VOL.
160, APRIL 15, 171 parties must be bound by some other relation, but certainly not
1988
Sevilla us. Court ofAppeals
Nos. L-41182–3. April 15, 1988. *
DR. CARLOS L. SEVILLA and LINA O. SEVILLA,
petitionersappellants, vs. THE COURT OF APPEALS, TOURIST
WORLD SERVICE, INC., ELISEO S. CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.
Labor; Employer-employee relation; No uniform test to determine the
existence of an employer-employee relation; Court relied on the socalled
right of control test, the existing economic conditions prevailing between
the parties.—In this jurisdiction, there has been no uniform test to
determine the existence of an employer-employee relation. In general, we
have relied on the so-called right of control test, “where the person for
whom the services are performed reserves a right to control not only the
end to be achieved but also the means to be used in reaching such end.”
Subsequently, however, we have considered, in addition to the standard
or right-of-control, the existing economic conditions prevailing between
the parties, like the inclusion of the employee in the payrolls, in
determining the existence of an employeremployee relationship.
Same;Same; Not a case of employer-employee relation.—The records
will show that the petitioner, Lina Sevilla, was not subject to control by
the private respondent Tourist World Service, Inc., either as to the result
of the enterprise or as to the means used in connection therewith. In the
first place, under the contract of lease covering the Tourist World’s
Ermita office, she had bound herself in solidum as and for rental
payments, an arrangement that would belie claims of a master-servant
relationship. True, the respondent Court would later minimize her
participation in the lease as one of mere guaranty, that does not make her
an employee of Toiirist World, since in any case, a true employee cannot
be made to part with his own money in pursuance of his employer’s
business, or otherwise, assume any liability thereof. In that event, the
1|P age
employment.
Same; Same; Same; it cannot be said that Sevilla was under the
control of Tourist World Service, Inc.—In the second place, and as found
by the Appellate Court, "[w]hen the branch office was opened, the same
was run by the herein appellant Lina O. Sevilla payable to Tourist World
Service, Inc. by any airline for any fare brought in on
________________
* SECOND DIVISION.
172
1 SUPREME
72 COURT REPORTS
ANNOTATED
Sevilla vs. Court
ofAppeals
the effort of Mrs. Lina Sevilla.” Under these circumstances, it cannot
be said that Sevilla was under the control of Tounst World Service. Inc.
“as to the means used.” Sevilla in pursuing the business, obviously relied
on her own gifts and capabilities.
Same; Same; Same; Same; Fact that Sevilla was not in the company’s
payroll admitted.—It is further admitted that Sevilla was not in the
company’s payroll. For her efforts, she retained 4% in commissions from
airline bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.
Same; Same; Same; Same; Fact that Sevilla was designated “branch
manager” does not make her Tourist World’s employee.—The fact that
Sevilla had been designated “branch manager” does not make her, ergo,
Tounst World’s employee. As we said, employment is determined by the
right-of-control test and certain economic parameters. But titles are weak
indicators.
 Civil Law; Partnership; Lina Sevilla’s own argument that the par-ties
had embarked on a joint venture or otherwise a partnership rejected.—In
rejecting Tourist World Service, Inc.'s arguments however, we are not, as
a consequence, accepting Lina Seviila’s own, that is, that the parties had
embarked on a joint venture or otherwise, a partnership. And apparently,
Sevilla herself did not recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly “concedes your [Tourist World
Service, Inc.'s] right to stop the operation of your branch office,” in effect,
accepting Tourist World Service, Inc.'s control over the manner in which
the business was run. A joint venture, including a partnership,
presupposes generally a parity of standing between the joint co-venturers
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. Furthermore, the parties did not
hold themselves out as partners, and the building itself was embellished
with the electric sign “Toimst World Service, Inc.," in lieu of a distinct
partnership name.
Same;Agency; The parties had contemplated a principal-agent
relationship rather than a joint management or a partnership.—It is the
Court’s considered opinion, that when the petitioner, Lina Sevilla, agreed
to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita
office, she must have done so pursuant to a contract of
173
VOL. 160, APRIL
15, 1988 73
Sevilla vs. Court of
Appeals
agency. It is the essence of this contract that the agent renders
services “in representation or on behalf of another.” In the case at bar,
Sevilla solicited airline fares, but she did so for and on behalf of her
principal, Touriat World Servioe, Inc. As compensation, she received 4% of
the proceeds in the concept of commissions. And as we said, Sevilla
herself, based on her letter of November 28,1961, presumed her
printipaTs authority as owner of the business undertaking. We are
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convinced, considering the circumstances and from the respondent Court’s
recital of facts, that the parties had contemplated a principalagent
relationship, rather than a joint management or a partnership.
Same; Same; Same; The agency being one coupled with an interest
cannot be revoked at wilL—But unlike simple grants of a power of
attorney, the agency that we hereby declare to be compatible witJb the
intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for the mutual
interest of the agent and the principal. It appears that Lina Sevilla is a
bona fide travel agent herself, and as such, she had acquired an interest
in the business entrusted to her. Moreover, she had assumed a personal
obligation for the operation thereof, holding herself solidarily liable for the
payment of rentals. She continued the business, using her own name,
after Tourist World had stopped further operations. Her interest,
obviously, is not limited to the commissions she earned as a result of her
business transactions. but one that extendB to the very subject matter of
the power of management delegated to her. It is an agency that, as we
said, cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla, to
damages.
Same; Same; Damages; For unwarranted revocation of the contract of
agency, Tourist World Service, Inc. should be sentenced to pay damages.—
We rule, therefore, that for its unwarranted revocation of the contract of
agency, the private respondent, Tourist Worid Service, Inc., should be
sentenced to pay damages. Under the CivU Code, moral damages may be
awarded for “breaches of contract where the defendant acted ... in bad
faith.”
Same; Same; Same; Same; Respondeni Eliseo Canilao likewise
ordered to respond for the same damages in a solidary capacity.—
The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby
ordered to respond for the same damages in a solidary capacity.
APPEAL by certiorari to review the decision of the Court of
Appeals.
 174
174 SUPREME COURT
REPORTS
ANNOTATED
Sevilla vs. Court of Appeals
The facts are stated in the opinion of theCuwrt.
Roman P. Mosqueda for petitioners-appellants.
Felipe Magat for respondents-appellees.
SARMIENTO, J.:
The petitioners invoke the provisions on human relations of the
Civil Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit
2 for the appellees) entered into on Oct. 19,1960 by and
betweenMrs. Segundina Noguera, party of the first part; the
Tourist World Service, Inc., represented by Mr. Eliseo Canilao as
party of the second part, and hereinafter reJerred to as appellants,
the Tourist Woxid Service, Inc. leased the premises belonging to the
party of the first part at Mabini St., Manila for the former’s use as a
branch office. In the said contract the party of the third part held
herself solidarily liable with the party of the second part for the
prompt payment of the monthly rental agreed on. When the branch
office was opened, the same was run by the herein appellant Lina
O. Sevilla payable to Tonrist World Service Inc. by any airline for
any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go
to Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.
On or about November 24,1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and,
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since the branch office was anyhow losing, the Tourist World
Service considered closing down its office. This was firmed up by
two resolutions of the board of directors of Tourist World Service,
Inc. dated Dec; 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World
Service, Inc,, Ermita Branch, and the second, authorizing the
corporate secretary to receive the proper-ties of the Tonrist World
Service then located at the said branch office. It further appears
that on Jan. 3,1962, the contract with the appellees for the use of
the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31,1962, the appellees no longer used it.
As a matter of fact appellants used it since Nov. 1961. Because of
this, and to comply with the mandate of the Tourist World Service,
the corporate secretary Gabino Canilao went over to the branch
office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to
protect the
175
VOL. 160, APRIL 15, 175
1988
Sevilla vs. Court ofAppeals
interests of the Tourist World Service. When neither the appellant
Lina Sevilla nor any of her employees could enter the locked
premises, a complaint was filed ,by the herein appellants against
the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein,
the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the
order dismissing her counterclaim which the court M. quo, in an
order dated June 8, 1963, granted permitting her to present
evidence in support of her counterclaim.
 On June 17,1963, appellant Lina Sevilla refiled her case against
the herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the
court a quo ordered both cases dismissed for lack of merit, on the
basis of which was elevated the instant appeal on the following
assignment of errors:
1. “I.THE LOWER COURT ERRED EVEN IN APPRECIATING
THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA
O. SEVILLA’S COMPLAINT.
2. “II.THE LOWER COURT ERRED IN HOLDING THAT
APPELLANT MRS. LINA O. SEVILLA’S ARRANGEMENT
(WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
3. “III.THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.
4. “IV.THE LOWER COURT ERRED IN NOT HOLDING
THAT APPELLEES HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA FROM THE A.
MABINI OFFICE BY TAKING THE LAW INTO THEIR
OWN HANDS.
5. “V.THE LOWER COURT ERRED IN NOT CONSIDERING
AT ALL APPELLEE NOGUERA’S RESPONSIBILITY FOR
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APPELLANT MRS. LINA O. SEVILLA’S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
6. “VI.THE LOWER COURT ERRED IN FINDING THAT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY
AS GUARANTOR FOR RENTALS."
176
176 SUPREME COURT
REPORTS
ANNOTATED
Sevilla vs. Court ofAppeals
On the foregoing facts and in the light of the errors assigned the issues to
be resolved are:
1. 1.Whether the appellee Tourist World Service unilaterally
disconnected the telephone line at the branch office on Ermita;
2. 2.Whether or not the padlocking of the office by the Tourist World
Servioe was actionable or not; and
3. 3.Whether or not the lessee to the office premises belonging to the
appeUee Noguera was appeUee TWS or TWS and the appellant.
In this appeal, appellant Lina Sevilla claims that a joint business
venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee of
the TWS to the end that her relationship with TWS was one of a joint
business venture appeUant made declarations showing:
“1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an
eminent eye, ear and nose specialist as well as a society columnist, had been in
the travel business prior to the establishment of the joint business venture with
appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre,
she being the godmother of one of his children, with her own clientele, coming
mostly from her own social circle (pp. 3–6 tsn. February 16,1965).
“2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19
October 1960 (Exh. “A") covering the premises at A, Mabini St., she expressly
warranting and holding [sic] herself ‘solidarily’ liable with appellee Tourist World
Service, Inc. for the prompt payment of the monthly rentals thereof to other
appellee Mrs. Noguera (pp. 14–15, tsn. Jan. 18,1964).
“3. Appellant Mrs. Sevilla did not receive any salary from appellee Totuist
World Service, Inc., which had its own separate office located at the Trade &
Commerce Building; nor was she an employee thereof, having no participation in
nor connection with said business at the Trade & Commerce Building (pp. 16–18
tsn. id.).
“4. Appellant Mrs. Sevilla earned commissions for her own passengers, her
own bookings, her own business (and not for any of the business of appeUee
Tourist World Service, Inc.) obtained from the airline companies. She shared the
7% commissions given by the airline companies, giving appellee Tourist World
Service, Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)
“5, Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the
A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and
other sundry expenses,
177
VOL, 160. APRIL 15, 177
1988
Sevilla vs. Court of Appeals
aside from designing the office furniture and supplying some office furnishings
(pp. 15, 18 tsn. April 6, 19650, appelle Tourist World Service, Inc., shouldering
the rental and other expenses in apeellant Mrs. Sevilla (p. 35 tsn. Feb. 16, 19650.
“6. It was the understanding between them that appellant Mrs. Sevilla would
be given the title of branch manager for appearance’s sake only (p. 31 tsn. id.),
appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn.
June 18, 1965—testimony of appellee Eliseo Canilao; pp. 38–39 tsn. April 6,
1965—testimony of corporate secretary Gabino Canilao). "(pp. 2–5, Appellnat’s
Reply Brief)
Upon the other hand, Appelle TWS contend that the appellant was an
employee of the appellee Tourist Worls Service, Inc., and as such was
designated manager." 1 WITHOUT INFORMING COUNSEL FOR THE APPELLANT
xxx xxx xxx
The trial court geld for the private respondents on the premise that
2 SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
the private respondent, Tourist World Service, Inc., being the true
5|P age
lessee, it was within its prerogative to terminate the lease and
padlock the premises. It likewise found the petitioner. Lina Sevilla,
3
to be a mere employee of said Tourist World Service, Inc., and as
much, she was bound by the acts of her employer. The respondent4
Court of Appeals rendered an affirmance.
5
The petitioner now claim that the respondent Court, in
sustaining the lower court, erred. Specially, they state:
I.
THE COURT OF APPLEAS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT “THE
PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE,
INC., WITHOUT THE KNOWLEDGE AND CONSENT OF THE
APPELLANT LINE SEVILLA X X X WITHOUT NOTIFYING
________________
1 Rollo, 30–35.
2 Court of Ifrst Instance of Manila, Branch XIX, Montess, Agustin, Presiding
Judge.
3 Rollo, id., 55; Reocrd on Appeal, 38.
4 Record on Appeal, id., 37–38.
5 Gaviola, Jr., Ramon, J., Reyes, Luis, and De Castro, Pacifico, JJ., Concurring.
178
178 SUPREME COURT
REPORTS
ANNOTATED
Sevilla vs. Court of Appeals
MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
(SEVILLA), WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR
ATTEMPT TO AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE
X X X (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX “A" PP. 7, 8 AND ANNEX “B" P. 2)—A DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT
SEVILLA RELIEF BECAUSE SHE HAD “OFFERED TO WITHDRAW
HER COMPLAINT PROVIDED THAT ALL CLAIMS AND
COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE
WITHDRAWN." (ANNEX “A" P. 8)
III.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING—IN FACT NOT
PASSING AND RESOLVING—APPELLANT SEVILLA’S CAUSE OF
ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
CODE ON HUMAN RELATIONS.
IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT
SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE
WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR
AT LEAST ITS AGENT COUPLED WITH AN INTEREST WfflCH
COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY
TOURIST WORLD SERVICE INC. 6
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As a preliminary inquiry, the Court is asked to declare the true
nature of the relation between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of Appeals did not
________________
6 Rollo, id., 124; Brief for Petitioners, 1–2.
179
VOL. 160, APRIL 15, 179
1988
Sevilla vs. Court of Appeals
see fit to rule on the question, the crucial issue, in its opinion being
“whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant
Lina Sevilla entitled the latter to the relief of damages prayed for
and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally
and without the consent of the appellant disconnected the telephone
lines of the Ermita branch office of the appellee Tourist World
Service, Inc." Tourist World Service, Inc., insists, on the other
7
hand, that Lina Sevilla was a mere employee, being “branch
manager” of its Ermita “branch” office and that inferentially, she
had no say on the lease executed with the private respondent,
Segundina Noguera. The petitioners contend, however, that
relation between the parties was one of joint venture, but concede
that “whatever might have been the true relationship betwemSeviila
and Tourist World Service,” the Rule of Law enjoined Tourist World
Service and Canilao from taking the law into their own hands," in 8
reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the
private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the
case, labor disputes being the exclusive domain of the Court of respondent Court would later minimize her participation in the
Industrial Relations, later, the Bureau of Labor Relations, pursuant lease as one of mere guaranty, that does not make her an employee
12

