operated
for profit.
5. The foregoing conditions have existed for more than
ten (10) years, or, to be exact, over fifteen (15) years, since
the first property was acquired, and over twelve (12) years,
since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any
evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation
therefor.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership,
the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere
coowners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality

independent of that of its members, did not come into
existence, and some of the characteristics of partnerships
are lacking in the case at bar. This pretense was correctly
rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to
the tax on "corporations", said Code must allude, therefore,
to organizations which are not necessarily "partnerships",
in the technical sense of the term. Thus, for instance,
section 24 of said Code exempts from the aforementioned
tax "duly registered general partnerships", which
constitute precisely one of the most typical forms
147
VOL, 102, OCTOBER 15, 1957 147

Evangelista, et al. vs. Coll of Int. Rev., et al.
of partnerships in this jurisdiction. Likewise, as defined in

section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This
qualifying expression clearly indicates that a joint venture
need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted
for purposes of the tax on corporations. Again, pursuant to
said section 84(b), the term 'corporation" includes, among
other, "joint accounts, (cuentas en participación)" and
"associations", none of which has a legal personality of its
own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships
therein referred to. In fact, as above stated, "duly
registered general copartnerships"—which are possessed of
the aforementioned personality—have been expressly
excluded by law (sections 24 and 84 [b]) from the
connotation of the term "corporation." It may not be amiss
to add that petitioners' allegation to the effect that their
liability in connection with the leasing of the lots above
referred to, under the management of one person—even if
true, on which we express no opinion—tends to increase the
similarity between the nature of their venture and that of
corporations, and is, therefore, an additional argument in
favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States,

"corporations" are taxed differently from "partnerships". By
specific provision of said laws, such "corporations" include
"associations, joint-stock companies and insurance
companies." However, the term "association" is not used in
the aforementioned laws
"* * * in any narrow or technical sense. It includes any

organization, created for the transaction of designated affairs, or
the attainment of some object, which, like a corporation, continues
notwithstanding that its members or participants change, and the
affairs of which like corporate affairs. are conducted by a single
148

individual, a committee, a board, or some other group, acting in a

representative capacity. It is immaterial whether such
organization is created by an agreement, a declaration of trust, a
statute, or otherwise. It includes a voluntary association, a joint-
stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment'
trust (whether of the fixed or the management type), an
interinsurance exchange operating through an attorney in fact, a
partnership association, and *any other type of organization (by
whatever name known) which is not, within the meaning of the
Code, a trust or an estate, or a partnership." (7A Merten's Law of
Federal Income Taxation, p. 788; italics ours.)
Similarly, the American Law.
"* * * provides its own concept of a partnership. Under the term

'partnership' it includes not only a partnership as known at
common law but, as well, a syndicate, group, pool, joint venture, or
other unincorporated organization which carries on any business,
financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. * * *." (7A
Merten's Law of Federal Income Taxation, p. 789; italics ours.)
"The term 'partnership' includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is
carried on, * * *." (8 Merten's Law of Federal Income Taxation, p.
562 Note 63; italics ours.)
For purposes of the tax on corporations, our National

Internal Revenue Code, includes these partnerships with
the exception only of duly registered general
copartnerships—within the purview of the term

"corporation" It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for
corporations.
As regards the residence tax for corporations, "section 2
of Commonwealth Act No. 465 provides in part:
"Entities liable to residence tax.—Every corporation, no matter

how created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay an
annual residence tax of five pesos and an annual additional tax
which, in no case, shall exceed one thousand pesos, in accordance
with the following schedule: * * *
149
VOL. 102, OCTOBER 15, 1957 149

"The term 'corporation' as used in this Act includes joint-stock

company, partnership, joint account (cuentas en participación),
association or insurance company, no matter how created or
organized." (italics ours.)
Considering that the pertinent part of this provision is

analogous to that of sections 24 and 84(b) of our National
Internal Revenue Code (Commonwealth Act No. 466), and
that the latter was approved on June 15, 1939, the day
immediately after the approval of said Commonwealth Act
No. 465 (June 14, 1939), it is apparent that the terms
"corporation" and "partnership" are used in both statutes
with substantially the same meaning. Consequently,
petitioners are .subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have habitually
engaged in leasing the properties above mentioned for a
period of over twelve years, and that the yearly gross
rentals of said properties from 1945 to 1948 ranged from
P9,599 to P17,453. Thus, they are subject to the tax
provided in section 193 (q) of our National Internal
Revenue Code, for "real estate dealers," inasmuch as,
pursuant to section 194 (s) thereof:
" 'Real estate dealer' includes any person engaged in the business
of buying, selling, exchanging, leasing, or renting property or his
own account as principal and holding himself out as a full or
parttime dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of

three thousand pesos or more a year. * * *." (Italics ours.)
Wherefore, the appealed decision of the Court of Tax

Appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.
Parás, C. J., Bengzon, Padilla, Reyes, A., Reyes, J. B.

L., Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually

contributed money to a common fund with express
150

purpose of engaging in real estate business for profit. The

series of transactions which they had undertaken attest to
this. This appears in the following portion of of the
decision:
"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. On April 3, 1944, they purchased 21 lots for P18,000.
This was soon followed on April 23, 1944, by the acquisition of
another real estate for P108,825. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14. The number of lots
(24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases,
is strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the afore-
mentioned common fund or even of the property acquired by
petitioner in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain."
I wish however to make the following observation: Article

1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2
and 3, provides:
"(2) Co-ownership or co-possession does not of itself establish a

partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
"(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a joint
or common interest in any property from which the
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.
means that, aside from the circumstance of profit, the
presence of other elements constituting
151
VOL. 102, OCTOBER 15, 1957 151

partnership is necessary, such as the clear intent to form a

partnership, the existence of a juridical personality
different from that of the individual partners, and the
freedom to transfer or assign any interest in the property
by one with the consent of the others (Padilla, Civil Code of
the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636).
It is evident that an isolated transaction whereby two or
more persons contribute funds to buy certain real estate for
profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.
"Persons who contribute property or funds for a common

enterprise and agree to share the gross returns of that enterprise
in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business
itself which the proceeds derived." (Elements of the law of
Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)
"A joint purchase of land, by two, does not constitute a
copartnership in respect thereto; nor does an agreement to share
the profits and losses on the sale of land create a partnership; the
parties are only tenants in common." (Clark vs. Sideway, 142 U.
S. 682, 12 S. Ct. 327, 35 L. Ed., 1157.)
"Where plaintiff, his brother, and another agreed to become
owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the
other not being entitled to share in plaintiff's commissions, 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 a 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, 50 111.
470.) "The common ownership of property does not itself create a
partnership between .the owners, though they may use it for
purpose of making gains; and they may, without becoming
partners,
152

Cabansag vs. Fernandez, et al.
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.)
This is impliedly recognized in the following portion of the

decision: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership,
the collective effect of these circumstances (referring to the
series of transactions) such as to leave no room for doubt on
the existence of said intent in petitioners herein."
Decision affirmed.
_______________

Tocao vs. Court of Appeals
*
G.R. No. 127405. October 4, 2000.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs. COURT OF APPEALS and NENITA A. ANAY,
respondents.
Partnerships; Appeals; The issue of whether or not a

partnership exists is a factual matter which are within the
exclusive domain of both the trial court and the Court of Appeals.
—The issue of whether or not a partnership exists is a factual
matter which are within the exclusive domain of both the trial
and appellate courts. This Court cannot set aside factual findings
of such courts absent any showing that there is no evidence to
support the conclusion drawn by the court a quo. In this case,
both the trial court and the Court of Appeals are one in ruling
that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
Same; Requisites for a Partnership to Have Juridical
Personality; Since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one; Where no
immovable property or real rights are involved, what matters is
that the parties have complied with the requisites of a partnership.
—To be considered a juridical personality, a partnership must
fulfill these requisites: (1) two or more persons bind
______________
* FIRST DIVISION.
21
VOL. 342, OCTOBER 4, 2000 21
https://central.com.ph/sfsreader/session/0000017ab2940c0fa5656ecc000d00d40059004a/t/?o=False 1/22
themselves to contribute money, property or industry to a

common fund; and (2) intention on the part of the partners to
divide the profits among themselves. It may be constituted in any
form; a public instrument is necessary only where immovable
property or real rights are contributed thereto. This implies that
since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one. Where no immovable
property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The
fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the
partnership agreement pursuant to Article 1772 of the Civil Code
did not cause the nullification of the partnership. The pertinent
provision of the Civil Code on the matter states: Art. 1768. The
partnership has a juridical personality separate and distinct from
that of each of the partners, even in case of failure to comply with
the requirements of article 1772, first paragraph.
Same; Guaranty; While Article 2055 of the Civil Code simply
provides that guaranty must be “express,” Article 1403, the Statute
of Frauds, requires that “a special promise to answer for the debt,
default or miscarriage of another” be in writing.—Petitioner Belo’s
denial that he financed the partnership rings hollow in the face of
the established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his
having authorized in writing on October 7, 1987, on a stationery
of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of
her personal sales, could not be interpreted otherwise than that
he had a proprietary interest in the business. His claim that he
was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a
guarantor of future debts of petitioner Tocao under Article 2053 of
the Civil Code, he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that
guaranty must be “express,” Article 1403, the Statute of Frauds,
requires that “a special promise to answer for the debt, default or
miscarriage of another” be in writing.
Same; Employer-Employee Relationship; While it is true that
the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business, the
evidence in the instant case at bar controverts an employer-
employee relationship between the parties.—The business venture
operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private
respondent. While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the recipient is a
partner in the
22
business, the evidence in the case at bar controverts an employer-

employee relationship between the parties. In the first place,
private respondent had a voice in the management of the affairs
of the cookware distributorship, including selection of people who
would constitute the administrative staff and the sales force.
Secondly, petitioner Tocao’s admissions militate against an
employer-employee relationship. She admitted that, like her who
owned Geminesse Enterprise, private respondent received only
commissions and transportation and representation allowances
and not a fixed salary.
Same; Same; If indeed a person is employed by another, it is
difficult to believe that the former and the latter shall receive the
same income in the business.—If indeed petitioner Tocao was
private respondent’s employer, it is difficult to believe that they
shall receive the same income in the business. In a partnership,
each partner must share in the profits and losses of the venture,
except that the industrial partner shall not be liable for the losses.
As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her
share in the net profit.
Same; The best evidence of the existence of the partnership,
which is not yet terminated (though in the winding up stage), are
the unsold goods and uncollected receivables.—Petitioners
underscore the fact that the Court of Appeals did not return the
“unaccounted and unremitted stocks of Geminesse Enterprise
amounting to P208,250.00.” Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership between
them. In Idos v. Court of Appeals, this Court said: “The best
evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold
goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. x x
x.”
Same; Dissolution of Partnerships; A mere falling out or
misunderstanding between partners does not convert the
partnership into a sham organization—the partnership exists until
dissolved under the law.—Undoubtedly, petitioner Tocao
unilaterally excluded private respondent from the partnership to
reap for herself and/or for petitioner Belo financial gains resulting
from private respondent’s efforts to make the business venture a
success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she
would even shout at private respondent in front of other people.
Her instruction to
23
VOL. 342, OCTOBER 4, 2000 23
Lina Torda Cruz, marketing manager, not to allow private

respondent to hold office in both the Makati and Cubao sales
offices concretely spoke of her perception that private respondent
was no longer necessary in the business operation, and resulted in
a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the
partnership into a sham organization. The partnership exists
until dissolved under the law.
Same; Same; Any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will, though he must,
however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in
a liability for damages; An unjustified dissolution by a partner
can subject him to action for damages.——Since the partnership
created by petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner.
Thus: “x x x. 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 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 partnership but that it
can result in a liability for damages.” An unjustified dissolution
by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of
delectus personae allows the partners to have the power, although
not necessarily the right to dissolve the partnership.
Same; Same; Even if one partner had effected her own
withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of

the business, the partnership was not terminated thereby—it
continues until the winding up of the business.—Petitioner Tocao’s
unilateral exclusion of private respondent from the partnership is
shown by her memo to the Cubao office plainly stating that
private respondent was, as of October 9, 1987, no longer the vice-
president for sales of Geminesse Enterprise. By that memo,
petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.
24


Court of Appeals.

Fortunato M. Lira Law Office for petitioners.
Rodolfo D. Mapile for private respondent.
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision

1
of the Court of
Appeals in CA-G.R. CV No. 41616, affirming the Decision
of the Regional Trial
2
Court of Makati, Branch 140, in Civil
Case No. 88-509.
Fresh from her stint as marketing adviser of Technolux
in Bangkok, Thailand, private respondent Nenita A. Anay
met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her
former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of
marketing the product considering her experience and
established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin, U.S.A. Under
the joint venture, Belo acted as capitalist, Tocao as
president and general manager, and Anay as head of the
marketing department and later, vice-president for sales.
Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined
commissions and/or salaries of the employees, and assigned

them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they
agreed to use Anay’s name in securing distributorship of
cookware from that company. The parties agreed further
that Anay would be entitled to: (1) ten percent (10%) of the
annual net profits of the business; (2) overriding
commission of six percent
______________
1 Presiding Justice Nathanael P. de Pano, Jr., ponente, Associate

Justices Fermin A. Martin, Jr. and Conchita Carpio Morales, concurring.
2 Presided by Judge Leticia P. Morales.
25
VOL. 342, OCTOBER 4, 2000 25

(6%) of the overall weekly production; (3) thirty percent

(30%) of the sales she would make; and (4) two percent (2%)
for her demonstration services. The agreement was not
reduced to writing on the strength of Belo’s assurances that
he was sincere, dependable and honest when it came to
financial commitments.
Anay having secured the distributorship of cookware
products from the West Bend Company and organized the
administrative staff and the sales force, the cookware
business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao’s name, with office at 712
Rufino Building, Ayala Avenue, Makati City. Belo made
good his monetary commitments to Anay. Thereafter,
Roger Muencheberg of West Bend Company invited Anay
to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern
regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with
the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a
letter to the Visa Section of the U.S. Embassy in Manila on
July 13, 1987. A portion of the letter reads:
“Ms. Nenita D. Anay (sic), who has been patronizing and

supporting West Bend Co. for twenty (20) years now, acquired the
distributorship of Royal Queen cookware for Geminesse
Enterprise, is the Vice President Sales Marketing and a business

partner of our company,
3
will attend in response to the invitation.”
(Italics supplied.)
Anay arrived from the U.S.A. in mid-August 1987, and

immediately undertook the task of saving the business on
account of the unsatisfactory sales record in the Makati
and Cubao offices. On August 31, 1987, she received a
plaque of appreciation from the 4administrative and sales
people through Marjorie Tocao for her excellent job
performance. On October
5
7, 1987, in the presence of Anay,
Belo signed a memo entitling her to a thirty-seven percent
(37%) commission for her personal sales “up Dec 31/87.”
Belo ex-
_____________
3 Exh. VV.
4 Exh. WW.
5 Exh. CC.
26

plained to her that said commission was apart from her ten
percent (10%) share in the profits. On October 9, 1987,6
Anay learned that Marjorie Tocao had signed a letter
addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise.
The following day, October 10, she received a note from
Lina T. Cruz, marketing manager, that Marjorie Tocao had
barred her from holding office and conducting 7
demonstrations in both Makati and Cubao offices. Anay
attempted to contact Belo. She wrote him twice to demand
her overriding commission for the period of January 8,
1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. When her letters
were not answered, Anay consulted her lawyer, who, in
turn, wrote Belo a letter. Still, that letter was not
answered.
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year, 1988,
she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case
8
No. 88-
509, a complaint for sum of money with damages against
Marjorie D. Tocao and William Belo before the Regional

Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be
ordered to pay her, jointly and severally, the following: (1)
P32,000.00 as unpaid overriding commission from January
8, 1988 to February 5, 1988; (2) P100,000.00 as moral
damages; and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business
operation until she was “illegally dismissed” to determine
her ten percent (10%) share in the net profits. She further
prayed that she be paid the five percent (5%) “overriding
commission” on the remaining 150 West Bend cookware
sets before her “dismissal.”
9
In their answer, Marjorie Tocao and Belo asserted that
the “alleged agreement” with Anay that was “neither
reduced in writ-
______________
6 Exh. JJ.
7 Exh. HH.
8 Rollo, pp. 67-73.
9 Rollo, pp. 79-82.
27
VOL. 342, OCTOBER 4, 2000 27

ing, nor ratified,” was “either unenforceable or void or

inexistent.” As far as Belo was concerned, his only role was
to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing
demonstrator of Geminesse Enterprise for an agreed
remuneration, and her complaint referred to either her
compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the
regular court.
Petitioners (defendants therein) further alleged that
Anay filed the complaint on account of “ill-will and
resentment” because Marjorie Tocao did not allow her to
lord it over in the Geminesse Enterprise.” Anay had acted
like she owned the enterprise because of her experience
and expertise. Hence, petitioners were the ones who
suffered actual damages “including unreturned and
unaccounted stocks of Geminesse Enterprise,” and “serious

anxiety, besmirched reputation in the business world, and
various damages not less than P500,000.00.” They also
alleged that, to “vindicate their names,” they had to hire
counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to:
(a) whether or not the plaintiff was an employee or partner
of Marjorie Tocao and Belo, and 10
(b) whether or not the
parties are entitled to damages.
In their defense, Belo denied that Anay was supposed to
receive a share in the profit of the business. He, however,
admitted that the two had agreed that Anay would receive
a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote
the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture
at the request of Tocao, because Anay had no other income.
____________
10 Record, p. 71.
28

For her part, Marjorie Tocao denied having entered into an

oral partnership agreement with Anay. However, she
admitted that Anay was an expert in the cookware
business and hence, they agreed to grant her the following
commissions: thirty-seven percent (37%) on personal sales;
five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed
on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business
out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean
friend-financier who loaned her the funds with interest.
Because she treated Anay as her “co-equal,” Marjorie
received the same amounts of commissions as her.
However, Anay failed to account for stocks valued at

P200,000.00.
On April 22, 1993, the trial court rendered a decision the
dispositive part of which is as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby

rendered:
1. Ordering defendants to submit to the Court a formal

account as to the partnership affairs for the years 1987
and 1988 pursuant to Art. 1809 of the Civil Code in order
to determine the ten percent (10%) share of plaintiff in the
net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding
commission for the one hundred and fifty (150) cookware
sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding
commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral
damages and P 100,000.00 as exemplary damages; and
5. Ordering defendants to pay P50,000.00 as attorney’s fees
and P20,000.00 as costs of suit.
SO ORDERED.”
The trial court held that there was indeed an “oral

partnership agreement between the plaintiff and the
defendants,” based on the following: (a) there was an
intention to create a partnership; (b) a
29
VOL. 342, OCTOBER 4, 2000 29

common fund was established through contributions

consisting of money and industry; and (c) there was a joint
interest in the profits. The testimony of Elizabeth Bantilan,
Anay’s cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by
Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of
Roger Muencheberg of West Bend Company stating that he
awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjorie’s financial
contribution and Anay’s experience, the combination of the

two would be invaluable to the partnership, also supported
that conclusion. Belo’s claim that he was merely a
“guarantor” has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil
Code. Moreover, his acts of attending and/or presiding over
meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales
belied this. On the contrary, it demonstrated his
involvement as a partner in the business.
The trial court further held that the payment of
commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to
in business circles as an impetus to bigger sales volume. It
did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a
partnership may be “constituted in any form.” The fact that
Geminesse Enterprise was registered in Marjorie Tocao’s
name is not determinative of whether or not the business
was managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of
Geminesse Enterprise.
The trial court finally held that a partner who is
excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as damages
or share in the profits “realized from the appropriation of
the partnership business and goodwill.” An innocent
partner thus possesses “pecuniary interest in every
existing contract that was incomplete and in the trade
name of the co-partnership and assets at the time he was
wrongfully expelled.”
30

11
Petitioners’ appeal to the Court of Appeals was dismissed,
but the amount of damages awarded by the trial court were
reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration 12
was denied by the Court of Appends for lack of merit.
Petitioners Belo and Marjorie Tocao are now before this
Court on a petition for review on certiorari, asserting that
there was no business partnership between them and
herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by

the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of
Appeals erroneously held that a partnership existed
between them and private respondent Anay because
Geminesse Enterprise “came into being” exactly a year
before the “alleged partnership” was formed, and that it
was very unlikely that petitioner Belo would invest the
sum of P2,500,000.00 with petitioner Tocao contributing
nothing, without any “memorandum
13
whatsoever regarding
the alleged partnership.”
The issue of whether or not a partnership exists is a
factual matter which are within the exclusive domain of
both the trial and appellate courts. This Court cannot set
aside factual findings of such courts absent any showing
that there is no evidence
14
to support the conclusion drawn
by the court a quo, In this case, both the trial court and
the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership.
This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership
must fulfill these requisites: (1) two or more persons bind
common fund; and (2) intention on the part of 15
the partners
to divide the profits among themselves. It may be
constituted in any form; a public instru-
____________
11 Decision dated August 9, 1996; Rollo, pp. 24-37.

12 Resolution dated December 5, 1996: Rollo, pp. 39-43.
13 Petition, p. 15.
14 Alicbusan v. Court of Appeals, 336 Phil. 321, 326-327; 269 SCRA 336,
341 (1997).
15 Civil Code, Art. 1767; Fue Leung v. Intermediate Appellate Court,
169 SCRA 746, 754 (1989); citing Yulo v. Yang Chiao Cheng, 106 Phil. 110
(1959).
31
VOL. 342, OCTOBER 4, 2000 31

ment is necessary only where 16immovable property or real

rights are contributed thereto. This implies that since a
contract of partnership is consensual, an oral contract of
partnership is as good as a written one. Where no
immovable property or real rights are involved, what
matters is that the parties have complied with the

requisites of a partnership. The fact that there appears to
be no record in the Securities and Exchange Commission of
a public instrument embodying the partnership17
agreement
pursuant to Article 1772 of the Civil Code did not cause
the nullification of the partnership. The pertinent provision
of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate

and distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772, first
paragraph.
Petitioners admit that private respondent had the

expertise to engage in the business of distributorship of
cookware. Private respondent contributed such expertise to
the partnership and hence, under the law, she was the
industrial or managing partner. It was through her
reputation with the West Bend Company that the
partnership was able to open the business of
distributorship of that company’s cookware products; it was
through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private
respondent’s indispensable role in putting up the business
when, upon being asked if private respondent held the
positions of marketing manager and vice-president for
sales, she testified thus:
____________
16 Civil Code, Art. 1771; Agad v. Mabato, 132 Phil. 634, 636; 23 SCRA
1223 (1968).
17 Civil Code, Art. 1772. Every contract of partnership having a capital
of three thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the Securities
and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members thereof to
third persons.
32

“A: No, sir at the start she was the marketing manager
because there were no one to sell yet, it’s only me there
then her and then two (2) people, so about four (4).
Now, after that when she recruited already Oscar
Abella and Lina Torda-Cruz these two (2) people were

given the designation of marketing managers of which
definitely Nita
18
as superior to them would be the Vice
President.”
By the set-up of the business, third persons were made to

believe that a partnership had indeed been forged between
petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West
Bend Company to Roger Muencheberg of the same
company states:
“Marge Tocao is president of Geminesse Enterprises. Geminesse

will finance the operations. Marge does not have cookware
experience. Nita Anay has started to gather former managers,
Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier.
They will continue to gather other key people and build up the
organization.
19
All they need is the finance and the products to
sell.”
On the other hand, petitioner Belo’s denial that he financed

the partnership rings hollow in the face of the established
fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his
having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven
(37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of
future debts
20
of petitioner Tocao under Article 2053 of the
Civil Code, he should have presented docu-
____________
18 TSN, November 12, 1991, p. 49.

19 Exh. C-5-A.
20 Civil Code, Art. 2053. A guaranty may also be given as security for
future debts, the amount of which is not yet known; there can be no claim
33
VOL. 342, OCTOBER 4, 2000 33

mentary evidence therefor. While Article 2055 of the Civil

Code simply provides that guaranty must be “express,”
Article 1403, the Statute of Frauds, requires that “a special
promise to answer for21the debt, default or miscarriage of
another” be in writing. 22
Petitioner Tocao, a former ramp model, was also a
capitalist in the partnership. She claimed that she herself
financed the business. Her and petitioner Belo’s roles as
both capitalists to the partnership with private respondent
are buttressed by petitioner Tocao’s admissions that
petitioner Belo was her boyfriend and that the partnership
was not their only business venture together. They also
established a firm that they called “Wiji,” the combination
of petitioner
23
Belo’s first name, William, and her nickname,
Jiji. The special relationship between them dovetails with
petitioner Belo’s claim that he was acting in behalf of
petitioner Tocao. Significantly, in the early stage of the
business operation, petitioners requested West Bend
Company to allow them to “utilize their banking and
trading facilities in Singapore” in the matter
24
of importation
and payment of the cookware products. The inevitable
conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the
partnership of distributing cookware with private
respondent as the managing partner.
The business venture operated under Geminesse
Enterprise did not result in an employer-employee
relationship between petitioners and private respondent.
While it is true that the receipt of a percentage of net
profits constitutes only prima facie25 evidence that the
recipient is a partner in the business, the evidence in the
case at bar controverts an employer-employee relationship
between the parties. In the first place, private respondent
had a voice in the management
26
of the affairs of the
cookware distributorship, in-against the guarantor until
the debt is liquidated. A conditional obligation may also be
secured.
_____________
21 V TOLENTINO, CIVIL CODE OF THE PHILIPPINES, p. 507, 1992

ed.
22 TSN, November 12, 1991, p. 4.
23 Ibid., p. 44.
24 Exh. C-4; TSN, December 16, 1991, pp. 15-18.
25 Sardane v. Court of Appeals, 167 SCRA 524, 530-531 (1998).
26 Ibid.
34

cluding selection of people who would constitute the

administrative staff and the sales force. Secondly,
petitioner Tocao’s admissions militate against an employer-
employee relationship. She admitted
27
that, like her who
owned Geminesse Enterprise, private respondent received
only commissions
28
and transportation 29and representation
allowances and not a fixed salary. Petitioner Tocao
testified:
“Q: Of course. Now, I am showing to you certain

documents already marked as Exhs. ‘X’ and ‘Y.’ Please
go over this. Exh. ‘Y’ is denominated ‘Cubao overrides’
8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you
ever came across this document and know of your own
knowledge the amount—
A: Yes, sir this is what I am talking about earlier. That’s
the one I am telling you earlier a certain percentage
for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive,
there is a figure here and words which I quote:
‘Overrides Marjorie Ann Tocao P21,410.50’ this means
that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are
saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I
quote ‘Nita D. Anay P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are
telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because
the way I look at her kasi, you know in a sense because
of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the
same thing.
______________
27 TSN, November 12, 1991, p. 54.

28 Ibid., pp. 52-53.

29 Ibid., p. 50.
35
VOL. 342, OCTOBER 4, 2000 35

Q: So, in short you are saying that this you have shared
together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were
treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: Iam calling again your attention to Exh. ‘Y’ ‘Overrides
Makati the other one is—
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides
Marjorie Ann Tocao P15,314.25’ the amount there you
will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation,
promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay
P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by
coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your
equal?
30
A: Yes, sir.” (Italics supplied.)
If indeed petitioner Tocao was private respondent’s

employer, it is difficult to believe that they shall receive the
same income in the business. In a partnership, each
partner must share in the profits and losses of the venture,
except 31that the industrial partner shall not be liable for the
As an industrial partner, private respondent had the right to demand for
losses.
a formal accounting of the business and to receive her share in the net profit.
32
36

The fact that the cookware distributorship was operated

under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. What was registered with
the Bureau of Domestic Trade on 33August 19, 1987 was
merely the name of that enterprise. While it is true that
in her undated application for renewal of registration of
that firm name, petitioner Tocao indicated that it would be
engaged34 in retail of “kitchenwares, cookwares, utensils,
skillet,” she also admitted that the enterprise was only
“60% to 70% for the cookware business,” while 20% to 30%
of its business activity
35
was devoted to the sale of water
sterilizer or purifier. Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons
—it was utilized as the common name for petitioner Tocao’s
various business activities, which included the
distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals
did not return the “unaccounted and unremitted stocks of 36
Geminesse Enterprise amounting to P208,250.00.”
Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves
the existence of a partnership between them. In Idos v.
Court of Appeals, this Court said:
“The best evidence of the existence of the partnership, which was

not yet terminated (though in the winding up stage), were the
unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the
petitioner
37
and private complainant remained as co-partners, x x
x.”
It is not surprising then that, even after private respondent

had been unceremoniously booted out of the partnership in
October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded
private respondent from the partnership to reap for herself
and/or for peti-
______________
33 Exh. 5.
34 Exh. 5-A.
35 TSN, November 12, 1991, p. 42.

36 Petition, p. 10; Rollo, p. 18.
37 296 SCRA 194, 206 (1998).
37
VOL. 342, OCTOBER 4, 2000 37

tioner Belo financial gains resulting from private

respondent’s efforts to make the business venture a
success. Thus, as petitioner Tocao became adept in the
business operation, she started to assert herself to the
extent that she would 38
even shout at private respondent in
front of other people. Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent
39
was no longer necessary in the business operation, and
resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does 40
not
convert the partnership into a sham organization. The
partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:
“x x x. 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 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 of41the partnership but that it can result in a liability
for damages.”
An unjustified dissolution by a partner can subject him to

action for damages because by the mutual agency that
arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although 42
not
necessarily the right to dissolve the partnership.
_____________
38 TSN, June 14, 1989, pp. 5-6.
39 TSN, November 12, 1991, p. 35.