to statutes then in force. 9 of Tourist World, since in any case, a true employee cannot be made
In this jurisdiction, there has been no uniform test to determine to part with his own money in pursuance of his employer’s business,
the existence of an employer-employee relation. In general, we have or otherwise, assume any liability thereof. In that event, the parties
relied on the so-caUed right of control test, “where the person for must be bound by some other relation, but certainly not
whom the services are performed reserves a right to control not only employment.
the end to be achieved but also the means to be used in reaching In the second place, and as found by the Appellate Court,
such end. Subsequently, however, we have considered, in addition
10 "[w]hen the branch office was opened, the same was run by the
to the standard of right- herein appellant Lina O. Sevilla payable to Tourist World Service,
________________ Inc. by any airline for any fare brought in on the eSbrt of Mrs. Lina
Sevilla." Under these circumstances, it cannot be said that Sevilla
13
7 Rollo, id., 36.
8 Id. 21; emphasis in the originaL
,
was under the control of Tourist World Service, Inc. “as to the
9 See Rep. Act No. 875, as amended. See also Rep. Act No. 1052 as amended by
? means used.” Sevilla in pursuing the business, obviously relied on
Rep. Act No. 1787. her own gifts and capabilities.
10 LVN Pict\ires, Inc. v. Philippine Musicians Guild, No. L-12582, January
It is further admitted that Sevilla was not in the company’s
28,1961,1 SCRA 132,173 (1961); emphasis in the original.
payroll. For her efforts, she retained 4% in commissions from
180 airline bookings, the remaining 3% going to Tourist World. Unlike
180 SUPREME COURT an employee then, who earns a fixed salary usually, she earned
REPORTS compensation in fluctuating amounts depending on her booking
ANNOTATED successes.
Sevilla vs. Court of Appeals The fact that Sevilla had been designated “branch manager” does
of-control, the existing economic conditions prevailing between the not make her. ergo, Tourist World’s employee. As we said,
parties, like the inclusion of the employee in the payrolls, in employment is determined by the right-of-control test and cer-
determining the existence of an employer-employee relationship. 11
________________
The records will show that the petitioner, Lina Sevilla, was not 11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L21696, February

subject to control by the private respondent Tourist World Service, 25,1967,19 SCRA 426 (1967).
Inc., either as to the result of the enterprise or as to the means used 12 Rollo, id., 40.

13 Id., 31.
in connection therewith. In the first place, under the contract of
lease covering the Tourist World’s Ermita office, she had bound 181
herself in solidum as and for rental payments, an arrangement that VOL. 160, APRIL 15, 181
would belie claims of a master-servant relationship. True, the 1988
7|P age
 Sevilla vs. Court of Appeals
tain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we
are not, as a consequence, accepting Lina Sevilla’s own, that is, that
the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the
existence of such a relation. In her letter of November 28, 1961, she
expressly “concedes your [Tourist World Service, Inc.'s] right to stop
the operation of your branch office," in effect, accepting Tourist
14
World Service, Inc.'s control over the manner in which the business
was run. A joint venture, including a partnership, presupposes
generally a parity of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in
the capital or property contributed and where each party exercises
15
equal rights in the conduct of the business. Furthermore, the
16
parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign “Tourist World Service,
Inc.," in lieu of a distinct partnership name. It is the Court’s
17
considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s
Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders
services “in representation or on behalf of another." In the case at
18
bar, Sevilla solicited airline fares, but she did so for and on behalf of
her principal, Tourist World Service, Inc. As compensation, she
received 4% of the proceeds in the concept of commissions. And as
we said, Sevilla herself, based on her letter of November 28,1961,
pre-
________________
Id., 47.
14
15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSfflP LAW 34 (1978).
8|P age
16 Op Cit., 37. In Tuason v. Bolaños [95 Pbfl. 106 (1954)], this Court distinguished
between a joint venture and a partnership but this view has since raised questions
from authorities. According to Campos, there seems to be no fundamental distinction
between the two forms of business combinations. [See CAMPOS, THE
CORPORATION CODE12 (1981).] For purposes of this case, we use the terms of
interchangeably.
17 See rollo, id.
18 CIVIL CODE, art. 1868.
182
182 SUPREME COURT
REPORTS
ANNOTATED
Sevilla vs. Court of Appeals
sumed her principal’s authority as owner of the business
undertaking. We are convinced, considering the circumstances and
from the respondent Court’s recital of facts, that the parties had
contemplated a principal-agent relationship, rather than a joint
management or a partnership.
But unlike simple grants of a power of attorney, the agency that
we hereby declare to be compatible with the intent of the parties,
cannot be revoked at will. The reason is that it is one coupled with
an interest, the agency having been created for the mutual interest
of the agent and the prinripal. It appears that Lina Sevilla is
19
a bona fide travel agent herself, and as such, she had acquired an
interest in the business entrusted to her. Moreover, she had
assumed a personal obligation for the operation thereof, holding
herself solidarily liable for the payment of rentals. She continued
the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not limited to the
commissions she earned as a result of her business transactions,
but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said,
cannot be revoked at the pleasure of the principal Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla,
to damages.
As we have stated, the respondent Court avoided this issue,
confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is “no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at the
branch office." Yet, what cannot be denied is the fact that Tourigt
20
World Service, Inc. did not take pains to have them reconnected.
Assuming, therefore, that it had no hand in the disconnection now
complained of, it had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with
respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-
________________
See VI PADILLA, CIVIL LAW 350 (1974).
19
20 Rollo, id.,
183
VOL. 160, APRIL 15, 183
1988
Sevilla vs. Court of Appeals
tract did not accord it any authority to terminate that contract
without notice to its actual occupant, and to padlock the premises in
such blitzkrieg fashion. As this Court has ruled, the petitioner, Lina
Sevilla, had acquired a personal stake in the business itself, and
necessarily, in the equipment pertaining thereto. Furthermore,
Sevilla was not a stranger to that contract having been explicitly
named therein as a third party in charge of rental payments
(solidarily with Tourist World, Inc.). She could not be ousted from
possession as summarily as one would eject an interloper.
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The Court is satisfied that from the chronicle of events, there
was indeed some malevolent design to put the petitioner, Lina
Sevilla, in a bad light following disclosures that she had worked for
a rival firm. To be sure, the respondent court speaks of alleged
business losses to justify the closure, but there is no clear showing
21
that Tourist World Ermita Branch had in fact sustained such
reverses, let alone, the fact that Sevilla had moonlit for another
company. What the evidence discloses, on the other hand, is that
following such an information (that Sevilla was working for another
company), Tourist WorlcTs board of directors adopted two
resolutions abolishing the office of “manager” and authorizing the
corporate secretary, the respondent Eliseo Canilao, to effect the
takeover of its branch office properties. On January 3,1962, the
private respondents ended the lease over the branch office
premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly,
that the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary “to protect the
interests of the Tourist World Service." It is strange indeed that
22
Tourist World Service, Inc. did not find such a need when it
cancelled the lease five months earlier. While Tourist World
Service, Inc. would not pretend that it sought to locate Sevilla to
inform her of the closure, but surely, it was aware that after office
hours, she could not have been anywhere near the premises.
Capping these series of “offensives,” it cut the office’s telephone
lines, paralyzing completely
________________
Id., 31.
21
22 Id,
184
184 SUPREME COURT
 REPORTS
ANNOTATED
Sevilla vs. Court of Appeals
its business operations, and in the process, depriving Sevilla of her
participation therein.
This conduct on the part of Tourist World Service, Inc. betrays a
sinister effort to punish Sevilla for what it had perceived to be
disloyalty on her part. It is offensive, in any event, to elementary
norms of justice and fair play.
We rule, therefore, that for its unwarranted revocation of the
contract of agency, the private respondent, Tourist World Service,
Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for “breaches of contract where the
defendant acted ... in bad faith."
23
We likewise condemn Tourist World Service, Inc. to pay further
damages for the moral injury done to Lina Sevilla arising from its
brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil
Code, in relation to Article 2219 (10) thereof:
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
ART. 2219. Moral damages may be recovered in the following and
analogouB cases:
xxx xxx xxx
(10) Acts and actions referred to in articles 21 , 21, 26,27,28,29,30,
32,34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise
hereby ordered to respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent, Segundina Noguera
is concerned, no evidence has been shown that she had connived
10 | P a g e
with Tourist Worid Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a co-
tortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages, P10,000.00 as exemplary damages, and P5,000.00
24 25
________________
23 CIVIL CODE, art. 2220.
24 Supra.
25 Supro, art. 2232.
185
VOL. 160, APRIL 15, 185
1988
Sevilla vs. Court of Appeals
as nominal and/or temperaie damages, to be just, fair, and
26 27
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975
as well as the Resolution issued on July 31,1975, by the respondent
Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao,
are ORDERED jointly and severally to indemnify the petitioner,
Lina Sevilla, the sum of P25,000.00 as and for moral damages, the
sum of P10,000.00, as and for exemplary damages, and the sum of
P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla,
JJ., concur.
Decision and resolution reversed and set aside.
Note.—In determining the existence of employer-employee
relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to
control the employee’s conduct. (Shipside, Incorporated vs. National
LaborRelations Commission, 118 SCRA 99.)

——o0o——

________________

26 Supra,art. 2221.
27 Supra, art. 2224.

186
© Copyright 2021 Central Book Supply, Inc. All rights reserved.