40 Muñasque v. Court of Appeals, 139 SCRA 533, 540 (1985).
41 Ortega v. Court of Appeals, 315 Phil. 573, 580-581; 245 SCRA 529,
535-536 (1995).
42 Ibid., at p. 581.
38

In this case, petitioner Tocao’s unilateral exclusion of

private respondent from the partnership is shown by her
memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer 43
the vice-
president for sales of Geminesse Enterprise. By that
memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of the
business. Nevertheless, the partnership was not
terminated thereby;
44
it continues until the winding up of
the business.
The winding up of partnership affairs has not yet been
undertaken by the partnership. This is manifest in
petitioners’ claim for stocks that had been entrusted to
private respondent in the pursuit of the partnership
business.
The determination of the amount of damages
commensurate with the factual findings upon 45
which it is
based is primarily the task of the trial court. The Court of
Appeals may modify that amount only when its factual
findings
46
are diametrically opposed to that of the lower
court, or the award is 47
palpably or scandalously and
unreasonably excessive. However, exemplary damages
that are awarded
48
“by way of example or correction for the
public good,” should be reduced to P50,000.00, the amount
correctly awarded by the Court of Appeals. Concomitantly,
the award of moral damages of P100,000.00 was excessive
and should be likewise reduced to P50,000.00. Similarly,
attorney’s fees that should be granted on account of the
award of exemplary damages and petitioners’ evident bad
faith in refusing to satisfy private 49
respondent’s plainly
valid, just and demandable claims, appear to have been
excessively granted by the trial court and should therefore
be reduced to P25,000.00.
____________
43 Exh. 7.
44 Singsong v. Isabela Sawmill, 88 SCRA 623 (1979).
45 Air France v. Carrascoso, 124 Phil. 722, 742; 18 SCRA 155 (1966).
46 Prudencio v. Alliance Transport System, Inc., 148 SCRA 440, 447
(1987).
47 Ibid., Philippine Airlines, Inc. v. Court of Appeals, 226 SCRA 423,
425 (1993).
48 Civil Code, Art. 2229.
49 Civil Code, Art. 2208 (1) & (5).
39
VOL. 342, OCTOBER 4, 2000 39

WHEREFORE, the instant petition for review on certiorari

is DENIED. The partnership among petitioners and
private respondent is ordered dissolved, and the parties are
ordered to effect the winding up and liquidation of the
partnership pursuant to the pertinent provisions of the
Civil Code. This case is remanded to the Regional Trial
Court for proper proceedings relative to said dissolution.
The appealed decisions of the Regional Trial Court and the
Court of Appeals are AFFIRMED with MODIFICATIONS,
as follows—
1. Petitioners are ordered to submit to the Regional

Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine
private respondent’s ten percent (10%) share in the
net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay
private respondent five percent (5%) overriding
commission for the one hundred and fifty (150)
cookware sets available for disposition since the
time private respondent was wrongfully excluded
from the partnership by petitioners;
private respondent overriding commission on the
total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of
P50,000.00 and attorney’s fees in the amount of

P25,000.00.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and

Pardo, JJ., concur.
Petition denied, judgments of the trial court and the

Court of Appeals affirmed with modifications.
Notes.—The issue as to whether there is still a

partnership between the parties is a factual matter.
(Alicbusan vs. Court of Appeals, 269 SCRA 336 [1997])
40

Secretary of Education, Culture and Sports vs. Court of
Appeals
A partnership may be deemed to exist among parties who

agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their
own to a “common fund,” as their contribution to such fund
could be an intangible like credit or industry. (Lim Tong
Lim vs. Philippine Fishing Gear Industries, Inc., 317 SCRA
728 [1999])
——o0o——
[No. 45425. April 29, 1939]
JOSE GATCHALIAN ET AL., plaintiffs and appellants, vs.

THE COLLECTOR OF INTERNAL REVENUE, defendant
and appellee.
1. PARTNERSHIP OF A CIVIL NATURE; COMMUNITY

OF PROPERTY; SWEEPSTAKES; INCOME TAX.—
According to the stipulated 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 P50,000 (article 1665, Civil Code).
The partnership was not only formed, but upon the
organization thereof and the winning of the prize, J. G.
personally appeared in the office of the Philippine Charity
Sweepstakes, in his capacity as co-partner, as such
collected the prize, the office issued the check for ?50,000
in favor of J. G. and company, and the said partner, in the
same capacity, collected the check. All these circumstances
repel the idea that the plaintiffs organized and formed a
community of property only.
2. ID.; ID.; ID.; ID.—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
plaintiffs' contention that the tax should be prorated
among them and paid individually, resulting in their
exemption from the tax.
APPEAL from a judgment of the Court of First Instance of

Bulacan. Sison, J.
The facts are stated in the opinion of the court.
Guillermo B. Reyes for appellants.
Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the

defendant Collector of Internal Revenue the sum of
https://central.com.ph/sfsreader/session/0000017ab2952493b0221993000d00d40059004a/t/?o=False 1/10
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 case on October 23, 1936 by
the Court of First Instance of the City of Manila, which
dismissed the action with the costs against them.
667
VOL. 67, APRIL 29, 1939 667

Gatchalian vs. Collector of Internal Revenue.
The case was submitted for decision upon the following

stipulation of facts:
"Come now the parties to the above-mentioned case, through their

respective undersigned attorneys, and hereby agree to
respectfully submit to this Honorable Court the case upon the
following statement of facts:
"1. That plaintiffs are all residents of the municipality of

Pulilan, Bulacan, and that defendant is the Collector of
Internal Revenue of the Philippines;
"2. That prior to December 15, 1934 plaintiffs, in order to
enable them to purchase one sweepstakes ticket valued at
two pesos (P2), subscribed and paid therefor the amounts
as follows:
1. Jose Gatchalian P0.18

..................................................................................................
2. Gregoria Cristobal .18
..............................................................................................
3. Saturnina Silva .08
....................................................................................................
4. Guillermo Tapia .13
.................................................................................................
5. Jesus Legaspi .15
......................................................................................................
6. Jose Silva .07
...........................................................................................................
7. Tomasa Mercado .08
...............................................................................................
8. Julio Gatchalian .13
.................................................................................................
9. Emiliana Santiago .18
..............................................................................................
10. Maria C. Legaspi .16
................................................................................................
11. Francisco Cabral .13
................................................................................................
12. Gonzalo Javier .14
..................................................................................................
13. Maria Santiago .17
..................................................................................................
14. Buenaventura Guzman .13
.......................................................................................
15. Mariano Santos .14
.................................................................................................
Total 2.00
...........................................................................................................
"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
668

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 inclosed 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 the 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 Exhibits 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 amounts put up by each of the
plaintiffs to cover up the cost price of P2 of said ticket,
copy of which statement is 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
hereof;
"8. That the defendant in his letter dated January 28, 1935, a
copy of which marked Exhibit G is enclosed, de
669
VOL. 67, APRIL 29, 1939 669

nied 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 plaintiffs' 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 inclosed 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
670

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 the bond filed by them, the defendant in his
letter dated July 23, 1935, copy of which is attached and
marked Exhibit M, ordered the municipal treasurer of
Pulilan, Bulacan to execute within five days the warrant
of distraint and levy issued against the plaintiffs on May
13,1935;
"15. That in order to avoid annoyance and embarrassment
arising from the levy of their property, the plaintiffs on
August 28, 1936, through Jose Gatchalian, Guillermo
Tapia, Maria Santiago and Emiliano Santiago, paid under
protest to the municipal treasurer of Pulilan, Bulacan the
sum of P1,260.93 representing the unpaid balance of the
income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is
attached and marked Exhibit N and made a part hereof;
and that on September 3, 1936, the plaintiffs formally
protested to the defendant against the payment of said
amount and requested the refund 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 and denied the refund thereof; copy of which is
attached and marked Exhibit P and made a part hereof;
and
"16. That plaintiffs demanded upon defendant the refund .of
the total sum of one thousand eight hundred and
sixtythree pesos and forty-four centavos (P1,863.44) paid
under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the
plaintiffs' demands.
"17. The parties hereto reserve the right to present other and
additional evidence if necessary."
Exhibit E referred to in the stipulation is of the following

tenor:
"To whom it may concern:
671
VOL. 67, APRIL 29, 1939 671

"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 share on ticket No. 178637 to thepersons and for the
amount indicated below and the partof my share remaining is also
shown to wit:
Purchaser Amount Address

1. Mariano Santos P0.14 Pulilan,
........................................................... Bulacan.
2. Buenaventura Guzman .13 Do.
.................................................
3. Maria Santiago .17 Do.
............................................................
4. Gonzalo Javier .14 Do.
............................................................
5. Francisco Cabral .13 Do.
..........................................................
6. Maria C. Legaspi .16 Do.
.........................................................
7. Emiliana Santiago .13 Do.
.......................................................
8. Julio Gatchalian .13 Do.
..........................................................
Purchaser Amount Address

9. Jose Silva .07 Do.
.....................................................................
10. Tomasa Mercado .08 Do.
.........................................................
11. Jesus Legaspi .15 Do.
...............................................................
12. Guillermo Tapia .13 Do.
...........................................................
13. Saturnina Silva .08 Do.
.............................................................
14. Gregoria Cristobal .18 Do.
........................................................
15. Jose Gatchalian .18 Do.
............................................................
2.00 Total cost
of
said ticket; and that, therefore, the persons named above are
entitled to the parts of whatever prize that might be won by said
ticket.
"Pulilan, Bulacan, P, I.
(Sgd.) "JOSE GATCHALIAN"
And a summary of Exhibits D-1 to D-15 is inserted in the

bill of exceptions as follows:
"RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX

RETURNS FOR 1934 ALL DATED JANUARY 19, 1935
SUBMITTED f O THE COLLECTOR OF INTERNAL
REVENUE.
Name Exhibit Purchase Price Expenses Net

No. Price Won
prize
1. Jose Gatchalian D-1 P0.18 P4,425 P480 3,945

..............................
2. Gregoria Cristobal D-2 .18 4,575 2,000 2,575
..........................
3. Saturnina Silva D-3 .08 1,875 360 1,515
...............................
4. Guillermo Tapia D-4 .13 3,325 360 2,965
............................
5. Jesus Legaspi by D-5 .16 3,825 720 3,105
Maria

Cristobal
..................................
6. Jose Silva D-6 .08 1,875 360 1,515
......................................
672

7. Tomasa Mercado D-7 .07 1,875 360 1,515

..........................
8. Julio Gatchalian by Bea- D-8 .13 3,150 240 2,910
triz Guzman
.............................
9. Emiliana Santiago D-9 .13 3,325 360 2,966
.........................
10. Maria C. Legaspi D- .16 4,100 960 3,140
......................... 10
11. Francisco Cabral D- .13 3,325 360 2,965
......................... 11
12. Gonzalo Javier D- .14 3,325 360 2,965
............................ 12
13. Maria Santiago D- .17 4,350 360 3,990
............................ 13
14. Buenaventura Guzman D- .13 3,325 360 2,965
................ 14
15. Mariano Santos D- .14 3,325 360 2,965
.......................... 15
2.00 50,000"
The legal questions raised in plaintiffs-appellants' five

assigned errors may properly be reduced to the two
following: (1) Whether the plaintiffs formed a partnership,
or merely a community of property without a personality of
its own; in 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 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 participación),
association or insurance company, organized in the Philippine
Islands, no matter how created or organized, but not including
duly registered general copartnerships (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 participación),
association, or insurance
673
VOL. 67, APRIL 29, 1939 673

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 participación), 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 participación), 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
stipulated 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 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
Philippine Charity Sweepstakes, in his capacity as co-
partner, as such collected 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.
674

Atacador vs. Silayan.
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 plaintiffs' 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
plaintiffsappellants. So ordered.
Avanceña, C. J., Villa-Real, Diaz, Laurel, Concepcion,

and Moran, JJ., concur
Judgment affirmed.
_____________

Obillos, Jr. vs. Commissioner of Internal Revenue
*
No. L-68118. October 29, 1985.
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.

OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, petitioners, vs. COMMISSIONER OF INTERNAL
REVENUE and COURT OF TAX APPEALS, respondents.
Taxation; The dictum that the power to tax involves the power
to destroy should be obviated.—To regard the petitioners as having
formed a taxable unregistered partnership would result in
oppressive
________________
* SECOND DIVISION.
437
VOL. 139, OCTOBER 29, 1985 437
taxation and confirm the dictum that the power to tax involves
the power to destroy. That eventuality should be obviated.
Same; Partnership; Co-ownership; Where the father sold his
rights over two parcels of land to his four children so they can
build their residence, but the latter after one (1) year sold them
and paid the capital gains, they should not be treated to have
formed an unregistered partnership and taxed corporate income
tax on the sale and dividend income tax on their shares of the
profit's from the sale.—Their original purpose was to divide the
lots for residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to
dissolve the coownership. The division of the profit was merely
https://central.com.ph/sfsreader/session/0000017ab296172bdd47f542000d00d40059004a/t/?o=False 1/7
incidental to the dissolution of the co-ownership which was in the

nature of things a temporary state. It had to be terminated sooner
or later.
Same; Same; Same; Mere sharing of gross income from an
isolated transaction does not establish a partnership.—Article
1769(3) of' the Civil Code provides that ''the sharing of gross
returns does not of itself establish a partnership, whether or not
the persons sharing them have a j oint or common right or
interest in any property from which the returns are derived".
There must be an unmistakable intention to form a partnership
or joint venture.
PETITION to review the judgment of the Court of Tax

Appeals.

Demosthenes B. Gadioma for petitioners.
AQUINO, J..
This case is about the income tax liability of four brothers

and sisters who sold two parcels of land which they had
acquired from their father.
On March 2. 1973 Jose Obillos, Sr. completed payment
to Ortigas & Co., Ltd. on two lots with areas of 1,124 and
963 square meters located at Greenhills, San Juan, Rizal.
The next day he transferred his rights to his four children,
the petitioners, to enable them to build their residences.
The company sold the two lots to petitioners for
P178,708.12 on March 13
438

(Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles

issued to them would show that they were co-owners of the
two lots.
In 1974, or after having held the two lots for more than
a year, the petitioners resold them to the Walled City
Securities Corporation and Olga Cruz Canda for the total
sum of P313,050 (Exh. C and D). They derived from the
sale a total profit of P134,341.88 or P33,584 for each of
them. They treated the profit as a capital gain and paid an
income tax on one-half thereof or on P16,792.
In April, 1980, or one day before the expiration of the
fiveyear prescriptive period, the Commissioner of Internal
Revenue required the four petitioners to pay corporate

income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof. He assessed
P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or
a total of P71,074.56.
Not only that. He considered the share of the profits of
each petitioner in the sum of P33,584 as a "distributive
dividend" taxable in full (not a mere capital gain of which ½
is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency
income taxes and penalties totalling P127,781.76 on their
profit of P134,336, in addition to the tax on capital gains
already paid by them.
The Commissioner acted on the theory that the four
petitioners had formed an unregistered partnership or joint
venture within the meaning of sections 24(a) and 84(b) of
the Tax Code (Collector of Internal Revenue vs. Batangas
Trans. Co., 102 Phil. 822).
The petitioners contested the assessments, Two Judges
of the Tax Court sustained the same. Judge Roaquin
dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as
having formed a partnership under article 1767 of the Civil
Code
439
VOL. 139, OCTOBER 29, 1985 439

simply because they allegedly contributed P178,708.12 to

buy the two lots, resold the same and divided the profit
among themselves.
To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such
intention. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction
between a coownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that
isolated transaction.
Their original purpose was to divide the lots for

residential purposes. If later on they found it not feasible to
build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership
which was in the nature of things a temporary state. It had
to be terminated sooner or later. Castan Tobeñas says:
"Cómo establecer el deslinde entre la comunidad ordinaria o

copropiedad y la sociedad?
"El criterio diferencial—según la doctrina más generalizada—
está: por razón del origen, en que la sociedad presupone
necesariamente la convención, mientras que la comunidad puede
existir y existe ordinariamente sin ella; y por razón del fin u
objecto, en que el objeto de la sociedad es obtener lucro, mientras
que el de la indivisión es sólo mantener en su integridad la cosa
común y favorecer su conservación.
"Reflejo de este criterio es la sentencia de 15 de octubre de
1940, en la que se dice que si en nuestro Derecho positivo se
ofrecen a veces dificultades al tratar de fijar la linea divisoria
entre comunidad de bienes y contrato de sociedad, la moderna
orientación de la doctrina cientifíca señala como nota
fundamental de diferenciación, aparte del origen o fuente de que
surgen, no siempre uniforme, la finalidad perseguida por los
interesados: lucro común partible en la sociedad, y mera
conservación y aprovechamiento en la comunidad." (Derecho Civil
Español, Vol. 2, Part 1,10 Ed, 1971, 328-329).
440

Obillos, Jr. vs. Commissioner of lnternal Revenue
Article 1769(3) of the Civil Code provides that "the sharing

of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or
common right or interest in any property from which the
returns are derived". There must be an unmistakable
intention to form a partnership or joint venture.**
Such intent was present in Gatchalian vs. Collector of
Internal Revenue, 67 Phil. 666 where 15 persons
contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would
divide the prize. The ticket won the third prize of P50,000.
The 15 persons were held liable for income tax as an
unregistered partnership.
The instant case is distinguishable from the cases where

the parties engaged in joint ventures for profit. Thus, in
Oña vs.
** This view is supported by the following rulings of respondent

Commissioner:
"Co-ownership distinguished from partnership.—We find that
the case at bar is fundamentally similar to the De Leon case.
Thus, like the De Leon heirs, the Longa heirs inherited the
'hacienda' in question pro-indiviso from their deceased parents;
they did not contribute or invest additional capital to increase or
expand the inherited properties; they merely continued dedicating
the property to the use to which it had been put by their
forebears; they individually reported in their tax returns their
corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its
(the 'hacienda') value and to continue the existing contractual
relations with the Central Azucarera de Bais for milling purposes/
" (Longa vs. Aranas, CTA Case No. 653, July 31, 1963).
"All co-ownerships are not deemed unregistered partnership.—
Co-heirs who own properties which produce income should not
automatically be considered partners of an unregistered
partnership, or a corporation, within the purview of the income
tax law. To hold otherwise, would be to subject the income of all
coownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it is
not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation." (De Leon vs. CIR,
CTA Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax
Code Annotated, Vol. 1, 1979 Ed., pp. 77-78),
441
VOL. 139, OCTOBER 29, 1985 441

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45

SCRA 74, where after an extrajudicial settlement the coheirs used
the inheritance or the incomes derived therefrom as a common
fund to produce profits for themselves, it was held that they were
taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of

Internal Revenue, 24 SCRA 198 where father and son
purchased a lot and building, entrusted the administration
of the building to an administrator and divided equally the
net income, and from Evangelista vs. Collector of Internal
Revenue, 102 Phil. 140 where the three Evangelista sisters

bought four pieces of real property which they leased to
various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner should have
investigated was whether the father donated the two lots to
the petitioners and whether he paid the donor's tax (See
art. 1448, Civil Code), We are not prejudging this matter. It
might have already prescribed.
WHEREFORE, the judgment of the Tax Court is
reversed and set aside. The assessments are cancelled. No
costs.
SO ORDERED.
Abad Santos, Escolin, Cuevas and Alampay, JJ.,

concur.
Concepcion, Jr., on leave.
Judgment reversed and set aside.
Notes.—Taxes being the chief source of revenue for the

Government to keep it running must be paid immediately
and without delay. (Collector of Internal Revenue vs.
Yuseco, 3 SCRA 313.)
As the sale of the bakery in question was not a single
asset but of individual assets that made up the business, it
was incumbent upon the owner to point out what part of
the price he had received could be fairly attributed to each
asset so that the capital and/or ordinary gains taxes
properly payable upon the sale of the business could be
ascertained, His failure to do so is
442

sufficient reason for denying his petition for refund of the

taxes he paid. (Ferrer vs. Commissioner of Internal
Revenue, 5 SCRA 1022.)
Mere sharing of gross returns does not establish a
partnership, since in a partnership, the partners share net
profits after satisfying all the partnership's liabilities (See
Article 1839, Civil Code.)
The receipt, however, of a share in the net profits
establishes a prima facie evidence to partnership which,
however, may be rebutted by proof that what has been
received were not profits. Thus, the receipt of share in the

profits as (a) payment of a debt by installment or
otherwise, as (b) wages of an employee or rent to a
landlord, as (c) annuity to a widow or representative of the
deceased partner, as (d) interest on a loan, or as (e) a
consideration for the sale of goodwill, cannot be considered
as indicative of establishment of a partnership.
By the weight of authority, an agreement to share both
profits and the losses tends strongly to establish the
existence of a partnership, and conversely, lack of such
agreement tends strongly to negative the existence of a
partnership. (40 Am. Jur., Sec. 39.)
The participation in profits is undoubtedly prima facie
evidence of a partnership, as well as generally as under the
Uniform Partnership Act, and, in the absence of
contradictory evidence, will control. But the presumption of
partnership arising from a participation in profits may be
rebutted, and outweighed by other circumstances, such as
evidence that the participation was referable to some other
reason, such as compensation for services rendered as
agent, broker, salesman or otherwise. (40 Am. Jur., Sec. 38,
pp. 151-152.)
——o0o——
443

Torres vs. Court of Appeals
*
G.R. No. 134559. December 9, 1999.
ANTONIA TORRES assisted by her husband, ANGELO

TORRES and EMETERIA BARING, petitioners, vs.
COURT OF APPEALS and MANUEL TORRES,
respondents.
Civil Law; Contracts; Partnership; The contract manifested

the intention of the parties to form a partnership.—Under the
above-quoted Agreement, petitioners would contribute property to
the partnership in the form of land which was to be developed into
a subdivision; while respondent would give, in addition to his
industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership.
_________________
* THIRD DIVISION.
429
VOL. 320, DECEMBER 9, 1999 429
Same; Same; Same; Courts are not authorized to extricate

parties from the necessary consequences of their acts, and the fact
that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their
obligations.—Under Article 1315 of the Civil Code, contracts bind
the parties not only to what has been expressly stipulated, but
also to all necessary consequences thereof. x x x It is undisputed
that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it
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was not in consonance with their expectations, they should have

objected to it and insisted on the provisions they wanted. Courts
are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will
not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to their
supposed misunderstanding of its terms.
Same; Same; Same; Parties cannot adopt inconsistent
positions in regard to a contract and courts will not tolerate, much
less approve, such practice.—Petitioners themselves invoke the
allegedly void contract as basis for their claim that respondent
should pay them 60 percent of the value of the property. They
cannot in one breath deny the contract and in another recognize
it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
Same; Same; Sale; Consideration, more properly denominated
as cause, can take different forms, such as the prestation or
promise of a thing or service by another.—Petitioners also contend
that the Joint Venture Agreement is void under Article 1422 of
the Civil Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid
consideration. This argument is puerile. The Joint Venture
Agreement clearly states that the consideration for the sale was
the expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take different forms,
such as the prestation or promise of a thing or service by another.
430


Court of Appeals.
Delfin V. Nacua for petitioners.
Zosa & Quijano Law Offices for private respondent.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary

consequences of their acts. That the terms of a contract
turn out to be financially disadvantageous to them will not
relieve them of their obligations therein. The lack of an

inventory of real property will not ipso facto release the
contracting partners from their respective obligations to
each other arising from acts executed in accordance with
their agreement.
The Case
The Petition for Review1 on Certiorari before us assails

2
the
March 5,1998 Decision of the Court of Appeals (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution
denying reconsideration. The assailed Decision affirmed
the ruling of the Regional Trial Court (RTC) of Cebu City
in Civil Case No. R-21208, which disposed as follows:
“WHEREFORE, for all the foregoing considerations, the Court,

finding for the defendant and against the plaintiffs, orders the
dismissal of the plaintiff’s complaint. The counterclaims of the
defendant 3
are likewise ordered dismissed. No pronouncement as
to costs.”
________________
1 Penned by Justice Ramon U. Mabutas, Jr.; concurred in by Justices

Emeterio C. Cui, Division chairman, and Hilarion L. Aquino, member.
2 Second Division.
3 CA Decision, p. 1; rollo, p. 15.
431
VOL. 320, DECEMBER 9, 1999 431

The Facts
Sisters Antonia Torres and Emeteria Baring, herein

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

subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
According to petitioners, the project failed because of
“respondent’s lack of funds or means and skills.” They add
that respondent used the loan not for the development of
the subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the
loan to implement the Agreement. With the said amount,
he was able to effect the survey and the subdivision of the
lots. He secured the Lapu Lapu City Council’s approval of
the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of
P85,000.
Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the
title to the land, which eventually scared away prospective
buyers.
_______________
432

Despite his requests, petitioners refused to cause the

clearing5 of the claims, thereby forcing him to give up on the
project.
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case
which, upon respondent’s motion, was later dismissed by
the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its
assailed Decision, which, as earlier stated, was affirmed by
the CA. 6
Hence, this Petition.
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that

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

conformity with the agreement. If only the share of each partner
in the profits has been agreed upon, the share of each in the losses
shall be in the same proportion.”
The CA elucidated further:
“In the absence of stipulation, the share of each partner in the

profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses.
______________

6 The case was deemed submitted for resolution on September 15, 1999,
upon receipt by the Court of the respective Memoranda of the respondent
and the petitioners.
433
VOL. 320, DECEMBER 9, 1999 433

As for the profits, the industrial partner shall receive such

share as may be just and equitable under the
circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in
proportion to his capital.”
The Issue
Petitioners impute to the Court of Appeals the following

error:
“x x x [The] Court of Appeals erred in concluding that the

transaction x x x between the petitioners and respondent was that
of a joint venture/partnership, ignoring outright the provision of
Article 1769,8 and other related provisions of the Civil Code of the
Philippines.”
The Court’s Ruling
The Petition is bereft of merit.
Main Issue:
Existence of
a Partnership
Petitioners deny having formed a partnership with

respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were
the bases of the appellate court’s finding of a partnership,
were void.
In the same breath, however, they assert that under
those very same contracts, respondent is liable for his
failure to implement the project. Because the agreement
entitled them to receive 60 percent of the proceeds from the
sale of the subdivision lots, they pray that respondent pay
them damages
9
equivalent to 60 percent of the value of the
property.
The pertinent portions of the Joint Venture Agreement
read as follows:
______________
8 Petition, p. 2; rollo, p. 10.

9 Petitioner’s Memorandum, pp. 6-7; rollo, pp. 82-83.
434

“KNOW ALL MEN BY THESE PRESENTS:
“This AGREEMENT, is made and entered into at Cebu City,

Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, xxx the
SECOND PARTY:
W I T N E S S E T H:
“That, whereas, the SECOND PARTY, voluntarily offered the

FIRST PARTY, this property located at Lapu-Lapu City, Island of
Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total
area of 17,009 square meters, to be subdivided by the FIRST
PARTY;
“Whereas, the FIRST PARTY had given the SECOND PARTY,
the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and
development purposes;
“NOW THEREFORE, for and in consideration of the above
covenants and promises herein contained the respective parties
hereto do hereby stipulate and agree as follows:
“ONE: That the SECOND PARTY signed an absolute Deed of
Sale x x x dated March 5,1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at
ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in
favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
“SECOND: That the SECOND PARTY, had received from the
FIRST PARTY, the necessary amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, for their personal
obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be
sub-divided and to be deducted from the sales.
“THIRD: That the FIRST PARTY, will not collect from the
SECOND PARTY, the interest and the principal amount
involving the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the
amount of TWENTY THOU
435
VOL. 320, DECEMBER 9, 1999 435

SAND (P20,000.00) pesos, Philippine currency, will be deducted

accordingly.
“FOURTH: That all general expense[s] and all cost[s] involved
in the sub-division project should be paid by the FIRST PARTY,
exclusively and all the expenses will not be deducted from the
sales after the development of the subdivision project.
“FIFTH: That the sales of the sub-divided lots will be divided
into SIXTY PERCENTUM 60% for the SECOND PARTY and
FORTY PERCENTUM 40% for the FIRST PARTY, and additional
profits or whatever income deriving from the sales will be divided
equally according to the x x x percentage [agreed upon] by both

parties.
“SIXTH: That the intended sub-division project of the property
involved will start the work and all improvements upon the
adjacent lots will be negotiated in both parties[’] favor and all
sales shall [be] decided by both parties.
“SEVENTH: That the SECOND PARTIES, should be given an
option to get back the property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the
FIRST PARTY, including all necessary improvements spent by
the FIRST PARTY, and the FIRST PARTY will be given a grace
period to turnover the property mentioned above.
“That this AGREEMENT shall be binding and obligatory to the
parties who executed same 10
freely and voluntarily for the uses and
purposes therein stated.”
A reading of the terms embodied in the Agreement

indubitably shows the existence of a partnership pursuant
to Article 1767 of the Civil Code, which provides:
“ART. 1767. By the contract of partnership two or more persons

bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.”
Under the above-quoted Agreement, petitioners would

contribute property to the partnership in the form of land
which
________________
10 CA Decision, pp. 5-6; rollo, pp. 19-20.
436

was to be developed into a subdivision; while respondent

would give, in addition to his industry, the amount needed
for general expenses and other costs. Furthermore, the
income from the said project would be divided according to
the stipulated percentage. Clearly, the contract manifested
11
the intention of the parties to form a partnership.
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the land
to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey

and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-
cost housing units on the property.
Respondent’s actions clearly belie petitioners’ contention
that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not
only money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the
parties not only to what has been expressly stipulated, but
also to all necessary consequences thereof, as follows:
“ART. 1315. Contracts are perfected by mere consent, and from

that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and law.”
It is undisputed that petitioners are educated and are thus

presumed to have understood the terms of the contract
they voluntarily signed. If it was not in consonance with
their ex-
______________
11 Jo Chung Cang v. Pacific Commercial Co., 45 Phil. 142, September 6,

1923.
437
VOL. 320, DECEMBER 9, 1999 437

pectations, they should have objected to it and insisted on

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

Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void

under Article 1773 of the Civil Code, which provides:
“ART. 1773. A contract of partnership is void, whenever

immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the
public instrument.”
They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real
property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M.
Tolentino states that under the 12aforecited provision which
is a complement of Article 1771, “the execution of a public
instrument would be useless if there is no inventory of the
property contributed, because without its designation and
description, they cannot be subject to inscription in the
Registry of Property, and their contribution cannot
prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the
efficacy of the guaranty in which
_____________
12 “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.
438

the immovables may consist. Thus, the contract is declared

void by the law when no such inventory is made.” The case
at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent
13
should pay
them 60 percent of the value of the property. They cannot
in one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve,
such practice.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties’

rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result

of an Earlier Illegal Contract
Petitioners also contend that
14
the Joint Venture Agreement
is void under Article 1422 of the Civil Code, because it is
the direct result of an earlier illegal contract, which was for
the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement
clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can
take different forms, such as 15
the prestation or promise of a
thing or service by another.
______________
13 Petitioners’ Memorandum, pp. 6-7; rollo, pp. 82-83.