11 | P a g e
12 | P a g e
830 SUPREME COURT
REPORTS
ANNOTATED
Estanislao, Jr. vs. Court of
Appeals
No. L-49982. April 27, 1988. * Estanislao, Jr. vs. Court
ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE
COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and
LEOCADIO SANTIAGO, respondents.
Civil Law; Partnership; No merit in the contention that because of the
stipulation cancelling and superseding the previous joint affidavit,
whatever partnership agreement there was in said previous agreement had
thereby been abrogated.—Petitioner contends that because of the said
stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous agreement
had thereby been abrogated. We find not merit in this argument. Said
cancelling provision was necessary for the Joint Aflfidavit speaks of
P15,QOO.OO advance rentals starting May 25, 1966 while the latter
agreement also refers to advance rentals of the same amount starting
May 24,1966, There is, therefore, a duplication of reference to the Pl
5,000.00 hence the need to provide in the subsequent document that it
“cancels and supersedes” the previous one. True it is that in the latter
document, it is silent as to the statement in the Joint Affidavit that the
P15,000.00 represents the “capital investment” of the parties in the
gasoline station business and it speaks of petitioner as the sole dealer, but
this is as it should be for in the latter document SHELL was a signatory
and it would be against its policy if in the agreement it should be stated
that the business is a partnership with private respondents and not a sole
proprietorship of petitioner.
Same; Same; Same; Evidence showing that there was in fact such
partnership agreement between theparties.—Moreover other evidence
________________
1|P age
* FIRST DIVISION.
831
VOL. 160, APRIL
27, 1988 31
of Appeals
in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of
private respondent Remedios Estanislao and Atty. Angeles. Petitioner
submitted to private respondents periodic accounting of the business.
Petitioner gave a written authority to private respondent Remedios
Estanislao, his sister, to examine and audit the books of their “common
business” (aming negosyo). Reapondent Remedios assisted in the running
of the business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money in a
common fund with the intention of dividing the profits among themselves.
The sole dealership by the petitioner and the issuance of all government
permits and licenses in the name of petitioner was in compliance with the
afore-stated policy of SHELL and the understanding of the parties of
having only one dealer of the SHELL products.
PETITION for certiorari to review the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.
GANCAYCO, J.;
By this petition for certiorari the Court is asked to determine if a
partnership exists between members of the same family arising
from their joint ownership of certain properties.
 Petitioner and private respondents are brothers and sisters who
are co-owners of certain lots at the corner of Annapolis and Aurora
Blvd., Quezon City which were then being leased to the Shell
Company of the Philippines Limited (SHELL). They agreed to open
and operate a gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of Pl5.000.00 to be taken
from the advance rentals due to them from SHELL for the
occupancy of the said lots owned in common by them. A joint
affidavit was executed by them on April 11, 1966 which was
prepared by Atty. Democrito Angeles. They agreed to help their
1 year ending 1969, a profit ofPl 50,000.00 was realized.
brother, petitioner herein, by allowing him to operate and manage
the gasoline service station of the family. They negotiated with
SHELL. For practical purposes and in order not to run counter to
the company’s policy of
________________
Exhibit A.
1
832
832 SUPREME COURT
REPORTS
ANNOTATED
Estanislao, Jr. vs. Court of
Appeals
appointing only one dealer. it was agreed that petitioner would
apply for the dealership. Respondent Remedios helped in
comanaging the business with petitioner from May 3,1966 up to
Februaryl6,1967.
On May 26, 1966, the parties herein entered into an Additional
Cash Pledge Agreement with SHELL wherein it was reiterated that
the Pl5,000.00 advance rental shall be deposited with SHELL to
cover advances of fuel to petitioner as dealer with a proviso that
2|P age
said agreement “cancels and supersedes the Joint Affidavit dated
11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements
regarding the operation of the business to private respondents, but
therafter petitioner failed to render subsequent accounting. Hence
through Atty. Angeles, a demand was made on petitioner to render
an accounting of the profits.
The financial report of December 31, 1968 shows that the
business was able to make a profit of P87,293.79 and that by the
3
Thus, on August 25, 1970 private respondents filed a complaint
in the Court of First Instance of Rizal against petitioner praying
among others that the latter be ordered:
1. “1.to execute a public document embodying all the provisions
of the partnership agreement entered into between
plaintiffs and defendant as provided in Article 1771 of the
New Civil Code;
2. “2.to render a formal accounting of the business operation
covering the period from May 6,1966 up to December
21,1968 and from January 1,1969 up to the time the order is
issued and that the same be subject to proper audit;
3. “3.to pay the plaintiffs their lawful shares and participation
in the net profits of the business in an amount of no less
than Pl 50,000.00 with interest at the rate of 1% per month
from date of demand until full payment thereof for the
entire duration of the business; and
4. “4.to pay the plaintiffs the amount of P10,000=00 as
attorney’s fees and costs of the suit.” (pp. 13–14 Record on
Appeal.)"
After trial on the merits, on October 15, 1975, Hon. Lino Anover,
who was then the temporary presiding judge of Branch
________________
2 Exhibits 6 and 6-A.
3 Exhibit D.
833
VOL. 160, APRIL 27, 833
1988
Estanislao, Jr. vs. Court of
Appeals
IV of the trial court, rendered judgment dismissing the complaint
and counterclaim and ordering private respondents to pay
petitioner P3,000.00 attorney’s fee and costs. Private respondent
filed a motion for reconsideration of the decision. On December
10,1975, Hon. Ricardo Tensuan who was the newly appointed
presiding judge of the same branch, set aside the aforesaid decision
and rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14,1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the
plaintiffs and as against the defendant:
1. (1)Ordering the defendant to execute a public instrument
embodying all the provisions of the partnership agreement
entered into between plaintiffs and defendant as provided for in
Article 1771, Civil Code of the Philippines;
2. (2)Ordering the defendant to render a formal accounting of the
business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the
plaintiff;
3. (3)Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of
3|P age
P150,000.00, with interest thereon at the rate of One (1%) Per
Cent per month from date of demand until full payment thereof;
4. (4)Ordering the defendant to pay the plaintiffs the sum of
P5,000.00 by way of attorney’s fees of plaintiffs’ counsel; as well
as the costs of suit.” (pp. 161462. Record on Appeal)."
Petitioner then interposed an appeal to the Court of Appeals
enumerating seven (7) errors allegedly committed by the trial court.
In due course, a decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of the lower court
with costs against petitioner. **
A motion for reconsideration of said decision filed by petitioner
was denied on January 30,1979. Not satisfied therewith, the
petitioner now comes to this court by way of this petition for
certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. “A") vis-a-
vis the Additional Cash Pledge Agreement (Exhs. “B-2," “6," and “L"); and
________________
** Penned by then Justice Ramon G. Gaviola, Jr., and concurred in by Justices B.S.
delaFuente and EdgardoParas, Fourth Division, Court of Appeals.
834
834 SUPREME COURT
REPORTS
ANNOTATED
Estanislao, Jr. vs. Court of
Appeals
2, In declaring that a partnership was established by and among the
petitioner and the private respondents as regards the ownership and/or
operation of the gasoline service station business.”
Petitioner relies heavily on the provisions of the Joint Affidavit of
April 11,1966 (Exhibit A) and the Additional Cash Pledge
Agreement of May 20,1966 (Exhibit 6) which are herein reproduced
1. (a)The joint Affidavit of April 11,1966, Exhibit A reads:
1. "(1)That we are the Lessors of two parcels of land fully
described in Tranafer Certificates of Title Nos. 46071 and
71244 of the Register of Deeds of Quezon City, in favor of
the LESSEE—SHELL COMPANY OF THE PfflLIPPINES
LIMITED, a corporation duly licensed to do business in the
Philippines;
2. "(2)That we have requested the said SHELL COMPANY OF
THE PfflLIPPINES LIMITED, advanced rentals in the total
amount of FIFTEEN THOUSAND PESOS (P15,000.00)
Philippine Currency, so that we can use the said amount to
augment our capital investment in the operation of that
gasoline station constructed by the said company on our two
lots aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company;
3. "(3)That the said SHELL COMPANY OF THE
PHILIPPINES LIMITED out of its benevolence and desire
to help us in augmenting our capital investment in the
operation of the said gasoline station, has agreed to give us
the said amount of Pl5,000.00, which amount will partake
the nature of ADVANCED RENTALS;
4. "(4)That we have freely and voluntarily agreed that upon
receipt of the said amount of FIFTEEN THOUSAND
PESOS (P15,000.00) from the SHELL COMPANY OF THE
PHILIPPINES LIMITED, the said sum as ADVANCED
RENTALS to us be applied as monthly rentals for the said
two lots under our Lease Agreement starting on the 25th of
4|P age
May, 1966 until such time that the said amount of Pl
5,000.00 be applicable, which time to our estimate will cover
at four and one-half months from May 25, 1966 or until the
10th of October, 1966 more or less;
5. "(5)That we have likewise agreed among ourselves that the
SHELL COMPANY OF THE PHILIPPINES LIMITED
execute an instrument for us to sign embodying our
conformity that the said amount that it will generously
grant us as requested be applied as ADVANCED
RENTALS; and
6. "(6)FURTHER AFFIANTS SAYETH NOT."
1. (b)The Additional Cash Pledge Agreement ofMay 20,1966,
Exhibit 6, is as follows:
835
VOL. 160, APRIL 27, 835
1988
Estanislao, Jr. vs. Court of
Appeals
“WHEREAS, under the lease Agreement dated 13th November, 1963
(identified as doc. Nos. 491 x. 1407, Page Nos. 99 x. 66, Book Nos. V, &.
III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL
by the herein CO-OWNERS and another Lease Agreement dated 19th
March 1964 xx xx xx also executed in favour of SHELL by COOWNERS
Remedios and MARIA ESTANISLAO for the lease of adjoining portions of
two parcels of land at Aurora BIvd./Annapolis, Quezon City, the CO-
OWNERS RECEIVE a total monthly rental of PESOS THREE
THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100
(P3,382.29), Philippine Currency;
“WHEREAS, CO-OWNER Eligio Estanislao, Jr. is the Dealer of the
Shell Station constructed on the leased land, and as Dealer under the
Cash Pledge Agreement dated 11th May 1966, he deposited to SHELL in
cash the amount of PESOS TEN THOUSAND (P10,000), Philippine
Currency, to secure his purchases on credit of Shell petroleum products; x
xx
“WHEREAS, said DEALER, in his desire to be granted an increased
credit limit up to P25,000, has secured the conformity of his CO-OWNERS
to waive and assign to SHELL the total monthly rentals due to all of them
to accumulate the equivalent amount of P1 5,000, commenting 24th May
1966, this P15,000 shall be treated as additional cash deposit to SHELL
under the same terms and conditions of the aforementioned Cash Pledge
Agreement dated 11th May 1966.
NOW, THEREFORE, for and in consideration of the foregoing
premises, and the mutual covenants among the CO-OWNERS herein and
SHELL, said parties have agreed and hereby agree as follows:
1. “1.The CO-OWNERS do hereby waive in favour of DEALER the
monthly rentals due to all CO-OWNERS, collectively, under the
above described two Lease Agreements, one dated 13th November
1963 andt he other dated 19th March 1964 to enable DEALER to
increase his existing cash deposit to SHELL, from P10,000 to
P25,000, for such purpose, the SHELL CO-OWNERS and
DEALER hereby irrevocably assign to SHELL the monthly rental
of P3,382.29 payable to them respectively as they fall due,
monthly, commencing 24th May 1966, until such time that the
monthly rentals accumulated, shall be equal to P15,000.
2. “2.The above stated monthly rentals accumulated shall be treated
as additional cash deposit by DEALER to SHELL, thereby
increasing his credit limit from P10,000 to P25,000. This
agreement, therefore, cancels and supersedes the Joint Affidavit
dated 11 April1 966 executed by the CO-OWNERS.
3. “3.Effective upon the signing of this agreement, SHELL agrees to
allow DEALER to purchase from SHELL petroleum products, on
credit, up to the amount of P25,000.
836
5|P age
836 SUPREME COURT
REPORTS
ANNOTATED
Estanislao, Jr. vs. Court of
Appeals
1. “4.This increase in the credit limit shall also be subject to the same
terms and conditions of the above-mentioned Cash Pledge
Agreement dated 11th May 1966." (Exhs. “B-2," “L," and “6";
italics supplied)
In the aforesaid Joint Affidavit of April 11,1966 (Exhibit A), it is
clearly stipulated by the parties that the P15,000.00 advance rental
due to them from SHELL shall augment their “capital investment”
in the operation of the gasoline station, which advance rentals shall
be credited as rentals from May 25, 1966 up to four and one-half
months or until 10 October 1966, more or less covering said
Pl5,000.00.
In the subsequent document entitled “Additional Cash Pledge
Agreement” above reproduced (Exhibit 6), the private respondents
and petitioners assigned to SHELL the monthly rentals due them
commencing the 24th of May 1966 until such time that the monthly
rentals accumulated equal Pl5,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to
increase his credit limit as dealer. As above-stated it provided
therein that “This agreement, therefore, cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation
cancelling and superseding that previous Joint Affidavit, whatever
partnership agreement there was in said previous agreement had
thereby been abrogated. We find no merit in this argument. Said
cancelling provision was necessary for the Joint Affidavit speaks of
Pl5,000.00 advance rentals starting May 25, 1966 while the latter
agreement also refers to advance rentals of the same amount
starting May 24, 1966. There is, therefore, a duplication of
reference to the P15,000.00 hence the need to provide in the
subsequent document that it “cancels and supersedes” the previous
one. True it is that in the latter document, it is silent as to the
statement in the Joint Affidavit that the Pl5,000.00 represents the
“capital investment” of the parties in the gasoline station business
and it speaks of petitioner as the sole dealer, but this is as it should
be for in the latter document SHELL was a signatory and it would
be against its policy if in the agreement it should be stated that the
business is a partnership with private respondents and not a sole
proprietorship of petitioner.
837
VOL. 160, APRIL 27, 837
1988
Estanislao, Jr. vs. Court of
Appeals
Moreover other evidence in the record shows that there was in fact
understanding of the parties of having only one dealer of the
SHELL products.
Further, the findings of facts of the respondent court are
conclusive in this proceeding, and its conclusion based on the said
facts are in accordance with the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in
toto with costs against petitioner. This decision is immediately
executory and no motion for extension of time to file a motion for
reconsideration shall be entertained.
SO ORDERED.
Narvasa, Cruz and Grino-Aquino, JJ., concur.
Judgment affirmed. Decision immediately executory.
——o0o——
________________
4 Exhibits D, D4, D-2, D-3 and D-4.
Exhibit E.
5

6 Article 1767, New Civil Code,

such partnership agreement between the parties. This is attested

by the testimonies of private respondent Remedios Estanislao and 838
Atty. Angeles. Petitioner submitted to private respondents periodic © Copyright 2021 Central Book Supply, Inc. All rights reserved.
accounting of the business.4 Petitioner gave a written authority to
private respondent Remedios Estanislao, his sister, to examine and
audit the books of their “common business” (aming
negosyo).5 Respondent Remedios assisted in the running of the
business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among
themselves.6 The sole dealership by the petitioner and the issuance
of all government permits and licenses in the name of petitioner
was in compliance with the afore-stated policy of SHELL and the

6|P age
746 SUPREME COURT
REPORTS
ANNOTATED
Fue Leung vs. Intermediate
Appellate Court
G.R. No. 70926. January 31, 1989. *
DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE
APPELLATE COURT and LEUNG YIU, respondents.
Remedial Law; Civil Procedure; Pleadings; Complaint; The nature of
the action may be determined from the facts alleged in the complaint as
constituting the cause of action.—Therefore, the lower courts did not err in
construing the complaint as one wherein the private respondent asserted
his right as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial
assistance therein. We agree with the appellate court’s observation to the
effect that “x x x given its ordinary meaning, financial assistance ‘is the
giving out of money to another without the expectation of any returns
therefrom’. It connotes an ex gratia dole out in favor of someone driven
into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.” (p. 99,
Rollo) The complaint explicitly stated that “as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the
said panciteria.” (p. 107, Rollo) The well-settled doctrine is that the “x x x
nature of the action filed in court is determined by the facts alleged in the
complaint as constituting the cause of action.” (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of
Appeals, 135 SCRA 37).
Civil Law; Partnership; Prescription; The right to demand an
accounting exists as long as the partnership exists.—Regarding the
prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807 and 1809 show that the right to demand
an accounting exists as long as the partnership exists. Prescription begins
1|P age
to run only upon the dissolution of the partnership when the final
accounting is done.
Same; Same; Dissolution of Partnerships; The Court may order the
dissolution of the partnership in question because its continuation has
become inequitable.—Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article 1831 of the Civil
Code which, in part, provides: “Art. 1831. On application by or for a
partner the court shall decree a dissolution whenever: x x x x x x
_________________
* THIRD DIVISION.
747
VOL. 169,
JANUARY 31, 1989 47
Fue Leung vs.
Intermediate Appellate Court
xxx "(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business; (4) A partner willfully or
persistently commits a breach of the partnership agreement, or otherwise
so conducts himself in matters relating to the partnership business that it
is not reasonably practicable to carry on the business in partnership with
him; xxx xxx xxx (6) Other circumstances render a dissolution equitable.”
There shall be a liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation of
the partnership has become inequitable.
PETITION to review the decision of the then Intermediate
Appellate Court.
The facts are stated in the opinion of the Court.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which
affirmed the decision of the then Court of First Instance of Manila,
Branch II in Civil Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of
Sun Wah Panciteria and ordering the petitioner to pay to the
private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung
Yiu with the then Court of First Instance of Manila, Branch II to
recover the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun Wah Panciteria
since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino
Torres Street, Sta. Cruz, Manila, was established sometime in
October, 1955. It was registered as a single proprietorship and its
licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show that Sun Wah
Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000.00
748
748 SUPREME COURT
REPORTS
ANNOTATED
Fue Leung vs. Intermediate
Appellate Court
to its initial establishment.
The private respondent’s evidence is summarized as follows:
2|P age
About the time the Sun Wah Panciteria started to become
operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt
identified as Exhibit “A" wherein the petitioner acknowledged his
acceptance of the P4,000.00 by affixing his signature thereto. The
receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a
certification and testified that the translation to the best of her
knowledge and belief was correct. The private respondent identified
the signature on the receipt as that of the petitioner (Exhibit A-3)
because it was affixed by the latter in his (private respondents’s)
presence. Witnesses So Sia and Antonio Ah Heng corroborated the
private respondent’s testimony to the effect that they were both
present when the receipt (Exhibit “A") was signed by the petitioner.
So Sia further testified that he himself received from the petitioner
a similar receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An examination was c
conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondent’s motion for examination of certain
documentary exhibits. The signatures in Exhibits “A" and “D" when
compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and
Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures
in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner
the amount of P12,000.00 covered by the latter’s Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation
of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of
the Savings Department of the China Banking Corporation testified
that said check (Exhibit B) was deposited by and duly credited to
the private respondent’s savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking Corporation.
Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth
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VOL. 169, JANUARY 749
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Fue Leung vs. Intermediate
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drawn by the petitioner and debited against his own account in said
bank. This fact was clearly shown and indicated in the petitioner’s
statement of account after the check (Exhibit B) was duly cleared.
Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to
the petitioner as the maker thereof.
The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested and impugned
the genuineness of the receipt (Exhibit D). His evidence is
summarized as follows:
The petitioner did not receive any contribution at the time he
started the Sun Wah Panciteria. He used his savings from his
salaries as an employee at Camp Stotsenberg in Clark Field and
later as waiter at the Toho Restaurant amounting to a little more
than P2,000.00 as capital in establishing Sun Wah Panciteria. To
bolster his contention that he was the sole owner of the restaurant,
the petitioner presented various government licenses and permits
showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue
Leung also flatly denied having issued to the private respondent the
receipt (Exhibit G) and the Equitable Banking Corporation’s Check
No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court
gave credence to that of the plaintiff s. Hence, the court ruled in
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favor of the private respondent. The dispositive portion of the
decision reads:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955, until fully paid, and
attorney’s fees in the amount of P5,000.00 and cost of suit.” (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in
the nature of a motion for new trial and, as supplement to the said
motion, he requested that the decision rendered should include the
net profit of the Sun Wah Panciteria which was not specified in the
decision, and allow private respondent to adduce evidence so that
the said decision will be
750
750 SUPREME COURT
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Appellate Court
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner.
After hearing, the trial court rendered an amended decision, the
dispositive portion of which reads:
“FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of said
decision should read now as follows:
“WHEREFORE, judgment is hereby rendered, ordering the plaintiff
(sic) and against the defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the time
of judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorney’s fees and costs of suit.” (p. 150, Rollo)
The petitioner appealed the trial court’s amended decision to the
then Intermediate Appellate Court. The questioned decision was
further modified by the appellate court The dispositive portion of
the appellate court’s decision reads:
“WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
1. “1.Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
2. “2.Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. “3.And thereafter until fully paid the sum equivalent to 22% of the
net profit of P8,000.00 a day.
“Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court’s decision. The dispositive portion of the
resolution reads:
“WHEREFORE, the dispositive portion of the amended judgment of the
court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the
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VOL. 169, JANUARY 751
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former the sum equivalent to 22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully ‘paid, plus the sum of P5,000.00 as and for
attorney’s fees and costs of suit’.
is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978." (pp. 105–106, Rollo).
In the same resolution, the motion for reconsideration filed by
petitioner was denied.
Both the trial court and the appellate court found that the
private respondent is a partner of the petitioner in the setting up
and operations of the panciteria. While the dispositive portions
merely ordered the payment of the respondent’s share, there is no
question from the factual findings that the respondent invested in
the business as a partner. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the
restaurant. The petitioner, however, claims that this factual finding
is erroneous. Thus, the petitioner argues: ‘The complaint avers that
private respondent extended ‘financial assistance’ to herein
petitioner at the time of the establishment of the Sun Wah
Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. The same complaint
did not claim that private respondent is a partner of the business. It
was, therefore, a serious error for the lower court and the Hon.
Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate
Court to interpret or construe ‘financial assistance’ to mean the
contribution of capital by a partner to a partnership;” (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
“2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the defendant’s
eatery known as Sun Wah Panciteria, located in the given address of
defendant; as a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual profit derived from
the operation of the said panciteria;
“3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
752
752 SUPREME COURT
REPORTS
ANNOTATED
Fue Leung vs. Intermediate
Appellate Court
which copy for the receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex “A", and form an integral part
hereof;” (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
“By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves”.
Therefore, the lower courts did not err in construing the
complaint as one wherein the private respondent asserted his rights
as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial
assistance therein. We agree with the appellate court’s observation
to the effect that “x x x given its ordinary meaning, financial
assistance ‘is the giving out of money to another without the
expectation of any returns therefrom’. It connotes an ex gratia dole
5|P age
out in favor of someone driven into a state of destitution. But this
circumstance under which the P4,000.00 was given to the petitioner
does not obtain in this case.” (p. 99, Rollo) The complaint explicitly
stated that “as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two percentum
(22%) of the annual profit derived from the operation of the said
panciteria.” (p. 107, Rollo) The well-settled doctrine is that the “x x
x nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action.” (De
Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA
243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue
in the instant case was whether or not the-private respondent is a
partner of the petitioner in the establishment of Sun Wah
Panciteria.
The petitioner also contends that the respondent court gravely
753
VOL. 169, JANUARY 753
31, 1989
Fue Leung vs. Intermediate
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erred in giving probative value to the PC Crime Laboratory Report
(Exhibit “J") on the ground that the alleged standards or specimens
used by the PC Crime Laboratory in arriving at the conclusion were
never testified to by any witness nor has any witness identified the
handwriting in the standards or specimens belonging to the
petitioner. The supposed standards or specimens of handwriting
were marked as Exhibits “H" “H1“to “H-24" and admitted as
evidence for the private respondent over the vigorous objection of
the petitioner’s counsel.
The records show that the PC Crime Laboratory upon orders of
the lower court examined the signatures in the two receipts issued
separately by the petitioner to the private respondent and So Sia
(Exhibits “A" and “D") and compared the signatures on them with
the signatures of the petitioner on the various pay envelopes
(Exhibits “H", “H-1" to “H-24") of Antonio Ah Heng and Maria
Wong, employees of the restaurant. After the usual examination
conducted on the questioned documents, the PC Crime Laboratory
submitted its findings (Exhibit J) attesting that the signatures
appearing in both receipts (Exhibits “A" and “D") were the
signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits
“H", “H-1" to “H-24") were presented by the private respondent for
marking as exhibits, the petitioner did not interpose any objection.
Neither did the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with the two
receipts examined by the PC Crime Laboratory despite due notice
to him. Likewise, no explanation has been offered for his silence nor
was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit
“J“should be rejected or ignored. The records sufficiently establish
that there was a partnership.
The petitioner raises the issue of prescription. He argues: The
Hon. Respondent Intermediate Appellate Court gravely erred in not
resolving the issue of prescription in favor of petitioner. The alleged
receipt is dated October 1, 1955 and the complaint was filed only on
July 13, 1978 or after the lapse of twenty-two (22) years, nine (9)
months and twelve (12) days. From October 1, 1955 to July 13,
1978, no written demands were ever made by private respondent.
754
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ANNOTATED
Fue Leung vs. Intermediate
6|P age
Appellate Court
The petitioner’s argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years from
the time the right of action accrues:
1. "(1)Upon a written contract;
2. (2)Upon an obligation created by law;
3. (3)Upon a judgment.”
in relation to Article 1155 thereof which provides:
“Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by
the debtor.”
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are—1) two or
more persons bind 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 (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)—have been
established. As stated by the respondent, a partner shares not only
in profits but also in the losses of the firm. If excellent relations
exist among the partners at the start of 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. It would be incorrect to state that if a partner
does not assert his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The private
respondent’s cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of Sun
Wah Panciteria. In effect the private respondent was asking for an that among your duties
accounting of his interests in the partnership. was that you were in
It is Article 1842 of the Civil Code in conjunction with Articles charge of the custody of
1144 and 1155 which is applicable. Article 1842 states: the cashier’s box, of the
“The right to an account of his interest shall accrue to any partner, or his money, being the cashier,
legal representative as against the winding up part is that correct?
755 “A Yes, sir.
VOL. 169, JANUARY 755 “Q So that every time there
31, 1989 is a customer who pays,
Fue Leung vs. Intermediate you were the one who
Appellate Court accepted the money and
ners or the surviving partners or the person or partnership continuing the you gave the change, if
business, at the date of dissolution, in the absence or any agreement to any, is that correct?
the contrary.” “A Yes.
“Q Now, after 11:30 (P.M.)
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and
which is the closing time
1809 show that the right to demand an accounting exists as long as
as you said, what do you
the partnership exists. Prescription begins to run only upon the do with the money?
dissolution of the partnership when the final accounting is done. “A We balance it with the
Finally, the petitioner assails the appellate court’s monetary manager, Mr. Dan Fue
awards in favor of the private respondent for being excessive and Leung.
unconscionable and above the claim of private respondent as “ATTY. HIPOLITO:
embodied in his complaint and testimonial evidence presented by I see.
said private respondent to support his claim in the complaint. “Q So, in other words, after
Apart from his own testimony and allegations, the private your job, you huddle or
respondent presented the cashier of Sun Wah Panciteria, a certain confer together?
Mrs. Sarah L. Licup, to testify on the income of the restaurant. “A Yes, count it all. I total
Mrs. Licup stated: it. We sum it up.
“ATTY. HIPOLITO (direct “Q Now, Mrs. Witness, in an
examination to Mrs. Licup). average day, more or
“Q Mrs. Witness, you stated less, will you please tell

7|P age
 us, how much is the gross one who receives the
income of the restaurant? payment also of the
756 catering.
756 SUPREME COURT “Q How much is that?
REPORTS “A That ranges from two
ANNOTATED thousand to six thousand
Fue Leung vs. Intermediate pesos, sir.
Appellate Court “Q Per service?
“A For regular days, I “A Per service, Per catering.
received around “Q So in other words, Mrs.
P7,000.00 a witness, for your shift
day during my shift alone in a single day
alone and during pay from 3:30 P.M. to 11:30
days I receive more P.M. in the evening the
than P10,000.00. That is restaurant grosses an
excluding the catering income of P7,000.00 in
outside the place. a regular day?
“Q What about the catering “A Yes.
service, will you please “Q And ten thousand pesos
tell the Honorable Court during pay day?
how many times a week “A Yes.
were there catering (TSN, pp. 53 to 59, inclusive,
services? November 15, 1978)
“A Sometimes three times a xxx xxx xxx
month; sometimes two “COURT:
times a month or more. Any cross?
xxx xxx xxx “ATTY. UY (counsel for
“Q Now more or less, do defendant):
you know the cost of the No cross-examination,
catering service? Your Honor. (TSN. p.
“A Yes, because I am the 65, November 15,

8|P age
 1978)." (Rollo, pp. 127–
128)
The statements of the cashier were not rebutted. Not only did the
petitioner’s counsel waive the cross-examination on the matter of
income but he failed to comply with his promise to produce
pertinent records. When a subpoena duces tecum was issued to the
petitioner for the production of their records of sale, his counsel
voluntarily offered to bring them to court. He asked for sufficient
time prompting the court to cancel all hearings for January, 1981
and reset them to the later part of the following month. The
petitioner’s counsel never produced any books, prompting the trial
court to state:
757
VOL. 169, JANUARY 757
31, 1989
Fue Leung vs. Intermediate
Appellate Court
“Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and for
this purpose, employed a bookkeeper. This inspired the Court to ask
counsel for the defendant to bring said records and counsel for the
defendant promised to bring those that were available. Seemingly, that
was the reason why this case dragged for quite sometime. To bemuddle
the issue, defendant instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have supplied chicken,
meat, shrimps, egg and other poultry products which, however, did not
show the gross sales nor does it prove that the same is the best evidence.
This Court gave warning to the defendant’s counsel that if he failed to
produce the books, the same will be considered a waiver on the part of the
defendant to produce the said books inimitably showing decisive records
on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule
131). “Evidence willfully suppressed would be adverse if produced.’ "
(Rollo, p. 145)
9|P age
The records show that the trial court went out of its way to accord
due process to the petitioner.
“The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On
said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial magnanimity and
substantial due process. It was however a condition in the order granting
the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and
will submit his case for decision.
“On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so, the
hearing was reset to December 7 and 22, 1981. On December 7, 1981, on
motion of defendant’s counsel, the same was again reset to December 22,
1981 as previously scheduled which
758
758 SUPREME COURT
REPORTS
ANNOTATED
Fue Leung vs. Intermediate
Appellate Court
hearing was understood as intransferable in character. Again on
December 22, 1981, the defendant’s counsel asked for postponement on
the ground that the defendant was sick. The Court, after much tolerance
and judicial magnanimity, denied said motion and ordered that the case
be submitted for resolution based on the evidence on record and gave the
parties 30 days from December 23, 1981, within which to file their
simultaneous memoranda.” (Rollo, pp. 148–150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz,
Manila in front of the Republic Supermarket. It is near the corner
of Claro M. Recto Street. According to the trial court, it is in the
heart of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from
all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual
findings of the trial court and the appellate court. If the respondent
court awarded damages only from judicial demand in 1978 and not
from the opening of the restaurant in 1955, it is because of the
petitioner’s contentions that all profits were being plowed back into
the expansion of the business. There is no basis in the records to
sustain the petitioner’s contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings
of both the trial court and the appellate court, it cannot refer to any
portion of the records for such modification. There is no basis in the
records for this Court to change or set aside the factual findings of
the trial court and the appellate court. The petitioner was given
every oportunity to refute or rebut the respondent’s submissions
but, after promising to do so, it deliberately failed to present its
books and other evidence.
The resolution of the Intermediate Appellate Court ordering the
payment of the petitioner’s obligation shows that the same
continues until fully paid. The question now arises as to whether or
not the payment of a share of profits shall continue into the future
with no fixed ending date.
10 | P a g e
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil Code
which, in part, provides:
759
VOL. 169, JANUARY 759
31, 1989
Fue Leung vs. Intermediate
Appellate Court
“Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
"(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably practicable
to carry on the business in partnership with him;
xxx xxx xxx
"(6) Other circumstances render a dissolution equitable.”
There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for
lack of merit. The decision of the respondent court is AFFIRMED
with a MODIFICATION that as indicated above, the partnership of
the parties is ordered dissolved.
SO ORDERED.
Fernan (C.J., Chairman), Feliciano, Bidin and Cortés,
JJ., concur.
Petition dismissed; decision affirmed with modification.
 Notes.—Court’s order must not go beyond those prayed for in
the complaint. (Chief of Staff, Armed Forces of the Philippines vs.
Guadez, Jr., 101 SCRA 827.)
A conspiracy exists when two or more persons come to an
agreement concerning the commissions of a felony and decide to
commit it, whether they act through the physical violations of one
or all, proceeding severally or collectively. (People vs. Tabadero, 115
SCRA 756; People vs. Monaga, 118 SCRA 466.)