14 “ART. 1422. A contract which is the direct result of a previous illegal
contract, is also void and inexistent.”
15 “ART. 1350. In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service by
the other; in remuneratory ones, the service or benefit
439
VOL. 320, DECEMBER 9, 1999 439

In this case, the cause of the contract of sale consisted not

in the stated peso value of the land, but in the expectation
of profits from the subdivision project, for which the land
was intended to be used. As explained by the trial court,
“the land was in effect given to the partnership as
[petitioner’s] participation therein. x x x There was
therefore a consideration for the sale, the [petitioners]
acting in the expectation that, should the venture come
into fruition, they [would] get sixty percent of the net
profits.”
Liability of the Parties

Claiming that respondent was solely responsible for the
failure of the subdivision project, petitioners maintain that
he should be made to pay damages equivalent to 60 percent
of the value of the property, which was their share in the

profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held
that petitioners’
16
acts were not the cause of the failure of the
project. But it also17 ruled that neither was respondent
responsible therefor. In imputing the blame solely to him,
petitioners failed to give any reason why we should
disregard the factual findings of the appellate court
relieving him of fault. Verily, factual issues cannot be
resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that
their Petition
18
constitutes one of the exceptions to this
doctrine. Accordingly, we find no reversible error in the
CA’s ruling that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the
challenged Decision AFFIRMED. Costs against petitioners.
______________
which is remunerated; and in contracts of pure beneficence, the mere

liberality of the benefactor.”
17 Ibid., p. 28; rollo, p. 42.
18 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.
440

Siquian, Jr. vs. Commission on Elections
SO ORDERED.
Melo (Chairman), Vitug, Purisima and Gonzaga-

Reyes, JJ., concur.
Petition denied, judgment affirmed.
Note.—The three final stages of a partnership are (1)

dissolution; (2) winding-up; and (3) termination. (Idos vs.
Court of Appeals, 296 SCRA 194 [1998])
——o0o——


Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc.
*
G.R. No. 136448. November 3, 1999.
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING

GEAR INDUSTRIES, INC., respondent.
Partnerships; A partnership may be deemed to exist among

parties who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their own to a
“common fund,” as their contribution to such fund could be an
intangible like credit or industry.—From the factual findings of
both lower courts, it is clear that Chua, Yao and Lim had decided
to engage in a fishing business, which they started by buying
boats worth P3.35 million, financed by a loan secured from Jesus
Lim who was petitioner’s brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell
under the term “common fund” under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had
indeed formed a partnership.
Same; Appeals; Petitions for Review; Pleadings and Practice;
Under Rule 45, a petition for review should involve only questions
of law, and a petitioner, in assailing the factual findings of the two
lower courts, effectively goes beyond the bounds of a petition for
review.—We stress that under Rule 45, a petition for review like
the present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding on
this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. In assailing the
factual findings of the two lower courts, petitioner effectively goes
beyond the bounds of a petition for review under Rule 45.
https://central.com.ph/sfsreader/session/0000017ab297d023f5bef68b000d00d40059004a/t/?o=False 1/21
Same; Same; Same; A proper adjudication of claimants’ rights

mandates that courts must review and thoroughly appraise all
relevant facts.—A proper adjudication of claimants’ rights
mandates
_______________
* THIRD DIVISION.
729
VOL. 317, NOVEMBER 3, 1999 729
that courts must review and thoroughly appraise all relevant

facts. Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the
possible consequential combinations in harmony with law, logic
and fairness. Verily, the two lower courts’ factual findings
mentioned above nullified petitioner’s argument that the
existence of a partnership was based only on the Compromise
Agreement.
Same; Loans; It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts.—
Verily, as found by the lower courts, petitioner entered into a
business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading
of the vessels which would be used in their fishing business. The
sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his name,
was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the
petitioner himself. After all, he is the brother of the creditor,
Jesus Lim.
Same; Corporation Law; Estoppel; Corporation by Estoppel
Doctrine; Agency; Those who act or purport to act as the
representatives or agents of an ostensible corporate entity who is
proven to be legally inexistent do so without authority and at their
own risk.—Even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying its

corporate existence. “The reason behind this doctrine is obvious—
an unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create
agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents do
so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as
the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such
730
privileges and obligations and becomes personally liable for

contracts entered into or for other acts performed as such agent.”
Same; Same; Same; Same; The doctrine of corporation by
estoppel may apply to the alleged corporation and to a third party;
An unincorporated association, which represents itself to be a
corporation, will be estopped from denying its corporate capacity
in a suit against it by a third person who relies in good faith on
such representation.—The doctrine of corporation by estoppel may
apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself
to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality
to be sued to evade its responsibility for a contract it entered into
and by virtue of which it received advantages and benefits.
Same; Same; Same; Same; A third party who, knowing an
association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the
alleged corporation.—A third party who, knowing an association
to be unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts

they impliedly assented to or took advantage of.
Same; Same; Same; Same; Under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general
partners.—It is difficult to disagree with the RTC and the CA that
Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general
partners.
Same; Same; Same; Same; A person who has reaped the
benefits of a contract entered into by persons with whom he
previously had an existing relationship is deemed to be part of said
association and
731
VOL. 317, NOVEMBER 3, 1999 731
is covered by the scope of the doctrine of corporation by estoppel.—

Technically, it is true that petitioner did not directly act on behalf
of the corporation. However, having reaped the benefits of the
contract entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v.
Villamor: “A litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of movement
and position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before
the court the facts in issue and then, brushing aside as wholly
trivial and indecisive all imperfections of form and technicalities
of procedure, asks that justice be done upon the merits. Lawsuits,
unlike duels, are not to be won by a rapier’s thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes
its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.”

Court of Appeals.

Roberto A. Abad for petitioner.

Benjamin S. Benito & Associates for private
respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who

agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their
own to a “common fund.” Their contribution may be in the
form of credit or industry, not necessarily cash or fixed
assets. Being partners, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a
contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person
who may not have directly transacted on its behalf, but
reaped benefits from that contract.
732

The Case
In the Petition for Review on Certiorari before us, Lim

Tong Lim assails the November 26, 1998
1
Decision of the
Court of Appeals in CA-GR CV 41477, which disposed as
follows:
“WHEREFORE, [there being] no reversible2

error in the appealed
decision, the same is hereby affirmed.”
The decretal portion of the Quezon City Regional Trial

Court (RTC) ruling, which was affirmed by the CA, reads
as follows:
“WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary

attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the
following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of

the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from date of plaintiff’s
invoices and computed on their respective amounts as
follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for

P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
_______________
1 Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ.

Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco,
Jr., member.
733
VOL. 317, NOVEMBER 3, 1999 733

c. P50,000.00 as and for attorney’s fees, plus P8,500.00

representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for
storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);
e. Cost of suit.
“With respect to the joint liability of defendants for the principal

obligation or for the unpaid price of nets and floats in the amount
of P532,045.00 and P68,000.00, respectively, or for the total
amount of P600,045.00, this Court noted that these items were
attached to guarantee any judgment that may be rendered in
favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this
case, it was ordered sold at public auction for not less than
P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was deposited
in court. In effect, the amount of P900,000.00 replaced the
attached property as a guaranty for any judgment that plaintiff
may be able to secure in this case with the ownership and

possession of the nets and floats awarded and delivered by the
sheriff to plaintiff as the highest bidder in the public auction sale.
It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the
invoices; hence, in effect, the plaintiff attached its own properties.
It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded
and paid for by plaintiff to serve as its bond in favor of
defendants.
“From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have to
be satisfied from the amount of P900,000.00 as this amount
replaced the attached nets and floats. Considering, however, that
the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to
damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff
to retain possession and owner-
734

ship of the nets and floats and for the reimbursement of the
P900,000.00 deposited
3
by it with the Clerk of Court.
SO ORDERED.”
The Facts
On behalf of “Ocean Quest Fishing Corporation,” Antonio

Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries,
Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong
Lim, who however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. Four
hundred pieces 4of floats worth P68,000 were also sold to
the Corporation.
The buyers, however, failed to pay for the fishing nets

and the floats; hence, private respondent filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a
prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general
partners, on the allegation that “Ocean Quest Fishing
Corporation” was a nonexistent corporation as shown by a
Certification 5 from the Securities and Exchange
Commission. On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over
to respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine
witnesses and to present evidence on his
_______________
3 RTC Decision penned by Judge Maximiano C. Asuncion, pp. 11-12;

rollo, pp. 48-49.
5 Ibid., p. 2; rollo, p. 26.
735
VOL. 317, NOVEMBER 3, 1999 735

behalf, because of his failure to appear in subsequent

hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim 6
and moved for
the lifting of the Writ of Attachment. The trial court
maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the
bidding and deposited 7
with the said court the sales
proceeds of P900,000.
On November 18, 1992, the trial court rendered its
Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao
and Lim, as 8
general partners, were jointly liable to pay
respondent.
The trial court ruled that a partnership among Lim,

Chua and Yao existed based (1) on the testimonies of the
witnesses presented and
9
(2) on a Compromise Agreement
executed by the three in Civil Case No. 1492-MN which
Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership
10
of fishing boats; (d) an injunction
and (e) damages. The Compromise Agreement provided:
“a) That the parties plaintiffs & Lim Tong Lim agree to
have the four (4) vessels sold in the amount of
P5,750,000.00 including the fishing net. This
P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;
“b) If the four (4) vessel[s] and the fishing net will be
sold at a higher price than P5,750,000.00 whatever
will be the excess will be divided into 3:1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
“c) If the proceeds of the sale the vessels will be less
than P5,750,000.00 whatever the deficiency shall be
shouldered and paid
_______________
6 RTC Decision, p. 2; rollo, p. 39.

7 Petition, p. 4; rollo, p. 11.
8 Ibid.
9 RTC Decision, pp. 6-7; rollo, pp. 43-44.
10 Respondent’s Memorandum, pp. 5, 8; rollo, pp. 107, 109.
736

to JL Holding Corporation by 11
1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao.”
The trial court noted that the Compromise Agreement was

silent as to the nature of their obligations, but that joint
liability could be presumed
12
from the equal distribution of
the profit and loss.
Lim appealed to the Court of Appeals (CA) which, as
already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was

a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The
appellate court ruled:
“The evidence establishes that all the defendants including herein

appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing x x x. Obviously, the
ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x
x. By a contract of partnership, two or more persons bind
common fund with the intention of dividing 13
the profits among
themselves (Article 1767, New Civil Code).”
14
Hence, petitioner brought this recourse before this Court.
_______________

12 RTC Decision, p. 10; rollo, p. 47.
13 Ibid.
14 This case was deemed submitted for resolution on August 10, 1999,
when this Court received petitioner’s Memorandum signed by Atty.
Roberto A. Abad. Respondent’s Memorandum signed by Atty. Benjamin S.
Benito was filed earlier on July 27, 1999.
737
VOL. 317, NOVEMBER 3, 1999 737

The Issues
In his Petition and Memorandum, Lim asks this Court to

reverse the assailed Decision on the following grounds:
“I THE COURT OF APPEALS ERRED IN HOLDING,

BASED ON A COMPROMISE AGREEMENT
THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.
“II SINCE IT WAS ONLY CHUA WHO

REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
“III THE TRIAL COURT IMPROPERLY ORDERED
THE SEIZURE AND ATTACHMENT OF
PETITIONER LIM’S GOODS.”
In determining whether petitioner may be held liable for

the fishing nets and floats purchased from respondent, the
Court must resolve this key issue: whether by their acts,
Lim, Chua and Yao could be deemed to have entered into a
partnership.
This Court’s Ruling
The Petition is devoid of merit.
First and Second Issues:

Existence of a Partnership
and Petitioner’s Liability
In arguing that he should not be held liable for the

equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that
the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation
in the purchase of the nets, alleging that the negotiations
were conducted by Chua and
738

Yao only, and that he has not even met the representatives
of the respondent company. Petitioner further argues that
he was a lessor, not a partner, of Chua and Yao, for the
“Contract of Lease” dated February 1, 1990, showed that he
had merely leased to the two the main asset of the
purported partnership—the fishing boat F/B Lourdes. The
lease was for six months, with a monthly rental of P37,500
plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner.