——o0o——

760
© Copyright 2021 Central Book Supply, Inc. All rights reserved.

11 | P a g e
12 | P a g e
 [No. 31057. September 7, 1929]
ADRIANO ARBES ET AL., plaintiffs and appellees, vs. VICENTE
POLISTICO ET AL., defendants and appellants.
1. 1.UNLAWFUL PARTNERSHIPS ; "TURNUHAN POLISTICO &
Co.;" CHARITABLE INSTITUTIONS.—The partnership
"Turnuhan Polistico & Co." is an unlawful partnership (U. S. vs.
Baguio, 39 Phil., 962). According to paragraph 2 of article 1666 of
the Civil Code, when an unlawful partnership is judicially
dissolved, the earnings shall not be disposed of as profits, but
shall be given to charitable institutions. But in a case like the one
at bar, whose object is to determine the rights of the parties, and
to liquidate the unlawful partnership, no charitable institution
should be included as defendant, as the appellants contend,
because it is not a necessary party to the case.
1. 2.ID. ; ACTION TO OBTAIN PROFITS OF UNLAWFUL
PARTNERSHIP.—Said article 1666 of the Civil Code allows no
action for the purpose of obtaining the earnings made by the
unlawful partnership, during its existence, as a result of the
business in which it was
490
4 PHILIPPINE
90 REPORTS
ANNOTATED
Arbes vs. Polistico
1. engaged; because for that purpose the partner will have to base his
action on the partnership contract which is null and without
ilegal existence by reason of its unlawful object, and it is self-
evident that what does not exist cannot be a cause of action.
1|P age
APPEAL from a judgment of the Court of First Instance of Laguna.
Jugo, J.
The facts are stated in the opinion of the court.
Marcelino Lontok and Manuel de la Rosa for appellants.
Sumulong & Lavides for appellees.
VILLAMOR, J.:
This is an action to bring about a liquidation of the funds and
property of the association called "Turnuhan Polistico & Co." The
plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said
association.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first time was
when the same plaintiffs appealed from the order of the court below
sustaining the defendants' demurrer, and requiring the former to
amend their complaint within a certain period, so as to include all
the members of "Turnuhan Polistico & Co.," either as plaintiffs or
as defendants. This court held then that in an action against the
officers of a voluntary association to wind up its affairs and to
enforce an accounting for money and property in their possession, it
is not necessary that all members of the association be made parties
to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having
been remanded to the court of origin, both parties amended,
respectively, their complaint and their answer, and by agreement of
the parties, the court appointed Amadeo R. Quintos, of the Insular
Auditor's Office, commissioner to examine all the books, documents
and accounts of "Turnuhan Polistico & Co.," and to receive
whatever evidence the parties might desire to present.
491
VOL. 53, SEPTEMBER 491
 7, 1929 same sufficiently explained in the report and the evidence, and
Arbes vs. Polistico accepting it, rendered judgment, holding that the association
The commissioner rendered his report, which is attached to the "Turnuhan Polistico & Co." is unlawful, and sentencing the
record, with the following résumé: defendants jointly and severally to return the amount of
Income: P24,607.80, as well as the documents showing the uncollected
Members' shares P97,263.70 credits of the association, to the plaintiffs in this case, and to the
......................................................... rest of the members of said association represented by said
Credits paid 6,196.55 plaintiffs, with costs against the defendants.
................................................................ The defendants assigned several errors as grounds for their
Interest received 4,569.45 appeal, but we believe they can all be reduced to two points, to wit:
........................................................ (1) That not all persons having an interest in this association are
included as plaintiffs or defendants; (2) that the objection to the
Miscellaneous 1,891.00
commissioner's report should have been admitted by the court
.............................................................
below.
——————— P109,620.70
As to the first point, the decision in the case
Expenses: of Borlasa vs. Polistico, supra, must be followed.
Premiums to members 68,146.25 With regard to the second point, despite the praiseworthy efforts of the
................................................ attorney for the def endants, we are of opinion that, the trial court having
Loans on real-estate security 9,827.00 examined all the evidence touch
......................................
492
Loans on promissory notes 4,258.55
492 PHILIPPINE REPORTS
.........................................
ANNOTATED
Salaries 1,095.00
Arbes vs. Polistico
........................................................................
ing the grounds for the objection and having found that they had been
Miscellaneous 1,686.10
explained away in the commissioner's report, the conclusion reached by
.............................................................. the court below, accepting and adopting the findings of fact contained in
——————— 85,012.90 said report, and especially those referring to the disposition of the
——————— association's money, should not be disturbed.
Cash on hand 24,607.80
........................................................................................ In Tan Diangseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it
The defendants objected to the commissioner's report, but the trial was held that the findings of fact made by a referee appointed
court, having examined the reasons for the objection, found the under the provisions of section 135 of the Code of Civil Procedure

2|P age
stand upon the same basis, when approved by the court, as findings
made by the judge himself. And in Kriedt vs. E. C. McCullough &
Co. (37 Phil., 474), the court held: "Under section 140 of the Code of
Civil Procedure it is made the duty of the court to render judgment
in accordance with the report of the referee unless the court shall
for cause shown set aside the report or recommit it to the referee.
This provision places upon the litigant parties the duty of
discovering and exhibiting to the court any error that may be
contained therein." The appellants stated the grounds for their
objection. The trial court examined the evidence and the
commissioner's report, and accepted the findings of fact made in the
report. We find no convincing argument in the appellants' brief to
justify a reversal of the trial court's conclusion admitting the
commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership (U. S. vs. Baguio, 39 Phil., 962), but the
appellants allege that because it is so, some charitable institution to
whom the partnership funds may be ordered to be turned over,
should be included as a party defendant. The appellants refer to
article 1666 of the Civil Code, which provides:
"A partnership must have a lawful object, and must be established for the
common benefit of the partners.
"When the dissolution of an unlawful partnership is decreed, the
profits shall be given to the charitable institutions of the domicile of the
partnership, or, in default of such, to those of the province."
493
VOL. 53, SEPTEMBER 493
7, 1929
Arbes vs. Polistico
Appellants' contention on this point is untenable. According to said
article, no charitable institution is a necessary party in the present
case f or the determination of the rights of the parties. The action
3|P age
which may arise from said article, in the case of an unlawful
partnership, is that for the recovery of the amounts paid in by the
members from those in charge of the administration of said
partnership, and it is not necessary for the said partners to base
their action on the existence of the partnership, but on the fact of
having contributed some money to the partnership capital. And
hence, the charitable institutions of the domicile of the partnership,
and in default thereof, those of the province are not necessary
parties in this case. The article cited above permits no action for the
purpose of obtaining the earnings made by the unlawful
partnership, during its existence as a result of the business in
which it was engaged, because, for that purpose, as Manresa
remarks, the partner will have to base his action upon the
partnership contract, which is null and without legal existence by
reason of its unlawful object; and it is self-evident that what does
not exist cannot be a cause of action. Hence, paragraph 2 of the
same article provides that when the dissolution of an unlawful
partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem. it pertinent to quote Manresa's commentaries on
article 1666 at length, as a clear explanation of the scope and spirit
of the provision of the Civil Code with which we are concerned.
Commenting on said article, Manresa, among other things says:
"When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactions consistent with the purposes of the partnership may the
former demand the return or reimbursement thereof from the manager or
administrator withholding them?
"Apropos of this, it is asserted: If the partnership has had no valid
existence, if it is considered juridically non
494
494 PHILIPPINE REPORTS
 ANNOTATED
Arbes vs. Polistico
existent, the contract entered into can have no legal effect; and in that
case, how can it give rise to an action in favor of the partners to judicially
demand from the manager or administrator of the partnership capital,
each one's contribution ?
"The authors discuss this point at great length; but Ricci decides the
matter quite clearly, dispelling all doubts thereon. He holds that the
partner who limits himself to demanding only the amount contributed by
him need not resort to the partnership contract on which to base his claim
or action. And, he adds in explanation, that the partner makes his
contribution, which passes to the managing partner for the purpose of
carrying on the business or industry which is the object of the
partnership; or, in other words, to breathe the breath of life into a
partnership contract with an object forbidden by the law. And as said
contract does not exist in the eyes of the law, the purpose for which the
contribution was made has not come into existence, and the administrator
of the partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is bound to return
it, and he who has paid in his share is entitled to recover it.
"But this is not the case with regard to profits earned In the course of
the partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business, or speculation,
which is the object of the partnership; and, therefore, in order to demand
the proportional part of said profits, the partner would have to base his
action on the contract, which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof. Wherefore.
considering this contract as non-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the
law to permit a profit from an industry prohibited by it.
495
VOL. 53, SEPTEMBER 495
7, 1929
4|P age
Arbes vs. Polistico
"Hence, the distinction made in the second paragraph of this article of our
Code, providing that the profits obtained by unlawf ul means shall not
enrich the partners, but shall, upon the dissolution of the partnership, be
given to the charitable institutions of the domicile of the partnership, or,
in default of such, to those of the province.
"This is a new rule, unprecedented in our law, introduced to supply an
obvious deficiency of the former law, which did not prescribe the purpose
to which those profits denied to the partners were to be applied, nor state
what was to be done with them.
"The profits are so applied, and not the individual contributions,
because this would be an excessive and unjust sanction for, as we have
seen, there is no reason, in such a case, for depriving the partner of the
portion of the capital that he contributed, the circumstances of the two
cases being entirely different.
"Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned to the partners,
because it only deals with the disposition of the profits; but the fact that
said contributions are not included in the disposal prescribed for said
profits, shows that in consequence of said exclusion, the general rules of
law must be followed, and hence, the partners must be reimbursed the
amount of their respective contributions. Any other solution would be
immoral, and the law will not consent to the latter remaining in the
possession of the manager or administrator who has refused to return
them, by denying to the partners the action to demand them." (Manresa,
Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264.)
The judgment appealed from, being in accordance with law, should
be, as it is hereby, affirmed with costs against the appellants;
provided, however, that the defendants shall pay the legal interest
on the sum of P24,607.80 from the date of the decision of the court,
and provided, further, that the defendants shall deposit these sums
of money and other
496
496 PHILIPPINE REPORTS
ANNOTATED
Mabalacat Sugar Co. vs.
Ramirez
documents evidencing uncollected credits in the office of the clerk of
the trial court, in order that said court may distribute them among
the members of said association, upon being duly identified in the
manner it may deem proper. So ordered.
Avanceña, C. J., Johnson, Street, Johns, Romualdez, and Villa-
Real, JJ., concur.

Judgment modified.

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5|P age
 [No. 39607. February 6, 1934]
ENCARNACION MAGALONA ET AL., plaintiffs and
appellees, vs. JUAN PESAYCO, defendant and appellant,
1. 1.PARTNERSHIP; PROOF OF EXISTENCE OF
CONTRACT; FAILURE TO OBJECT.—If a party permits a
contract, which the law provides shall be in writing, to be proved,
without objection as to the form of the proof, it is just as binding
as if the statute had been complied with.
1. 2.ID.; CIVIL PARTNERSHIP; FORM OF CONTRACT.—"Civil
partnerships may be established in any form whatever, unless
real property or real rights are contributed to the same, in which
case a public instrument shall be necessary." (Article 1667, Civil
Code.)
1. 3.ID. ; ID. ; ID.—"Articles of partnership are not required to be in
writing except in the cases mentioned in article 1667, Civil Code,
which controls article 1280 of the same Code. (Fernandez vs. De
la Rosa, 1 Phil., 671.)" (4 Phil. Digest, 3468.)
APPEAL from a judgment of the Court of First Instance of Antique.
Araneta Diaz, J.
The facts are stated in the opinion of the court.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero & Lutero and Ramon Maza for appellees.
GODDARD, J.:
In the month of September, 1930, the plaintiffs, Encarnacion
Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed
a partnership for the purpose of catching "semillas o aua" i n th e
sea and riv ers wi thin the jurisdiction of the municipality of San
Jose, Antique Province, for the year 1931. It was agreed that the
1|P age
defendant should put in a bid for this privilege and that the
partners should each supply one third of the capital in case the
defendant was awarded the desired privilege. The defendant,
having- had experience in this line, was to be the manager in case
his bid was accepted. The defendant offered the sum of P5,550.09
for the year ending December 31, 1931. As a deposit of one-fourth of
the amount of the bid was required each of the partners put up one
third
454
454 PHILIPPINE REPORTS
ANNOTATED
Magalona vs. Pesayco
of this amount. This bid, being the highest, was accepted by the
municipality and the privilege was awarded to the defendant. The
latter entered upon his duties under the contract and gave an
account of two sales of "semillas de bañgús", to Tiburcio Lutero as
representative of the plaintiff Magalona. As the defendant, on April
21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for
sufficient money to complete the payment of the first quarter which
was to be paid within the first twenty days of the second quarter of
the year 1931. This telegram reads as follows: "Hemos conseguido
plazo hasta esta tarde tenemos aquí cuatrocientos diez gira
telegráficamente restante." Lutero immediately sent P1,000 to the
municipal treasurer of San Jose, Antique (Exhibit D).
The defendant managed the business from January 1, 1931, and
with the exception of the two sales above-mentioned, never gave
any account of his catches or sales to his partners, the plaintiffs. In
view of this the herein complaint was filed April 21, 1931, in which
it was prayed that a receiver be appointed by the court to take
charge of the f unds of the partnership and the management of its
affairs; that the defendant be ordered to render an account of his
management and to pay to the plaintiffs their participation in the
profits thereof; that the defendant be required to turn over to the
receiver all of the funds of the partnership and that the defendant
be condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a receiver was
appointed who also put up a bond for the same amount.
The receiver took over the management and took possession of
all the devices and implements used in the catching of "semillas de
bañgús".
At the trial it was proven that before April 20, 1931, the
defendant obtained and sold a total of 975,000 "semillas de bañgús"
the market value of which was P3 per thousand. The defendant
made no report of this nor did he pay the plaintiffs any part of the
P2,925 realized by him on the sales thereof. This was not denied.
455
VOL. 59, FEBRUARY 455
6, 1934
Magalona vs. Pesayco
In his two counter-complaints the defendant prays that he be
awarded damages in the sum of P34,700. He denies that there was
a partnership and depends principally upon the fact that the
partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of
the plaintiffs and other witnesses, two of whom were Attorneys
Lutero and Maza. The defense made no objection to the questions
asked with regard to the forming of this partnership. This court has
held that if a party permits a contract, which the law provides shall
be in writing, to be proved, without objection as to the form of the
proof, it is just as binding as if the statute had been complied with.
However, we cannot agree with the appellant that one of the
requisites of a partnership agreement, such as the one under
consideration, is that it should be in writing.
2|P age
Article 1667 of the Civil Code provides that "Civil partnerships
may be established in any form whatever, unless real property or
real rights are contributed to the same, in which case a public
instrument shall be necessary."
"Articles of partnership are not required to be in writing except' in the
cases mentioned in article 1667, Civil Code, which controls article 1280 of
the same Code. (Fernandez vs. De la Rosa, 1 Phil., 671.)
"A verbal partnership agreement is valid between the parties even
though more than 1,500 pesetas are involved and can be enforced without
bringing action under article 1279, Civil Code, to compel execution of a
written instrument. (Arts. 1261, 1278-1280, 1667, Civil Code; arts. 116-
119, 51, Code of Commerce.) Thunga Chui vs. Que Bentec, 2 Phil., 561." (4
Phil. Digest, 3468.)
The dispositive part of the decision of the trial court reads as f
ollows:
"Habiéndose probado, sin pruebas en contrario, de que el demandado
obtuvo durante su administración de este negocio, semillas de bañgús por
valor de P2,925 que no dió cuenta ni participación a sus consocios los
demandantes, el Juzgado declara al demandado en deber a la sociedad,
456
456 PHILIPPINE REPORTS
ANNOTATED …
Torrella vs. Perez Minguez
compuesta por demandantes y demandado, en la suma de P2,925, importe
de 975,000 semillas de bañgús a P3 el millar, y ordena que entregue esta
suma al depositario judicial nombrado, como fondos de dicha sociedad.
"Se sobreseen las contrademandas y se condena en costas al
demandado. Así se ordena."
This decision is affirmed with costs in both instances against the
defendant-appellant. So ordered.
Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.
 Judgment affirmed.