The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and
him, pursuant to Article 1767 of the Civil Code which
provides:
“Article 1767—By the contract of partnership, two or more

persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.”
Specifically, both lower courts ruled that a partnership

among the15
three existed based on the following factual
findings:
(1) That Petitioner Lim Tong Lim requested Peter Yao

who [was] engaged in commercial fishing to join
him, while Antonio Chua was already Yao’s
partner;
(2) That after convening for a few times, Lim, Chua,
and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the
sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the
venture;
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong
Lim only to serve as security for the loan extended
by Jesus Lim;
_______________
15 Nos. 1-7 are from CA Decision, p. 9 (rollo, p. 33); No. 8 is from RTC
Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo,
pp. 33-34).
739
VOL. 317, NOVEMBER 3, 1999 739

(5) That Lim, Chua and Yao agreed that the

refurbishing, re-equipping, repairing, dry docking
and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the “unavailability of funds,” Jesus

Lim again extended a loan to the partnership in the
amount of P1 million secured by a check, because of
which, Yao and Chua entrusted the ownership
papers of two other boats, Chua’s FB Lady Anne
Mel and Yao’s FB Tracy to Lim Tong Lim;
(7) That in pursuance of the business agreement, Peter
Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of
“Ocean Quest Fishing Corporation,” their purported
business name;
(8) That subsequently, Civil Case No. 1492-MN was
filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e)
damages;
(9) That the case was amicably settled through a
Compromise Agreement executed between the
parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear

that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who
was petitioner’s brother. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with
borrowed money, fell under the term “common fund” under
Article 1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided
equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not
only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both
essential to fish-
740
ing, were obviously acquired in furtherance of their

business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was,
among petitioner, Chua and Yao, a partnership engaged in
the fishing business. They purchased the boats, which
constituted the main assets of the partnership, and they
agreed that the proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for review like
the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are
binding on this Court, absent any cogent proof that the
present
16
action is embraced by one of the exceptions to the
rule. In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement

Not the Sole Basis of Partnership
Petitioner argues that the appellate court’s sole basis for

assuming the existence of a partnership was the
Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among
them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement
was but an embodiment of the relationship extant among
the parties prior to its execution.
A proper adjudication of claimants’ rights mandates that
courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of
one piece of
_______________
16 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.
741
VOL. 317, NOVEMBER 3, 1999 741

document alone, petitioner fails to appreciate that the CA

and the RTC delved into the history of the document and
explored all the possible consequential combinations in
harmony with law, logic and fairness. Verily, the two lower
courts’ factual findings mentioned above nullified
petitioner’s argument that the existence of a partnership
was based only on the Compromise Agreement.
Petitioner Was a Partner,

Not a Lessor
We are not convinced by petitioner’s argument that he was

merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly
finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this
Court to believe that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with the excess of the
proceeds to be divided among the three of them. No lessor
would do what petitioner did. Indeed, his consent to the
sale proved that there was a preexisting partnership
among all three. Verily, as found by the lower courts,
petitioner entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to
finance the acquisition and the upgrading of the vessels
which would be used in their fishing business. The sale of
the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his
name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all,
he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable—indeed, it is absurd—
for petitioner to sell his property to pay a debt he did not
incur, if
742

the relationship among the three of them was merely that

of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by

estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines
provides:
“Sec. 21. Corporation by estoppel.—All persons who assume to act

as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That
when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use as a defense its lack of
corporate personality.
“One who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that there
was in fact no corporation.”
Thus, even if the ostensible corporate entity is proven to be

legally nonexistent, a party may be estopped from denying
its corporate existence. “The reason behind this doctrine is
obvious—an unincorporated association has no personality
and would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided by
law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as
its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law
that a person who acts as an agent without authority or
without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of
a principal, a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such
privileges and obligations and
743
VOL. 317, NOVEMBER 3, 1999 743

becomes personally liable for contracts17

entered into or for
other acts performed as such agent.”
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented
itself to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who
relied in good faith on such representation. It cannot allege

lack of personality to be sued to evade its responsibility for
a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an
association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred
from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took
advantage of.
There is no dispute that the respondent, Philippine
Fishing Gear Industries, is entitled to be paid for the nets
it sold. The only18question here is whether petitioner should
be held jointly liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt
in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the
contracts and since he never
_______________
17 Salvatierra v. Garlitos, 103 Phil. 757, May 23, 1958, per Felix, J.;
citing Fay v. Noble, 7 Cushing [Mass.] 188.
18 “The liability is joint if it is not specifically stated that it is solidary,”
Maramba v. Lozano, 126 Phil. 833; 20 SCRA 474, June 29, 1967, per
Makalintal, J. See also Article 1207 of the Civil Code, which provides:
“The concurrence of two or more creditors or of two or more debtors in one
[and] the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.”
744

directly transacted with the respondent corporation, ergo,

he cannot be held liable.
Unquestionably, petitioner benefited from the use of the
nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that

Lim, Chua and Yao decided to form a corporation. Although
it was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under
the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act
on behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom
he previously had an existing relationship, he is deemed to
be part of said association and is covered by the scope of the
doctrine of corporation by estoppel.19 We reiterate the ruling
of the Court in Alonso v. Villamor:
“A litigation is not a game of technicalities in which one, more

deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a contest in
which each contending party fully and fairly lays before the court
the facts in issue and then, brushing aside as wholly trivial and
indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits,
unlike duels, are not to be won by a rapier’s thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes
its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.”
_______________
19 16 Phil. 315, July 26, 1910, per Moreland, J.
745
VOL. 317, NOVEMBER 3, 1999 745

Third Issue:

Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was

improperly issued against the nets. We agree with the
Court of Appeals that this issue is now moot and academic.
As previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically
manufactured and tailor-made according to their own

design, and were bought and used in the fishing venture
they agreed upon. Hence, the issuance of the Writ to assure
the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the
nets remained with Respondent Philippine Fishing Gear,
until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo (Chairman), Purisima and Gonzaga-Reyes,

JJ., concur.
Vitug, J., Pls. see Concurring Opinion.
CONCURRING OPINION
VITUG, J.:
I share the views expressed in the ponencia of an esteemed

colleague, Mr. Justice Artemio V. Panganiban, particularly
the finding that Antonio Chua, Peter Yao and petitioner
Lim Tong Lim have incurred the liabilities of general
partners. I merely would wish to elucidate a bit, albeit
briefly, the liability of partners in a general partnership.
When a person by his act or deed represents himself as a
partner in an existing partnership or with one or more
persons not actual partners, he is deemed an agent of such
persons consenting to such representation and in the same
man-
746

ner, as if he were a partner with

1
respect to persons who
rely upon the representation. The association formed by
Chua, Yao and Lim, should be, as it has been deemed, a de
facto partnership with all the consequent obligations for
the purpose of enforcing the rights of third persons. The
liability of general partners (in a general partnership as so
opposed
2
to a limited partnership) is laid down in Article
1816 which posits
_______________
1 Article 1825. When a person, by words spoken or written or by

conduct, represents himself, or consents to another representing him to
anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of such
representation, given credit to the actual or apparent partnership, and if
he has made such representation or consented to its being made in a
public manner he is liable to such person, whether the representation has
or has not been made or communicated to such person so giving credit by
or with the knowledge of the apparent partner making the representation
or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were

an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the
other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing

partnership, or with one or more persons not actual partners, he is an
agent of the persons consenting to such representation to bind them to the
same extent and in the same manner as though he were a partner in fact,
with respect to persons who rely upon the representation. When all the
members of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the joint act
or obligation of the person acting and the persons consenting to the
representation.
2 All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted,
for the contracts which may be entered into in the name and for the
account of the partnership, under its signature and by a person authorized
to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.
747
VOL. 317, NOVEMBER 3, 1999 747

that all partners shall be liable pro rata beyond the

partnership assets for all the contracts which may have
been entered into in its name, under its signature, and by a
person authorized to act for the partnership. This rule is to
be construed along with other provisions of the Civil Code
which postulate that the partners can be held solidarily
liable with the partnership specifically in these instances—
(1) where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or

injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting
or omitting to act; (2) where one partner acting within the
scope of his apparent authority receives money or property
of a third person and misapplies it; and (3) where the
partnership in the course of its business receives money or
property of a third person and the money or property so
received is misapplied by3 any partner while it is in the
custody of the partnership —consistently with the rules on
the nature of civil liability in delicts and quasi-delicts.
Petition denied; Assailed decision affirmed.
Notes.—A party is estopped to challenge the personality

of a corporation after having acknowledged the same by
entering into a contract with it. (Georg Grotjahn GMBH &
Co. vs. Isnani, 235 SCRA 216 [1994])
The doctrine of corporation by estoppel cannot override
jurisdictional requirements—jurisdiction is fixed by law
and cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties, and
neither can it be conferred by the acquiescence of the court.
(Lozano vs. De los Santos, 274 SCRA 452 [1997])
——o0o——
_______________
3 Article 1824 in relation to Article 1822 and Article 1823, New Civil
Code.
748
VOL. 23, JUNE 28, 1968 1223

Agad vs. Mabato
No. L-24193. June 28, 1968.
MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO

MABATO & MABATO & AGAD COMPANY, defendants-
appellees.
Civil law; Partnership; How partnership may be constituted.

—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. 1771,
Civil Code). A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory of said
public instrument (Art. 1773, Id.).
1224

Agad vs. Mabato
APPEAL from an order of the Court of First Instance of

Davao.

Angeles, Maskariño & Associates for plaintiff-
appeldant.
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
receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations
of the complaint and denied the existence of said
partnership, upon the ground that the contract therefor
had not been perfected, despite the execution of Annex “A”,
because Agad had allegedly failed to give his P1,000
contribution to the partnership capital. Mabato prayed,
therefore, that the complaint be dismissed; that Annex “A”
be declared void and initio; and that Agad be sentenced to
pay actual, moral and exemplary damages, as well as
attorney’s fess.
Subsequently, Mabato filed a motion to dismiss, upon
the ground that the complaint states no cause of action and
1225
VOL. 23, JUNE 28, 1968 1225

Agad vs. Mabato
that the lower court had no jurisdiction over the subject

matter of the case, because it involves principally the
determination of rights over public lands. After due
hearing, the court issued the order appealed from, granting
the motion to dismiss the complaint for failure to state a
cause of action. This conclusion was predicated upon the
theory that the contract of partnership, Annex “A”, is null
and void, pursuant to Art. 1773 of our Civil Code, because
an inventory of the fishpond referred in said instrument
had not been attached thereto. A reconsideration of this
order having been denied, Agad brought the matter to us
for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
“Art. 1771. A partnership may be constituted in any form, except

where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary.
“Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if inventory of said
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 f
ishpond 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.
x x x x”
1226

Republic vs. Vda. de Garcia
The operation of the fishpond mentioned in Annex “A” was

the purpose of the partnership. Neither said f ishpond nor a
real right thereto was contributed to the partnership or
became part of the capital thereof, even if a fishpond or a
real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the
Civil Code is not in point and that, the order appealed from
should be, as it is hereby set aside and the case remanded
to the lower court for further proceedings, with the costs of
this instance against defendant-appellee, Severino Mabato.
It is so ordered.
Reyes, J.B.L.. Dizon, Makalintal, Zaldivar, Sanchez,

Castro, Angeles and Fernando, JJ., concur.
Order set aside and case remanded to lower court for

further proceedings.
Note.—In the absence of a valid cause, a partner cannot

withdraw from a partnership agreement (before its
expiration) for his own personal profit at the expense of the
partnership (Lichauco v. Soriano, 26 Phil. 593).
As to how partnership profits are determined, see De la
Rosa v. Ortega Gocotay, 48 Phil. 605.
_______________

Litonjua, Jr. vs. Litonjua, Sr.
*
G.R. Nos. 166299-300. December 13, 2005.
AURELIO K. LITONJUA, JR., petitioner, vs. EDUARDO

K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS,
INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC.,
EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA
SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E &
L INT’L SHIPPING CORP.), FNP CO., INC., HOME
ENTERPRISES, INC., BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP., EQUITY TRADING CO.,
INC., 3D CORP., “L” DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC.,
MACOIL INC., ODEON REALTY CORP., SARATOGA
REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY,
INC., AVENUE THEATER, INC. and LVF PHILIPPINES,
INC., (Formerly VF PHILIPPINES), respondents.
Actions; Civil Law; Partnership; Words and Phrases; A

contract of partnership is defined by the Civil Code as one where
two or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of
dividing the profits among themselves.—A partnership exists
when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the
profits and losses between them. A contract of partnership is
defined by the Civil Code as one where two or more persons bound
common fund with the intention of dividing the profits among
themselves. A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since
their elements are similar, i.e., community of interests in the
business and sharing of profits and losses. Being a form of
partnership, a joint venture is generally governed by the law on
partnership.
https://central.com.ph/sfsreader/session/0000017ab299ca567548874b000d00d40059004a/t/?o=False 1/22
Same; Same; Same; Petitioner’s complaint does not state a

valid cause of action because not all the essential elements of a
cause of action are present.—Given the foregoing perspective,
what the appellate court wrote
_______________
* THIRD DIVISION
577
VOL. 477, DECEMBER 13, 2005 577
in its assailed Decision about the probative value and legal effect
of Annex “A-1” commends itself for concurrence: “Considering that
the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
“Memorandum” (Annex “A” of the complaint) which purports to
establish the said “partnership/joint venture” is NOT a public
instrument and there was NO inventory of the immovable
property duly signed by the parties. As such, the said
“Memorandum” . . . is null and void for purposes of establishing
the existence of a valid contract of partnership. Indeed, because of
the failure to comply with the essential formalities of a valid
contract, the purported “partnership/joint venture” is legally
inexistent and it produces no effect whatsoever. Necessarily, a
void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto,
clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual respondents]
herein. As a consequence, [petitioner’s] complaint does NOT state a
valid cause of action because NOT all the essential elements of a
cause of action are present.”
Same; Same; Same; Statute of Frauds; By force of the statute
of frauds, an agreement that by its terms is not to be performed
within a year from the making thereof shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be
in writing and subscribed by the party charged.—It is at once
apparent that what respondent Eduardo imposed upon himself
under the above passage, if he indeed wrote Annex “A-1,” is a
promise which is not to be performed within one year from
“contract” execution on June 22, 1973. Accordingly, the agreement
embodied in Annex “A-1” is covered by the Statute of Frauds and

ergo unenforceable for non-compliance therewith. By force of the
statute of frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless the
requirement exacted by the statute of frauds is complied with.
Same; Same; Same; Same; A complaint for delivery and
accounting of partnership property based on such void or legally
non-existent actionable document is dismissible for failure to state
a cause of action.—Per the Court’s own count, petitioner used in
his complaint the mixed words “joint venture/partnership”
nineteen (19) times and the term “partner” four (4) times. He
made reference to the “law of joint venture/partnership [being
applicable] to the business relationship . . . between [him],
Eduardo and
578
Bobby [Yang]” and to his “rights in all specific properties of their

joint venture/partnership.” Given this consideration, petitioner’s
right of action against respondents Eduardo and Yang doubtless
pivots on the existence of the partnership between the three of
them, as purportedly evidenced by the undated and unsigned
Annex “A-1.” A void Annex “A-1,” as an actionable document of
partnership, would strip petitioner of a cause of action under the
premises. A complaint for delivery and accounting of partnership
property based on such void or legally non-existent actionable
document is dismissible for failure to state of action. So, in gist,
said the Court of Appeals. The Court agrees.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.