_____________

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3|P age
4|P age
 VOL. 23, JUNE 28, 1223
1968
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 property is not made, signed by the parties, and
attached to the public instrument (Art. 1773, Id.).
1224
1224 SUPREME COURT
REPORTS
ANNOTATED
Agad vs. Mabato
APPEAL from an order of the Court of First Instance of Davao.
The facts are stated in the opinion of the Court.
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.
1|P age
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, 1225
1968
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 property is not made,
signed by the parties, and attached to the public instrument.”
The issue before us hinges on whether or not “immovable property
or real rights” have been contributed to the partnership under
consideration. Mabato alleged and the lower court held that the
answer should be in the affirmative, because “it is really
inconceivable how a partnership engaged in the fishpond
business could -exist without said fishpond property (being)
contributed to the partnership.” It should be noted, however, that,
as stated in Annex “A” the partnership was established
“to operate a fishpond”, not to “engage in a fishpond business”.
Moreover, none of the partners contributed either a 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.
2|P age
x x x x”
1226
1226 SUPREME COURT
REPORTS
ANNOTATED
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 F
ernando, 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.
_______________
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3|P age
924 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
No. L-14441. December 17, 1966.
PEDRO R. PALTING, petitioner, vs. SAN JOSE PETROLEUM
INCORPORATED, respondent.
Securities Act; Person who may oppose registration and
925
VOL. 18,
DECEMBER 17, 1966 25
Palting vs. San Jose
Petroleum, Inc.
licensing of securities.—A "prospective investor" may oppose the
registration and licensing of the shares of stock of a corporation engaged
in oil exploration. The statement in the notice published by the Securities
and Exchange Commission, that "any person" opposed to the petition for
registration and licensing of securities may file his written opposition, is
in consonance with the generally accepted principle that Blue Sky Laws
are enacted to protect investors and prospective purchasers and to
prevent fraud and preclude the sale of securities which are in fact
worthless or worth substantially less than the asking price.
Same; Appeals; Party who may appeal from an order of the Securities
and Exchange Commission.—While section 1, Rule 43 of the Old Rules of
Court and section 35 of the Securities Act speak of an aggrieved person as
entitled to appeal from an order of the Securities and Exchange
Commission, section 1, Rule 43 of the Revised Rules of Court, on the other
hand, refers to "any party" as being entitled to make such an appeal.
Where a prospective investor .opposed the petition for the registration
and licensing of the securities of a corporation and he took part in the
1|P age
hearing of the petition, he became a party and he may appeal to the
Supreme Court f. rom the order granting the petition.
Same; Rules of Court; Applicability of Revised Rules of Court to
pending cases.—Section 1, Rule 43 of the Revised Rules of Court, which
eliminates the word "aggrieved" appearing in section 1, Rule 43 of the Old
Rules of Court, may be applied to pending cases in view of the express
provision of Rule 144.
Same; Meaning of "aggrieved party".—A "person aggrieved" is 'that
party "aggrieved by the judgment or decree where it operates on his rights
of property or bears directly upon his interest". "Aggrieved" refers to "a
substantial grievance, a denial of some personal property right or the
imposition upon a party of a burden or obligation". However, this concept
of "aggrieved party" does not apply to the Securities Act in view of
elimination of the word "aggrieved" in section 1, Rule 43 of the Revised
Rules of Court and the practice of the Securities and Exchange
Commission.
Same; Final orders of Securities and Exchange Commission; Order
allowing sale of securities is not interlocutory.— An order of the Securities
and Exchange Commission allowing the registration and sale of securities
is clearly a final order that is appealable. The mere fact that such
authority may be later suspended or revoked, depending on future
developments, does not give it the character of an interlocutory or
provisional ruling. And the fact that seven days after the publication of
the order, the securities are deemed registered (Sec. 7, Com. Act 83, as
amended), points to the finality of the order. Rights
926
9 SUPREME
26 COURT REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
and obligations necessarily arise therefrom if not reviewed on appeal.
Constitutional Law; "Parity" provisions explained.—The privilege to
utilize, exploit and develop the natural resources of this country was
granted by Article XIII of the Constitution to Filipino citizens or to
corporations or associations 60% of the capital of which is owned by such
citizens. With the Parity Amendment to the Constitution, the same right
was extended to citizens of the United States and business enterprises
owned or controlled, directly or indirectly, by American citizens.
Same; Citizenship; Meaning of "citizens".—There can be no serious
doubt as to the meaning of the word "citizens" used in the Constitution,
The right was granted to two types of persons: natural persons (Filipino
or American citizens) and juridical persons (corporations 60% of whose
capital is owned by Filipinos and business enterprises owned or controlled
directly or indirectly, by citizens of the United States). In American law,
"citizen" has been defined as "one who, under the Constitution and laws of
the United States, has a right to vote for Representatives in Congress and
other public officers, and who is qualified to fill offices in the gift of the
people" (I Bouvier's Law Dictionary 490),
Same; Corporation controlled by Panamanian corporation cannot
exploit natural resources in the Philippines.—A foreign corporation, which
is not owned or controlled directly by American citizens but is owned and
controlled by a Panamanian corporation, which in turn is owned and
controlled by two Venezuelan corporations, is not entitled to enjoy parity
rights in the Philippines.
Same; Proof that American State grants the same rights to Filipinos
is required.—Granting that the individual stockholders of a corporation
are American citizens, it is yet necessary to establish that the different
states of which they are citizens, allow Filipino citizens or corporations or
associations owned or controlled by Filipino citizens, to engage in the
exploitation, etc. of the natural resources of those states (see par. 3, Art.
VII of the Laurel-Langley Agreement).
Same; Corporations; Sale of securities 'that would work a fraud upon
Philippine investors.—Where a foreign corporation, applying for
registration and licensing of its securities, has an unusual and
complicated capital structure and some of the provisions of its articles of
incorporation are contrary to the Corporation Law and to the corporate
practices in this country, and its shares of stock are held by trustees
2|P age
under a voting trust agreement. there can be no doubt that the sale of its
securities would
927
VOL. 18,
DECEMBER 17, 1966 27
Palting vs. San Jose
Petroleum, Inc.
work or tend to work fraud to Philippine investors.
PETITION for review by certiorari of certain orders. of the
Securities and Exchange Commission.
The facts are stated in the opinion of the Court,
BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later
supplemented and amplified by another dated September 9, 1958,
of the Securities and Exchange Commission denying the opposition
to, and instead, granting the registration, and licensing the sale in
the Philippines, of 5,000,000 shares of the capital stock of the
respondentappellee San Jose Petroleum, Inc. (hereafter referred to
as SAN JOSE PETROLEUM), a corporation organized and existing
in the Republic of Panama.
On September 7, 1956, SAN JOSE PETROLEUM filed with the
Philippine Securities and Exchange Commission a sworn
registration statement, for the registration and licensing for sale in
the Philippines Voting Trust Certificates representing 2,000,000
shares of its capital stock of a par value of $0.35 a share, at P1.00
per share. It was alleged that the entire proceeds of the sale of said
securities will be devoted or used exclusively to finance the
operations of San Jose Oil Company, Inc. (a domestic mining
corporation hereafter to be referred to as SAN JOSE OIL) which
has 14 petroleum exploration concessions covering an area of a little
less than 1,000,000 hectares, located in the provinces of
Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao
and Agusan. It was the express condition of the sale that every
purchaser of the securities shall not receive a stock certificate, but a
registered or bearer-voting-trust certificate from the voting trustees
named therein James L. Buckley and Austin G.E. Taylor, the first
residing in Connecticut, U.S.A., and the second in New York City.
While this application for registration was pending consideration by
the Securities and Exchange Commission, SAN JOSE
PETROLEUM filed an amended Statement on June 20, 1958, for
registration of the sale in the Philippines of its shares of capital
stock, which was increased from 2,000,000 to
928
928 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
5,000,000, at a reduced offering price of from P1.00 to P0.70 per
share. At this time the par value of the shares has also been
reduced from $.35 to $.01 per share. 1
Pedro R. Palting and others, allegedly prospective investors in
the shares of SAN JOSE PETROLEUM, filed with the Securities
and Exchange Commission an opposition to registration and
licensing of the securities on the grounds that (1) the tie-up between
the issuer, SAN JOSE PETROLEUM, a Panamanian corporation,
and SAN JOSE OIL, a domestic corporation, violates the
Constitution of the Philippines, the -Corporation Law and the
Petroleum Act of 1949; (2) the issuer has not been licensed to
transact business in the Philippines; (3) the sale of the shares of the
issuer is fraudulent, and works or tends to work a fraud upon
3|P age
Philippine purchasers; and (4) the issuer as an enterprise, as well
as its business, is based upon unsound business .principles.
Answering the foregoing opposition of Palting, et al., the registrant
SAN JOSE PETROLEUM claimed that it was a "business
enterprise" enjoying parity rights under the Ordinance appended to
the Constitution, which parity right, with respect to mineral
resources in the Philippines, may be exercised, pursuant to the
Laurel-Langley Agreement, only through the medium of a
corporation organized under the laws of the Philippines. Thus,
registrant which is allegedly qualified to exercise rights under the
Parity Amendment, had, to do so through the medium of a domestic
corporation, which is the SAN JOSE OIL. It refused the contention
that the Corporation Law was being" violated, by alleging that
Section 13 thereof applies only to foreign corporations doing
business in the Philippines, and registrant was not doing business
here. The mere fact that it was a holding company of SAN JOSE
OIL and that registrant undertook the financing of and giving
technical assistance to said corporation did not constitute
transaction of business in the Philippines. Registrant also denied
that the offering
_______________
1 At a special stockholders' meeting held on January 27, 1958, the Articles of
Incorporation of SAN JOSE PETROLEUM was amended so as to reduce the
authorized capital from $17,500,000 to $500,000.00 divided into 50,000,000 shares at
1c per per share.
929
VOL. 18, DECEMBER 929
17, 1966
Palting vs. San Jose
Petroleum, Inc.
for sale in the Philippines of its shares of capital stock was
fraudulent or would work or tend to work fraud on the investors.
On August 29, 1958, and on September 9, 1958 the Securities and
Exchange Commissioner issued the orders object of the present
appeal.
The issues raised by the parties in this appeal are as follows:
1. 1.Whether or not petitioner Pedro R. Patting, as a
"prospective investor" in respondent's securities, has
personality to file the present petition for review of the
order of the Securities and Exchange Commission;
2. 2.Whether or not the issue raised herein is already moot and
academic;
3. 3.Whether or not the "tie-up" between the respondent SAN
JOSE PETROLEUM, a foreign corporation, and SAN JOSE
OIL COMPANY, INC., a domestic mining corporation, is
violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949, and the Corporation
Law; and
4. 4.Whether or not the sale of respondent's securities is
fraudulent, or would work or tend to work fraud to
purchasers of such securities in the Philippines.
1. In answer to the notice and order of the Securities and Exchange
Commissioner, published in 2 newspapers of general circulation in
the Philippines, for "any person who is opposed" to the petition for
registration and licensing of respondent's securities, to file his
opposition in 7 days, herein petitioner so filed an opposition. And,
the Commissioner, having denied his opposition and instead,
directed the registration of the securities to be offered for sale,
oppositor Palting instituted the present proceeding for review of
said order.
4|P age
Respondent raises the question of the personality of petitioner to
bring this appeal, contending that as a mere "prospective investor",
he is not an "Aggrieved" or "interested" person who may properly
maintain the suit. Citing a 1931 ruling of Utah State Supreme
Court it is claimed that the phrase "party aggrieved" used in the
2
_______________
Ogden Chamber of Commerce, et al. v. State Securities Commission, 78 Utah
2
393, 3 P (2nd) 267.
930
930 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
Securities Act and the Rules of Court as having the right to appeal
3 4
should refer only to issuers, dealers and salesmen of securities.
It is true that in the cited case, it was ruled that the phrase
"person aggrieved" is that party "aggrieved by the judgment or
decree where it operates on his rights of property or bears directly
upon his interest", that the word "aggrieved" refers to "a substantial
grievance, a denial of some personal property right or the
imposition upon a party of a burden or obligation." But a careful
reading of the case would show that the appeal therein was
dismissed because the court held that an order of registration was
not final and therefore not appealable. The foregoing
pronouncement relied upon by herein respondent was made in
construing the provision regarding an order of revocation which the
court held was the one appealable. And since the law provides that
in revoking the registration of any security, only the issuer and
every registered dealer of the security are notified, excluding any
person or group of persons having no such interest in the securities,
said court concluded that the phrase "interested person" refers only
to issuers, dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court
as controlling on the issue in this case. Our Securities Act in
Section 7(c) thereof, requires the publication and notice of the
registration statement. Pursuant thereto, the Securities and
Exchange Commissioner caused the publication of an order in part
reading as
_______________
3 "SEC. 35. Court review by orders.—(a) Any person aggrieved by an order issued
by the Commission in a proceeding under this Act to which such person is a party or
who may be affected thereby may obtain a review of such order in the Supreme Court
of the Philippines by filing in such court, within thirty days after the entry of such
order, a written petition praying that the order of the Commission be modified or set
aside in whole or in part. x x x." (Com. Act 88).
4 "SECTION 1. Petition for review.—Within thirty (30) days from notice of an order
or decision issued by the Public Service Commission or the Securities and Exchange
Commission, any party aggrieved thereby may file, in the Supreme Court, a written
petition for the review of such order or decision. (Rule 43, of the old Rules of Court).
931
VOL. 18, DECEMBER 931
17, 1966
Palting vs. San Jose
Petroleum, Inc.
follows:
"x x x. Any person who is opposed with this petition must file his written
opposition with this Commission within said period (2 weeks). x. x. x."
In other words, as construed by the administrative office entrusted
with the enforcement of the Securities Act, any person (who may
not be "aggrieved" or "interested" within the legal acceptation of the
word) is allowed or permitted to file an opposition to the
registration of securities for sale in the Philippines. And this is in
5|P age
consonance with the generally accepted principle that Blue Sky
Laws are enacted to protect investors and prospective purchasers
and to prevent fraud and preclude the sale of securities which are
in fact worthless or worth substantially less than the asking price.
lt is for this purpose that herein petitioner duly filed his opposition
giving grounds therefor. Respondent SAN JOSE PETROLEUM was
required to reply to the opposition. Subsequently both the petition
and the opposition were set for hearing during which the petitioner
was allowed to actively participate and did so by cross-examining
the respondent's witnesses and filing his memorandum in support
of his opposition. He therefore to all intents and purposes became a
party to the proceedings. And under the New Rules of Court, such a 5
party can appeal from a final order, ruling or decision of the
Securities and Exchange Commission. This new Rule eliminating
the word "aggrieved" appearing in the old Rule, being procedural in
nature, and in view of the express provision of Rule 144 that the
6
new rules made effective on January 1, 1964 shall govern not only
cases brought after they took effect but all further proceedings in
cases then pending, except to the extent that in the opinion of the
Court their application would not be feasible or would work
injustice, in which event the former
_______________
5 "SECTION 1. How appeal taken.—Any party may appeal from a final order,
ruling or decision of the Securities and Exchange Commission, x. x. x. by filing with
said bod(y) a notice of appeal and with the Supreme Court twelve (12) printed or
mimeographed copies of a petition for certiorari or review of such order, ruling or
decision, as the corresponding statute may provide." (Rule 43, New Rules of Court.)
6 Casambar v. Sino Cruz, et al., L-6882, Dec. 20, 1955.
932
932 SUPREME COURT
REPORTS
ANNOTATED
 Palting vs. San Jose
Petroleum, Inc.
procedure shall apply, we hold that the present appeal is properly
within the appellate jurisdiction of this Court.
The order allowing the registration and sale of respondent's
securities is clearly a final order that is appealable. The mere fact
that such authority may be later suspended or revoked, depending
on future developments, does not give it the character of an
interlocutory or provisional ruling. And the fact that seven days
after the publication of the order, the securities are deemed
registered (Sec. 7, Com. Act 83, as amended), points to the finality
of the order. Rights and obligations necessarily arise therefrom if
not reviewed on appeal.
Our position on this procedural matter—that the order is
appealable and the appeal taken here is proper—is strengthened by
the intervention of the Solicitor General, under Section 23 of Rule '2
of the Rules of Court, as the constitutional issues herein presented
affect the validity of Section 13 of the Corporation Law, which,
according to the respondent, conflicts with the Parity Ordinance
and the Laurel-Langley Agreement recognizing, it is claimed, its
right to exploit our petroleum resources notwithstanding said
provisions of the Corporation Law,
2. Respondent likewise contends that since the order of
Registration/Licensing dated September 9, 1958 took effect 30 days
from September 3, 1958, and since no stay order has been issued by
the Supreme Court, respondent's shares became registered and
licensed under the law as of October 3, 1958. Consequently, it is
asserted, the present appeal has become academic. Frankly we are
unable to follow respondent's argumentation. First it claims that
the order of August 29 and that of September 9, 1958 are not final
orders and therefor are not appealable. Then when these orders,
according to its theory, became final and were implemented, it
6|P age
argues that the orders can no longer be appealed as the question of
registration and licensing became moot and academic.
But the fact is that because of the authority to sell, the securities
are, in all probabilities, still being traded in the open market.
Consequently the issue is much alive as to whether respondent's
securities should continue to be the subject of sale, The purpose of
the inquiry on this mat-
933
VOL. 18, DECEMBER 933
17, 1966
Palting vs. San Jose
Petroleum, Inc.
ter is not fully served just because the securities had passed out of
the hands of the issuer and its dealers. Obviously, so long as the
securities are outstanding and are placed in the channels of trade
and commerce, members of the investing public are entitled to have
the question of the worth or legality of the securities resolved one
way or another.
But more fundamental than this consideration, we agree with
the late Senator Claro M. Recto, who appeared as amicus curiae in
this case, that while apparently the immediate issue in this appeal
is the right of respondent SAN JOSE PETROLEUM to dispose of
and sell its securities to the Filipino public, the real and ultimate
controversy here would actually call for the construction of the
constitutional provisions governing the disposition, utilization,
exploitation and development of our natural resources. And
certainly this is neither moot nor academic.
3. We now come to the meat of the controversy—the "tie-up"
between SAN JOSE OIL on the one hand, and the respondent SAN
JOSE PETROLEUM and its associates, on the other. The
relationship of these corporations involved or affected in this case is
admitted and established through the papers and documents which
are parts of the records: SAN JOSE OIL, is a domestic mining
corporation, 90% of the outstanding capital stock of which is owned
by respondent SAN JOSE PETROLEUM, a foreign (Panamanian)
corporation, the majority interest of which is owned by OIL
INVESTMENTS, Inc., another foreign (Panamanian) company.
This latter corporation in turn is wholly (100%) owned by
PANTEPEC OIL COMPANY, C.A., and PANCOASTAL
PETROLEUM COMPANY, C.A., both organized and existing under
the laws of Venezuela. As of September 30. 1956. there were 9,976
stockholders of PANCOASTAL PETROLEUM found in 49
American states and U.S. territories, holding 3,476,988 shares of
stock; whereas, as of November 30, 1956, PANTEPEC OIL
COMPANY was said to have 3,077,916 shares held by 12,373
stockholders scattered in 49 American state. In the two lists of
stockholders, there is no
934
934 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
indication of the citizenship of these stockholders, or of the total