Antonio R. Bautista & Partners for petitioner.
Emmanuel P.J. Tamase for respondent Robert T.
Yang.
Ferrer & Balayan Law Offices for private respondent
except Robert T. Yang.
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of

Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify
and set aside the Decision
1
of the Court of Appeals (CA)
dated March 31, 2004 in consolidated cases C.A. G.R. Sp.
No. 76987 and C.A. G.R. SP. 2
No 78774 and its Resolution
dated December 07, 2004, denying petitioner’s motion for
reconsideration.
The recourse is cast against the following factual
backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started when, on
December 4, 2002, in the Regional Trial Court (RTC) at
Pasig City, Aurelio filed a suit
_______________
1 Penned by Associate Justice Bienvenido L. Reyes, concurred in by

Associate Justices Conrado M. Vasquez, Jr. and Arsenio J. Magpale; Rollo,
pp. 27 et seq.
2 Rollo, pp. 58 et seq.
579
VOL. 477, DECEMBER 13, 2005 579

against his brother Eduardo and herein respondent Robert

T. Yang (Yang) and several corporations 3 for specific
performance and accounting. In his complaint, docketed as
Civil Case4 No. 69235 and eventually raffled to Branch 68 of
the court, Aurelio alleged that, since June 1973, he and
Eduardo are into a joint venture/partnership arrangement
in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises,
Odeon Realty Corporation (operator of Odeon I and II
theatres), Avenue Realty, Inc., owner of lands and
buildings, among other corporations. Yang is described in
the complaint as petitioner’s and5
Eduardo’s partner in
their Odeon Theater investment. The same complaint also
contained the following material averments:
“3.01 On or about 22 June 1973, [Aurelio] and Eduardo

entered into a joint venture/partnership for the
continuation of their family business and common
family funds . . . .
3.01.1 This joint venture/[partnership] agreement was
contained in a memorandum addressed by Eduardo
to his siblings, parents and other relatives. Copy of

this memorandum is attached hereto and made an
integral part as Annex “A” and the portion
referring to [Aurelio] submarked as Annex “A-1.”
3.02 It was then agreed upon between [Aurelio] and
Eduardo that in consideration of [Aurelio’s]
retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and
land development) and contributing his industry to
the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in
all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
4.01 . . . from 22 June 1973 to about August 2001, or [in]
a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership
various assets including but not limited to the
corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership . . .
had also acquired [various other assets], but
Eduardo caused to be registered in the names of
other parties….
_______________
3 Ibid., pp. 63 et seq.

4 Presided by Hon. Santiago G. Estrella.
5 Par. 2.03 of the Complaint.
580

x x x x x x x x x
4.04 The substantial assets of most of the corporate defendants
consist of real properties . . . . A list of some of these real
properties is attached hereto and made an integral part as Annex
“B.”
x x x x x x x x x
5.02 Sometime in 1992, the relations between [Aurelio] and
Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
x x x x x x x x x
5.05 What is worse, [Aurelio] has reasonable cause to believe

that Eduardo and/or the corporate defendants as well as Bobby
[Yang], are transferring . . . various real properties of the
corporations belonging to the joint venture/partnership to other
parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore
causing at this time the annotation on the titles of these real
properties. . . a notice of lis pendens . . . .” (Emphasis in the
original; italics and words in bracket added.)
For ease of reference, Annex “A-1” of the complaint, which

petitioner asserts to have been meant for him by his
brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. .
...
I am trying my best to mold you the way I work so you can
follow the pattern . . . . You will be the only one left with the
company, among us brothers and I will ask you to stay as I want
you to run this office every time I am away. I want you to run it
the way I am trying to run it because I will be all alone and I will
depend entirely to you (sic). My sons will not be ready to help me
yet until about maybe 15/20 years from now. Whatever is left in
the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is
greater. We two will gamble the whole thing of what I have and
what you are entitled to. . . . . It will be you and me alone on this.
If ever I pass away, I want you to take care of all of this. You keep
my share for my two sons are ready take over but give them the
chance to run the company which I have built.
x x x x x x x x x
581
VOL. 477, DECEMBER 13, 2005 581

Because you will need a place to stay, I will arrange to give you
first ONE HUNDRED THOUSANDS PESOS: (P100,000.00) in
cash or asset, like Lt. Artiaga so you can live better there. The
rest I will give you in form of stocks which you can keep. This
stock I assure you is good and saleable. I will also gladly give you
the share of Wack-Wack . . . and Valley Golf . . . because you have
been good. The rest will be in stocks from6
all the corporations
which I repeat, ten percent (10%) equity.”
On December 20, 2002, Eduardo and the corporate

respondents, as defendants a quo, filed a joint ANSWER
With Compulsory Counterclaim denying under oath the
material allegations of the complaint, more particularly

that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no
cause of action, since no cause of action may be derived
from the actionable document, i.e., Annex “A-1,” being void
under the terms of Article 1767 in relation to Article 1773
of the Civil Code, infra. It is further alleged that whatever
undertaking Eduardo agreed to do, if any, under Annex “A-
1,” are unenforceable
7
under the provisions of the Statute of
Frauds.
For his part, Yang—who was served with summons long
after the other defendants submitted their answer—moved
to dismiss on the ground, inter alia, that, as to him,
petitioner has8 no cause of action and the complaint does
not state any. Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, 9
et al., filed a Motion to
Resolve Affirmative Defenses. To this motion, petitioner
interposed an Opposition
10
with ex-Parte Motion to Set the
Case for Pre-trial.
Acting on the separate motions immediately adverted to
above, the trial court, in an Omnibus Order dated March 5,
2003, denied
_______________
6 Rollo, p. 552.
7 Id., pp. 70 et seq.
582

the affirmative defenses and, 11except for Yang, set the case
for pre-trial on April 10, 2003.
In another Omnibus Order of April 2, 2003, the same
court denied 12the motion of Eduardo, et al., for
reconsideration and Yang’s motion to dismiss. The
following then transpired insofar as Yang is concerned:
“1. On April 14, 2003, Yang filed his ANSWER, but

expressly reserved the right to seek reconsideration
of the April 2, 2003 Omnibus13

Order and to pursue
his failed motion to dismiss to its full resolution.
2. On April 24, 2003, he moved for reconsideration of
the Omnibus Order of April 2, 2003, but 14
his motion
was denied in an Order of July 4, 2003.
3. On August 26, 2003, Yang went to the Court of
Appeals (CA) in a petition for certiorari under Rule
65 of the Rules
15
of Court, docketed as CA-G.R. SP
No. 78774, to nullify the separate orders of the
trial court, the first denying his motion to dismiss
the basic complaint and, the second, denying his
motion for reconsideration.”
Earlier, Eduardo and the corporate defendants, on the

contention that grave abuse of discretion and injudicious
haste attended the issuance of the trial court’s
aforementioned Omnibus Orders dated March 5, and April
2, 2003, sought relief from the CA via similar recourse.
Their petition for certiorari was docketed as CA G.R. SP
No. 76987. 16
Per its resolution dated October 2, 2003, the CA’s 14th
Division ordered the consolidation of CA-G.R.-SP No. 78774
with CA-G.R. SP No. 76987.
Following the submission by the parties of their
respective Memoranda of Authorities, the appellate court
came out with the
_______________
11 Id., pp. 97-98.

12 Id., pp. 135 et seq.
13 See Note No. 8, supra.
14 Rollo, p. 161.
15 Ibid., pp. 206 et seq.
16 Id., p. 253.
583
VOL. 477, DECEMBER 13, 2005 583

herein assailed Decision dated March 31, 2004, finding for

Eduardo and Yang, as lead petitioners therein, disposing as
follows:
“WHEREFORE, judgment is hereby rendered granting the

issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the

court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003
and the complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with
17
the court a quo is hereby dismissed.
SO ORDERED.” (Emphasis in the original; words in bracket
added.)
Explaining its case disposition, the appellate court stated,

inter alia, that the alleged partnership, as evidenced by the
actionable documents, Annex “A” and “A-1” attached to the
complaint, and upon which petitioner solely predicates his
right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is “void or legally inexistent.”
In time, petitioner moved for reconsideration but his
motion was denied by the CA 18
in its equally assailed
Resolution of December 7, 2004.
Hence, petitioner’s present recourse, on the contention
that the CA erred:
“A. When it ruled that there was no partnership

created by the actionable document because this
was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document did not
create a demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of
action against [respondent] Robert Yang; and
_______________
17 As corrected per CA Resolution dated July 14, 2004 to conform to the

actual dates of the assailed orders; Rollo, pp. 326 et seq. The correction
consisted of changing the dates “March 5, 2002, April 2, 2002 and July 2,
2003” appearing in the original CA decision to “March 5, 2003, April 2,
2003 and July 4, 2003,” respectively.
18 See Note #2, supra.
584

D. When it ruled that petitioner has changed his

theory on appeal when all that Petitioner had done
was to support his pleaded cause of action by
another legal perspective/argument.”
The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of
his complaint in the trial court, is for delivery or payment
to him, as Eduardo’s and Yang’s partner, of his
partnership/joint venture share, after an accounting has
been duly conducted of what 19
he deems to be
partnership/joint venture property.
A partnership exists when two or more persons agree to
place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there
shall be a proportionate
20
sharing of the profits and losses
between them. A contract of partnership is defined by the
Civil Code as one where two or more persons bound
common fund with21 the intention of dividing the profits
among themselves. A joint venture, on the other hand, is
hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e.,
community of interests in the business and sharing of
profits and losses. Being a form of partnership, a joint 22
venture is generally governed by the law on partnership.
The underlying issue that necessarily comes to mind in
this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre, shipping
and realty business, as one claims but which the other
denies. And the issue bearing on the first assigned error
relates to the question of what legal provision is applicable
under the premises, petitioner seeking, as it were, to
enforce the actionable document—Annex “A-1”—which he
depicts in his complaint to be the contract of
partnership/joint venture
_______________
19 Complaint, p. 6; Rollo, p. 68.

20 Black’s Law Dictionary, 6th ed., p. 1120.
21 Art. 1767.
22 Heirs of Tan Eng Kee vs. Court of Appeals, 341 SCRA 740 (2000),
citing Aurbach vs. Sanitary Wares Manufacturing Corp., 180 SCRA 130
(1989).
585
VOL. 477, DECEMBER 13, 2005 585

between himself and Eduardo. Clearly, then, a look at the

legal provisions determinative of the existence, or defining
the formal requisites, of a partnership is indicated.

Foremost of these are the following provisions of the Civil
Code:
“Art. 1771. A partnership may be constituted in any form, except

where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of
three thousand pesos or more, in money or property, shall appear
in a public instrument, which must be recorded in the Office of
the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding
paragraph shall not affect the liability of the partnership and the
members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of said
Annex “A-1,” on its face, contains typewritten entries,

personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex
“A-1” does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code.
Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or
property, Annex “A-1” cannot be presented for notarization,
let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of
the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the
nature of petitioner’s contribution, if any, to the supposed
partnership.
The CA, addressing the foregoing query, correctly stated
that petitioner’s contribution consisted of immovables and
real rights. Wrote that court:
586

“A further examination of the allegations in the complaint would

show that [petitioner’s] contribution to the so-called
“partnership/joint venture” was his supposed share in the family
business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other

words, his contribution as a partner in the alleged
partnership/joint 23
venture consisted of immovable properties and
real rights. . . .”
Significantly enough, petitioner matter-of-factly concurred

with the appellate court’s observation that, prescinding
from what he himself alleged in his basic complaint, his
contribution to the partnership consisted of his share in the
Litonjua family businesses which owned variable
immovable properties.
24
Petitioner’s assertion in his motion
for reconsideration of the CA’s decision, that “what was to
be contributed to the business [of the partnership] was
[petitioner’s] industry and his share in the family [theatre
and land development] business” leaves no room for
speculation as to what petitioner contributed to the
perceived partnership.
Lest it be overlooked, the contract-validating inventory
requirement under Article 1773 of the Civil Code applies as
long real property or real rights are initially brought into
the partnership. In short, it is really of no moment which of
the partners, or, in this case, who between petitioner and
his brother Eduardo, contributed immovables. In context,
the more important consideration is that real property was
contributed, in which case an inventory of the contributed
property duly signed by the parties should be attached to
the public instrument, else there is legally no partnership
to speak of.
Petitioner, in an obvious bid to evade the application of
Article 1773, argues that the immovables in question were
not contributed, but were acquired after the formation of
the supposed partnership. Needless to stress, the Court
cannot accord cogency to this specious argument. For, as
earlier stated, petitioner himself admitted contributing his
share in the supposed shipping, movie theatres
_______________
23 At p. 6 of the Decision, Rollo, p. 42.

24 At p. 6 of the motion for reconsideration; Rollo, p. 55.
587
VOL. 477, DECEMBER 13, 2005 587

and realty development family businesses which already

owned immovables even before Annex “A-1” was allegedly
executed.
Considering thus the value and nature of petitioner’s
alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend Annex
“A-1” the legal effects that petitioner so desires and pleads
to be given. Annex “A-1,” in fine, cannot support the
existence of the partnership sued upon and sought to be
enforced. The legal and factual milieu of the case calls for
this disposition. A partnership may be constituted in any
form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital
of at least P3,000.00,25
in which case a public instrument
shall be necessary. And if only to stress what has
repeatedly been articulated, an inventory to be signed by
the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever
immovable property is contributed to it.
Given the foregoing perspective,26 what the appellate
court wrote in its assailed Decision about the probative
value and legal effect of Annex “A-1” commends itself for
concurrence:
“Considering that the allegations in the complaint showed that

[petitioner] contributed immovable properties to the alleged
partnership, the “Memorandum” (Annex “A” of the complaint)
which purports to establish the said “partnership/joint venture” is
NOT a public instrument and there was NO inventory of the
immovable property duly signed by the parties. As such, the said
“Memorandum” . . . is null and void for purposes of establishing
the existence of a valid contract of partnership. Indeed, because of
the failure to comply with the essential formalities of a valid
contract, the purported “partnership/joint venture” is legally
inexistent and it produces no effect whatsoever. Necessarily, a
void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto,
clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual respondents]
herein.
_______________
25 Vitug, COMPENDIUM of CIVIL LAW and JURISPRUDENCE, Rev. ed.,

(1993), p. 712.
588

As a consequence, [petitioner’s] complaint does NOT state a

valid cause of action because NOT all the essential elements of a
cause of action are present.” (Italics and words in bracket added.)
Likewise well-taken are the following complementary

excerpts from the 27
CA’s equally assailed Resolution of
December 7, 2004 denying petitioner’s motion for
reconsideration:
“Further, We conclude that despite glaring defects in the

allegations in the complaint as well as the actionable document
attached thereto (Rollo, p. 191), the [trial] court did not appreciate
and apply the legal provisions which were brought to its attention
by herein [respondents] in the their pleadings. In our evaluation
of [petitioner’s] complaint, the latter alleged inter alia to have
contributed immovable properties to the alleged partnership but
the actionable document is not a public document and there was
no inventory of immovable properties signed by the parties. Both
the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal
right which could be violated by [respondents].” (Words in bracket
added.)
Under the second assigned error, it is petitioner’s posture

that Annex “A-1,” assuming its inefficacy or nullity as a
partnership document, nevertheless created demandable
rights in his favor. As petitioner succinctly puts it in this
petition:
“43. Contrariwise, this actionable document, especially

its above-quoted provisions, established an
actionable contract even though it may not be a
partnership. This actionable contract is what is
known as an innominate contract (Civil Code,
Article 1307).
44. It may not be a contract of loan, or a mortgage or
whatever, but surely the contract does create rights
and obligations of the parties and which rights and
obligations may be enforceable and demandable.
Just because the relationship created by the
agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract
does not mean it is void or unenforceable.”
Petitioner has thus thrusted the notion of an innominate

contract on this Court—and earlier on the CA after he
experienced a
_______________
589
VOL. 477, DECEMBER 13, 2005 589

reversal of fortune thereat—as an afterthought. The

appellate court, however, cannot really be faulted for not
yielding to petitioner’s dubious stratagem of altering his
theory of joint venture/partnership to an innominate
contract. For, at bottom, the appellate court’s certiorari
jurisdiction was circumscribed by what was alleged to have
been the order/s issued by the trial court in grave abuse
28
of
discretion. As respondent Yang pointedly observed, since
the parties’ basic position had been well-defined, that of
petitioner being that the actionable document established a
partnership/joint venture, it is on those positions that the
appellate court exercised its certiorari jurisdiction.
Petitioner’s act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly
declared, an admission of the untenability of such theory in
the first place.
“[Petitioner] is now humming a different tune . . . . In a sudden

twist of stance, he has now contended that the actionable
instrument may be considered an innominate contract. x x x
Verily, this now changes [petitioner’s] theory of the case which is
not only prohibited by the Rules but also is an implied admission
that the very theory he himself . . . has adopted, filed and
prosecuted before the respondent court is erroneous.
Be that as it may . . . . . We hold that this new theory
contravenes [petitioner’s] theory of the actionable document being
a partnership document. If anything, it is so obvious we do have
to test the sufficiency of29
the cause of action on the basis of
partnership law x x x.” (Emphasis in the original; Words in
bracket added).
But even assuming in gratia argumenti that Annex “A-1”

partakes of a perfected innominate contract, petitioner’s
complaint would still be dismissible as against Eduardo
and, more so, against Yang. It cannot be over-emphasized
that petitioner points to Eduardo as the author of Annex
“A-1.” Withal, even on this consideration alone, petitioner’s
claim against Yang is doomed from the very start.
_______________
28 Page 26 of Yang’s Memorandum; Rollo, p. 494.

29 Page 4 of the CA’s assailed Resolution; Rollo, p. 61.
590

As it were, the only portion of Annex “A-1” which could

perhaps be remotely regarded as vesting petitioner with a
right to demand from respondent Eduardo the observance
of a determinate conduct, reads:
“x x x You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office
everytime I am away. I want you to run it the way I am trying to
run it because I will be alone and I will depend entirely to you, My
sons will not be ready to help me yet until about maybe 15/20
years from now. Whatever is left in the corporation, I will make
sure that you get ONE MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater.” (Italics added)
It is at once apparent that what respondent Eduardo

imposed upon himself under the above passage, if he
indeed wrote Annex “A-1,” is a promise which is not to be
performed within one year from “contract” execution on
June 22, 1973. Accordingly, the agreement embodied in
Annex “A-1” is covered by the Statute of Frauds
30
and ergo
unenforceable for non-compliance therewith. By force of
the statute of frauds, an agreement that by its terms is not
to be performed within a year from the making thereof
shall be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing and subscribed
by the party charged. Corollarily, no action can be proved
unless the requirement
31
exacted by the statute of frauds is
complied with.
Lest it be overlooked, petitioner is the intended
beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the
near future. Any suggestion that the stated amount or the
equity component of the promise was intended to go to a
common fund would be to read something not written in
Annex “A-1.” Thus, even this angle alone argues against
the very idea of a partnership, the creation of which
requires two or more contracting minds mutually agreeing
to con-
_______________
30 #2 (a) of Art. 1403 of the Civil Code.

31 Tolentino, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed.,
p. 617.
591
VOL. 477, DECEMBER 13, 2005 591

tribute money, property or industry to a common fund with

the intention32
of dividing the profits between or among
themselves.
In sum then, the Court rules, as did the CA, that
petitioner’s complaint for specific performance anchored on
an actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a
cause of action as against respondent Eduardo and the
corporate defendants. And if no of action can successfully
be maintained against respondent Eduardo because no
valid partnership existed between him and petitioner, the
Court cannot see its way clear on how the same action
could plausibly prosper against Yang. Surely, Yang could
not have become a partner in, or could not have had any
form of business relationship with, an inexistent
partnership.
As may be noted, petitioner has not, in his complaint,
provide the logical nexus that would tie Yang to him as his
partner. In fact, attendant circumstances would indicate
the contrary. Consider:
“1. Petitioner asserted in his complaint that his so-

called joint venture/partnership with Eduardo was
“for the continuation of their family business and
common family funds which were 33
theretofore being
mainly managed by Eduardo.” But Yang denies
kinship with the Litonjua family and petitioner has
not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had
contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what
Yang contributed, if any, let alone his proportional
share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the
CA, the actionable document did not contain such
provision, let alone mention the name of Yang.
How, indeed, could a person be considered a partner

when the document purporting to establish the
partnership contract did not even mention his
name.
3. Petitioner states in par. 2.01 of the complaint that
“[he] and Eduardo are business partners in the
[respondent] corporations,” while “Bobby is his and
Eduardo’s partner in their Odeon Theater
investment’ (par. 2.03). This means that the
partnership between petitioner and Edu
_______________
32 Heirs of Tan Eng Kee vs. Court of Appeals, supra.

33 Par. 3.01 of the Complaint; Rollo, p. 64.
592

ardo came first; Yang became their partner in their Odeon

Theater investment thereafter. Several paragraphs later,
however, petitioner would contradict himself by alleging
that his “investment and that of Eduardo and Yang in the
Odeon theater business has expanded through a
reinvestment of profit income and direct investments in
several corporation including but not limited to [six]
corporate respondents” This simply means that the “Odeon
Theatre business” came before the corporate respondents.
Significantly enough, petitioner refers to the corporate34
respondents as “progeny” of the Odeon Theatre business.”
Needless to stress, petitioner has not sufficiently
established in his complaint the legal vinculum whence he
sourced his right to drag Yang into the fray. The Court of
Appeals, in its assailed decision, captured and formulated
the legal situation in the following wise:
“[Respondent] Yang, . . . is impleaded because, as alleged in the

complaint, he is a “partner” of [Eduardo] and the [petitioner] in
the Odeon Theater Investment which expanded through
reinvestments of profits and direct investments in several
corporations, thus:
x x x x x x x x x
Clearly, [petitioner’s] claim against . . . Yang arose from his
alleged partnership with petitioner and the …respondent.
However, there was NO allegation in the complaint which directly
alleged how the supposed contractual relation was created
between [petitioner] and . . .Yang. More importantly, however, the

foregoing ruling of this Court that the purported partnership
between [Eduardo] is void and legally inexistent directly affects
said claim against . . . Yang. Since [petitioner] is trying to
establish his claim against . . . Yang by linking him to the legally
inexistent partnership . . . such attempt had become futile
because there was NOTHING that would contractually connect
[petitioner] and . . . Yang. To establish a valid cause of action, the
complaint should have a statement of fact upon which to connect
[respondent] Yang to the alleged partnership between [petitioner]
and respondent [Eduardo], including their alleged investment in
the Odeon Theater. A statement of facts on those matters is
pivotal to the complaint as they would constitute the ultimate
facts necessary to35 establish the elements of a cause of action
against . . . Yang.”
_______________
34 Petition, p. 18; Rollo, p. 20.

35 Rollo, p. 45.
593
VOL. 477, DECEMBER 13, 2005 593

Pressing its point, the CA later stated in its resolution

denying petitioner’s motion for reconsideration the
following:
“x x x Whatever the complaint calls it, it is the actionable

document attached to the complaint that is controlling. Suffice it
to state, We have not ignored the actionable document . . . As a
matter of fact, We emphasized in our decision . . . that insofar as
[Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not
mentioned in a document purporting
36
to establish a partnership
could be considered a partner.” (Words in bracket ours).
The last issue raised by petitioner, referring to whether or

not he changed his theory of the case, as peremptorily
determined by the CA, has been discussed at length earlier
and need not detain us long. Suffice it to say that after the
CA has ruled that the alleged partnership is inexistent,
petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and
consistently pursued in his complaint, petitioner embraced
the innominate contract theory. Illustrative of this shift is
petitioner’s statement in par. #8 of his motion for

reconsideration of the CA’s decision combined with what he
said in par. # 43 of this petition, as follows:
“8. Whether or not the actionable document creates a partnership,

joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainant’s
allegations, is whether the actionable document bears out an
actionable contract—be it a partnership, a joint venture or
whatever or some innominate contract . . . It may be noted that
one kind of innominate contract
37
is what is known as du ut facias
(I give that you may do).
43. Contrariwise, this actionable document, especially its
above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is
what is38 known as an innominate contract (Civil Code, Article
1307).”
_______________
36 Ibid., p. 61.
37 Rollo, p. 53; Citations omitted.
38 Ibid., p. 19.
594

Springing surprises on the opposing party is offensive to

the sporting idea of fair play, justice and due process;
hence, the proscription against a party shifting from one
theory at the trial 39court to a new and different theory in
the appellate court. On the same rationale, an issue which
was neither averred in the 40
complaint cannot be raised for
the first time on appeal. It is not difficult, therefore, to
agree with the CA when it made short shrift of petitioner’s
innominate contract theory on the basis of the foregoing
basic reasons.
Petitioner’s protestation that his act of introducing the
concept of innominate contract was not a case of changing
theories but of supporting his pleaded cause of action—that
of the existence of a partnership—by another legal
perspective/argument, strikes the Court as a strained
attempt to rationalize an untenable position. Paragraph 12
of his motion for reconsideration of the CA’s decision
virtually relegates partnership as a fall-back theory. Two
paragraphs later, in the same notion, petitioner faults the
appellate court for reading, with myopic eyes, the

actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are
a study of a party hedging on whether or not to pursue the
original cause of action or altogether abandoning the same,
thus:
“12. Incidentally, assuming that the actionable document created

a partnership between [respondent] Eduardo, Sr. and [petitioner],
no immovables were contributed to this partnership. x x x
14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish
a contractual relationship between [petitioner] and … Eduardo,
Sr. and Roberto T Yang simply because his document does not
create a partnership or a joint venture. This is . . . a myopic
reading of the actionable document.”
Per the Court’s own count, petitioner used in his complaint

the mixed words “joint venture/partnership” nineteen (19)
times and
_______________
39 San Agustin vs. Barrios, 68 Phil. 475 (1939) citing other cases.
40 Union Bank of the Philippines vs. Court of Appeals, 359 SCRA 480
(2001).
595
VOL. 477, DECEMBER 13, 2005 595

the term “partner” four (4) times. He made reference to the

“law of joint venture/partnership [being applicable] to the
business relationship . . . between [him], Eduardo and
Bobby [Yang]” and to his “rights in all specific properties of
their joint venture/partnership.” Given this consideration,
petitioner’s right of action against respondents Eduardo
and Yang doubtless pivots on the existence of the
partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex “A-1.” A
void Annex “A-1,” as an actionable document of
partnership, would strip petitioner of a cause of action
under the premises. A complaint for delivery and
accounting of partnership property based on such void or
legally non-existent actionable document is dismissible for
failure to state of action. So, in gist, said the Court of
Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the

impugned Decision and Resolution of the Court of Appeals
AFFIRMED.
Cost against the petitioner.
SO ORDERED.
Panganiban (Chairman), Sandoval-Gutierrez,

Corona and Carpio-Morales, JJ., concur.
Petition denied, impugned decision and resolution

affirmed.
Note.—The Statute of Frauds applies only to executory

contracts and not to contracts which are either partially or
totally performed. (Averia vs. Averia, 436 SCRA 459 [2004])
——o0o——
596

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7/17/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 341

740 SUPREME COURT REPORTS ANNOTATED

HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF

Appeals; Evidence; Findings of facts of the Court of Appeals

VOL. 341, OCTOBER 3, 2000 741

Heirs of Tan Eng Kee vs. Court of Appeals

grounded entirely on speculation, surmises, or conjectures; (3)

the admissions of both appellant and appellee; (6) when the

742 SUPREME COURT REPORTS ANNOTATED

Heirs of Tan Eng Kee vs. Court of Appeals

transact business under their own name, and can be individually

VOL. 341, OCTOBER 3, 2000 743

Heirs of Tan Eng Kee vs. Court of Appeals

Same; Co-Ownership; A co-ownership or co-possession is not

circumstances may be such as to support a finding of the

744 SUPREME COURT REPORTS ANNOTATED

Heirs of Tan Eng Kee vs. Court of Appeals

a niche above the rank-and-file employees. He would have enjoyed

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

In this petition for review on1 certiorari, petitioners pray for

THE FOREGOING CONSIDERED, the appealed decision is

The facts are:

decedent, joined by their children Teresita, Nena, Clarita,

1 Rollo, pp. 129-147.

VOL. 341, OCTOBER 3, 2000 745

WHEREFORE, in view of all the foregoing, judgment is hereby

Declaring that Benguet Lumber is a joint venture which is

3 Records, pp. 1-4.

746 SUPREME COURT REPORTS ANNOTATED

its and/or losses of the business venture or particular

Private respondent sought relief before the Court of

7 Rollo, pp. 148-149.

VOL. 341, OCTOBER 3, 2000 747

Eng Kee was a mere employee of Benguet Lumber, were

THE HONORABLE COURT OF APPEALS ERRED IN

THE HONORABLE COURT OF APPEALS ERRED IN

THE HONORABLE COURT OF APPEALS ERRED IN

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN

9 Rollo, pp. 412-419.

748 SUPREME COURT REPORTS ANNOTATED

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE

THE HONORABLE COURT OF APPEALS ERRED IN

THEY DO NOT KNOW WHEN THE ESTABLISHMENT

THE HONORABLE COURT OF APPEALS ERRED IN

As a premise, we reiterate the oft-repeated rule that

10 Brusas v. Court of Appeals, 313 SCRA 176, 188 (1999); Guerrero v.

VOL. 341, OCTOBER 3, 2000 749

Filing of petition with Supreme Court.—A party desiring to appeal

Admitted exceptions have been recognized, though, and

(1) when the factual findings of the Court of Appeals

when the findings are grounded entirely on

11 1997 RULES OF CIVIL PROCEDURE, Rule 45, Sec. 1.

750 SUPREME COURT REPORTS ANNOTATED

In reversing the trial court, the Court of Appeals ruled, to

x x x x x x x x x x x x

VOL. 341, OCTOBER 3, 2000 751

poration). The deceased, Kee, on the other hand, was merely an

payroll listing. In the Termination Notice, Exhibit “5,” Lay was

752 SUPREME COURT REPORTS ANNOTATED

the partnership. The intention to join in the business venture for

As can be seen, the appellate court disputed and differed

x x x two or more persons bind themselves to contribute money,

Thus, in order to constitute a partnership, it must be