7
number of authorized stocks of each corporation, for the purpose of
determining the corresponding percentage of these listed
stockholders in relation to the respective capital stock of said
corporation.
Petitioner, as well as the amicus curiae and the Solicitor
General contend that the relationship between herein respondent
8
SAN JOSE PETROLEUM and its. subsidiary, SAN JOSE OIL,
violates the Petroleum Law of 1949, the Philippine Constitution,
and Section 13 of the Corporation Law, which inhibits a mining
corporation from acquiring an interest in another mining
7|P age
corporation. It is respondent's theory, on the other hand, that far
from violating the Constitution; such relationship between the two
corporations is in accordance with the Laurel-Langley Agreement
which implemented the Ordinance Appended to the Constitution,
and that Section 13 of the Corporation Law is not applicable
because respondent is not licensed to do business, as it is not doing
business, in the Philippines.
Article XIII, Section -3 of the Philippine Constitution provides:
"SEC. 1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or
utilization shall be limited to citizens of the Philippines, or to corporations
or associations at least sixty per centum of the capital of which is owned by
such citizens, subject to any existing right, grant, lease or concession at
the time of the inauguration of this Government established under this
Constitution. x. x. x." (Italics supplied)
In the 1946 Ordinance Appended to the Constitution, this right (to
utilize and exploit our natural resources) was
_______________
7 Later the Acting Assistant Secretary of Pantepec, who. is a director of the San
Jose Petroleum, certified,' according to the best of his belief and knowledge that more
than 60% of the stockholders are citizens of the United States and more than 60% of
the stock is held by citizens of the United States.
8 The Republic of the Philippines was allowed by this Court to intervene in this
proceeding, in' view of the allegation that the Corporation Law and the Petroleum Act
of 1949 have been violated.
935
VOL. 18, DECEMBER 935
17, 1966
Palting vs. San Jose
Petroleum, Inc.
extended to citizens of the United States, thus:
"Notwithstanding the provisions of section one, Article Thirteen, and
section eight, Article Fourteen, of the foregoing Constitution, during the
effectivity of the Executive Agreement entered into by the President of the
Philippines with the President of the United States on the fourth of July,
nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no
case to extend beyond the third of July, nineteen hundred and seventy-
four, the disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, and other natural resources of the Philippines, and the operation
of public utilities shall, if open 'to any person, be open to citizens of the
United States, and to all forms of business enterprises owned or controlled,
directly or indirectly, by citizens of the United States in the same manner
as to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by citizens
of the Philippines (Italics supplied.)
In the 1954 Revised Trade Agreement concluded between the
United States and the Philippines, also known as the Laurel-
Langley Agreement, embodied in Republic Act 1355, the following
provisions appear: ,
"ARTICLE VI
1. 1.The disposition, exploitation, development and utilization of all
agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum and other mineral oils, all
forces and sources of potential energy, and other natural
resources of either Party, and the - operation of public utilities,
shall, if open to any person, be open to citizens of the other Party
and to all forms of business enterprise owned or controlled,
directly or indirectly, by citizens of such other Party in the same
manner as to and under the same conditions imposed
8|P age
upon citizens or corporations or associations .owned or controlled
by citizens of the Party granting the right.
2. "2.The rights provided for in Paragraph -3 may be exercised, x. x.
x. in the case of citizens of, the United States, with respect to
natural resources in the public domain in the Philippines, only
through the medium of a corporation organized under the laws of
the Philippines and at least 60% of the capital stock of which is
owned or controlled by citizens of the United States x x x.
3. "3.The United States of America reserves the rights of the several
.States of the United States to limit the extent to' which citizens
or corporations or associations owned or con
936
936 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
1. trolled by citizens of the Philippines may engage in the activities
specified in this Article. The Republic of the Philippines reserves
the power to deny any of the rights specified in this Article to
citizens of the United States who are citizens of States, or to
corporations or associations at least 60% of whose capital stock or
capital is owned or controlled by citizens of States, which deny like
rights to citizens of the Philippines, or to corporations or
associations which are owned or controlled by citizens of the
Philippines. x x x." (Italics supplied.)
Re-stated, the privilege to utilize, exploit, and develop the natural
resources of this country was granted, by Article XIII of the
Constitution, to Filipino citizens or to corporations or associations
60% of the capital of which is owned by such citizens. With the
Parity Amendment to the Constitution, the same right was
extended to citizens of the United States and business
enterprises owned or controlled, directly or indirectly, by citizens of
the United States.
There could be no serious doubt as to the meaning of the word
"citizens" used in the aforementioned provisions of the Constitution.
The right was granted to 1, types of persons: natural persons
(Filipino or American citizens) and juridical persons (corporations
60% of which' capital is owned by Filipinos and business enterprises
owned or controlled directly or indirectly, by citizens of the United
States). In American law, "citizen" has been defined as "one who,
under the constitution and laws of the United States, has a right to
vote for representatives in congress and other public officers, and
who is qualified to fill offices in the gift of the people. (1 Bouvier's
Law Dictionary, p. 490.) A citizen is—
"One of the sovereign people. A constituent member of the sovereignty,
synonymous with the people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L.
Ed.. 691.)
"A member of the civil state entitled to all its privileges. (Cooley,
Const. Lim. 77. See U.S. v. Cruikshank, 92 U.S. 542, 23 L. Ed. 588; Minor
v. Happersett, 21 Wall. [U.S.] 162, 22 L. Ed. 627.)
These concepts clarified, is herein respondent SAN JOSE
PETROLEUM an American business enterprise entitled to parity
rights in the Philippines? The answer
937
VOL. 18, DECEMBER 937
17, 1966
Palting vs. San Jose
Petroleum, Inc.
must be in the negative, for the following reasons:
Firstly—It is not owned or controlled directly by citizens of the
United States, because it is owned and controlled by a corporation,
9|P age
the OIL INVESTMENTS, another foreign (Panamanian)
corporation.
Secondly—Neither can it be said that it is indirectly owned and
controlled by American citizens through. the OIL INVESTMENTS,
for this latter corporation is in turn owned and controlled, not by
citizens of the United States, but still by two foreign (Venezuelan)
corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.
Thirdly—Although it is claimed that these two last corporations
are owned and controlled respectively by 12,373 and 9,979
stockholders residing in the different American states, there is no
showing in the certification furnished by respondent that the
stockholders of PANCOASTAL or those of them holding the
controlling stock, are citizens of the United States.
Fourthly—Granting that these individual stockholders are
American citizens, it is yet necessary to establish that the different
states of which they are citizens, allow Filipino citizens or
corporations or associations owned or controlled by Filipino citizens,
to engage in the exploitation, etc. of the natural resources of these
states (see paragraph 3, Article VI of the Laurel-Langley
Agreement, supra). Respondent has presented no proof to this
effect.
Fifthly—But even if the requirements mentioned in the two
immediately preceding paragraphs are satisfied, nevertheless to
hold that the set-up disclosed in this case, with a long chain of
intervening foreign corporations, comes within the purview of the
Parity Amendment regarding business enterprises indirectly owned
or controlled by citizens of the United States, is to unduly stretch
and strain the language and intent of the law. For, to what extent
must the word "indirectly" be carried? Must we trace the ownership
or control of these various corporations ad infinitum for the purpose
of determining whether the American ownership-control-
requirement is satisfied? Add to this the admitted fact that the
shares of stock
938
938 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
of the PANTEPEC and PANCOASTAL which are allegedly.
owned or controlled directly by citizens of the United States, are
traded in the stock exchange in. New York, and you have a
situation where it becomes a practical impossibility to determine at
any given time, the citizenship of the controlling stock required by
the law. In the circumstances, we have to hold that' the respondent
SAN JOSE PETROLEUM, as presently constituted, is not a
business enterprise that is authorized to exercise the parity
privileges under the Parity Ordinance, the LaurelLangley
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL
is, consequently, illegal
What, then, would be the status of SAN JOSE OIL, about 90% of
whose stock is owned by SAN JOSE PETROLEUM? This is a query
which we need not resolve in this case as SAN JOSE OIL is not a
party and it is not necessary to do so to dispose of the present
controversy, But it is a matter that probably the Solicitor General
would want to look into.
There is another issue .which has been discussed extensively by
the parties. This is whether or not an American mining corporation
may lawfully, "be in anywise interested in any other corporation
(domestic or foreign) organized for-the purpose of engaging in
agriculture or in mining," in the Philippines or whether an
American citizen owning stock in more than one corporation
organized for the purpose of engaging in agriculture or in mining,
10 | P a g e
May own more than 15% of the capital stock then outstanding and
entitled to vote, of each of such corporations, in view of the express
prohibition contained in Section 13 of the Philippine Corporation
Law. The petitioner in this case contends that the provisions of the
Corporation Law must be applied to American citizens and business
enterprise otherwise entitled to exercise the parity privileges,
because both. the Laurel-Langley Agreement (Art. VI, par. 1) and
the Petroleum Act of 1948 (Art. 31), specifically provide that the
enjoyment by them of the same rights and obligations granted
under the provisions of both laws shall be "in the same manner as
to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled
939
VOL. 18, DECEMBER 939
17, 1966
Palting vs. San Jose
'Petroleum, Inc.
by citizens of the Philippines." The petitioner further contends that,
as the enjoyment of the privilege of exploiting mineral resources in
the Philippines by Filipino citizens or corporations owned or
controlled by citizens of the Philippines (which corporation must
necessarily be organized under the Corporation Law), is made
subject to the limitations provided in Section 13 of the Corporation
Law, so necessarily the exercise of the parity rights by citizens of
the United States or business enterprise owned or controlled,
directly or indirectly, by citizens of the United States, must equally
be subject to the same limitations contained in the aforesaid Section
13 of the Corporation Law.
In view of the conclusions we have already arrived at, we deem it
not indispensable for us to pass upon this legal question, especially
taking into account the statement of the respondent (SAN JOSE
PETROLEUM) that it is essentially a holding company, and as
found by the Securities and Exchange Commissioner, its principal
activity is limited to the financing and giving technical assistance to
SAN JOSE OIL.
4. Respondent SAN JOSE PETROLEUM, whose shares of stock
were allowed registration for sale in the Philippines, was
incorporated under the laws of Panama in April, 1956 with an
authorized capital stock of $500,000.00, American currency, divided
into 50,000,000 shares at par value of $0.01 per share. By virtue of
a 3-party Agreement of June 14, 1956, respondent was supposed to
have received from OIL INVESTMENTS 8,000,000 shares of the
capital stock of SAN JOSE OIL (at par value of $0.01 per share),
plus a note for $250,000.00 due in 5. months, for which respondent
issued in. favor of OIL INVESTMENTS 16,000,000 shares of its
capital stock, at $0.01 per share or with a value of $160,000.00, plus
a note for $230,297.97 maturing in 1, years at 6% per annum
interest, and the assumption of payment of the unpaid price of
9 (at $0.10 per share). From this $800,000.00, the subscription price
7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
On June 27, 1956, the capitalization of SAN JOSE
_______________
9 Under
the June 14, 1956 Agreement, this amount corresponded to the
expenditures advanced by Oil Investments, in connection with the SAN JOSE OIL
venture in the PhiIippines.
940
940 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
PETROLEUM was increased from $500,000.00 to $17,-500,000.00
by increasing the par value of the same 50,000,000 shares, from
$0.01 to $0.35. Without any additional consideration, the
11 | P a g e
16,000,000 shares. of $0.01 previously issued to OIL
INVESTMENTS with a total value of $100,000.00 were changed
with 16,000,000 shares of the recapitalized stock at $0.35 per share,
or valued at $5,600,000.00. And, to make it appear that cash was
received for these re-issued 16,000,000 shares, the board of
directors of respondent corporation placed a valuation of
$5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still
having par value of $0.10 per share) which were received from OIL
INVESTMENTS as part-consideration for the 16,000,000 shares at
$0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from
the $5,900,000.00, supposedly the value of the 8,000,000 shares of
SAN JOSE OIL, the sum of $5,100,000.00 was deducted,
corresponding to the alleged difference between the "value" of the
said shares and the subscription price thereof which is $800,000.00
of the SAN JOSE OIL shares, the amount of $319,702.03 was
deducted, as allegedly unpaid subscription price, thereby giving a
difference of $480,297.97, which was placed as the amount allegedly
paid in on the subscription price of the 8,000,000 SAN JOSE OIL
shares. Then, by adding thereto the note receivable from OIL
INVESTMENTS, for $250,000.00 (part-consideration for the
16,000,000 SAN JOSE PETROLEUM shares), and the sum of
$6,516.21, as deferred expenses, SAN JOSE PETROLEUM
appeared to have assets in the sum of $736,814.18.
These figures are highly questionable. Take the item
$5,900,000.00 the valuation placed on the 8,000,000 shares of SAN
JOSE OIL. There appears no basis for such valuation other than
belief by the board of directors of respondent that "should San Jose
Oil Company be granted the bulk of the concessions applied for
upon reasonable terms, that it would have a reasonable value of
approximately $10,000,000." Then, of this amount, the
10
_______________
Board Meeting of June 27, 1956.
10
941
VOL. 18, DECEMBER 941
17, 1966
Palting vs. San Jose
Petroleum, Inc.
subscription price of $800,000.00 was deducted and called it
"difference between the (above) valuation and the subscription price
for the 8,000,000 shares," Of this $800,000.00 subscription price,
they deducted the sum of $480,297.97 and the difference was placed
as the unpaid portion of the subscription price. In other words, it
was made to appear that they paid in $480,297.97 for the 8.000,000
shares of SAN JOSE OIL. This amount ($480,297.97) was
supposedly that $250,000.00 paid by OIL INVESMENTS for
7,500,000 shares of SAN JOSE OIL, embodied in the June 14
Agreement, and a sum of $230,297.97 the amount expended or
advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet,
there is still an item among respondent's liabilities, for $230,297.97
appearing as note payable to Oil Investments, maturing in two (2)
years at six percent (6%) per annum. As far as it appears from the
11
records, for the 16,000,000 shares at $0.35 per share issued to OIL
INVESTMENTS, respondent SAN JOSE PETROLEUM received
from OIL INVESTMENTS only the note for $250,000.00 plus the
8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per
share or a total of $1,050,000.00—. the only assets of the
corporation. In other words, respondent actually lost $4,550,000.00,
which was received by OIL INVESTMENTS.
But this is not all. Some of the provisions of the Articles of
Incorporation of respondent SAN JOSE PETROLEUM are
noteworthy; viz:
12 | P a g e
1. (1)the directors of the Company need not be shareholders;
2. (2)that in the meetings of the "board of directors, any director
may be represented and may vote through a proxy who also
need not be a director or stockholder;
_______________
11 In the June 14, 1956 Agreement, it was stated that respondent "assumes the
obligation of the Philippine company (SAN JOSE OIL) to repay the advances made to
it by Oil Investments, including the total amount of any direct expenditures made by
Oil Investments in connection with the San Jose venture in the Philippines. The
amount of said obligation shall be calculated as of the date hereof, and shall be
represented by a note to become payable in U.S. dollars two (2) years, from the date of
this agreement, and to bear interest at six percent (6%) per annum."
942
942 SUPREME COURT
REPORTS
ANNOTATED
Palting vs. San Jose
Petroleum, Inc.
1. and
2. (3)that no contract or transaction between the corporation
and any other association or partnership will be affected,
except in case of. fraud, by the fact that any of the directors
or officers of the corporation is interested in, or is a director
or officer of, such other association or partnership, and that
no such contract or transaction of the corporation with any
other person or persons, firm, association or partnership
shall be affected by the fact that any director or officer of the
corporation is a party to or has an interest in, such contract
or transaction, or has in anyway connected with such other
person or persons, firm, association or partnership; and
 finally, that all and any of the persons who may become
director or officer of the corporation shall be relieved from
all responsibility for which they may otherwise be liable by
reason of any contract entered into with the corporation,
whether it be for his benefit or for the benefit of any other
person, firm, association or partnership in which he may be
interested.
These provisions are in direct opposition to our corporation law and
corporate' practices, in this country. These provisions alone would
outlaw any corporation locally organized or doing business in this
jurisdiction. Consider the unique and unusual provision that no
contract or transaction between the company and any other
association or corporation shall be affected except in case of fraud,
by the fact that any of the directors or officers of the company may
be interested in or are director's or officers of such other association
or corporation; and that none of such contracts or transactions of
this company with any person or persons, firms, associations or
corporations shall be affected by. the fact that any director or officer
of this company is a party to or has an interest in such contract or
transaction or has any connection. with such person or persons,
firms, associations or corporations; and that any and all persons
who may become directors or officers of this company are hereby
relieved of all responsibility which they -would otherwise incur by
reason of any contract entered into which this company either for
'their own benefit, or for the benefit of any person, firm, association
or corporation in which they may be interested.
943
VOL. 18, DECEMBER 943
17, 1966
Palting vs. San Jose
Petroleum, Inc.
13 | P a g e
The impact of these provisions upon the traditional
judiciary relationship between the directors and the stockholders of
*
a corporation is too obvious. to -escape notice by those who are
called upon to protect the interest of investors. The directors and
officers of the company can do anything, short of actual fraud, with
the affairs 01 the corporation even to benefit themselves, directly or
other persons or entities in which they are interested, and with
immunity because of the advance condonation or relief from
responsibility by reason of such acts. This and the other provision
which authorizes the election of non-stockholders as directors,
completely disassociate the stockholders from the government and
management of the business in which they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of
the management and stability of SAN JOSE PETROLEUM, OIL
INVESTMENTS, as holder of the only subscribed stock of the
former corporation and acting "on behalf of all future holders of
voting trust certificates/' entered into a voting trust
agreement with James L. Buckley and Austin E. Taylor, whereby
12
said Trustees were given authority to vote the shares represented
by the outstanding trust certificates (including those that may
henceforth be issued) in the following manner:
(a) At all elections of
directors, the Trustees
will designate a suitable
proxy or proxies to vote
for the election of
directors designated by
the Trustees in their own
discretion, having in
mind the best interests of
the holders of the voting
trust certificates, it being
 understood that any and 944 SUPREME COURT
all of the Trustees shall REPORTS
be eligible for election as ANNOTATED
directors; George W. Luft Co., Inc. vs.
(b) On any proposition for Ngo Guan
removal of a, with the written instructions of each holder of voting trust
director, the Trustees certificates. (Italics supplied.)
shall designate a suitable
It was also therein provided that the said Agreement shall be
proxy or proxies to vote
binding upon the parties thereto, their successors, and upon all
for or against such
holders of voting trust certificates.
proposition as the And these are the voting trust certificates that are offered to
Trustees in their own investors as authorized by the Securities and Exchange
discretion may Commissioner. It can not be doubted that the sale of respondent's
determine, having in securities would, to say the least, work or tend to work fraud to
mind the best interest of Philippine investors.
the holders of the voting FOR ALL THE FOREGOING CONSIDERATIONS, the motion
trust certificates; , of respondent to dismiss this appeal, is, denied, and the orders of
(c) With respect to all other the Securities and Exchange Commissioner, allowing the
matters arising at any registration of Respondent's securities and licensing their sale in
meeting of stockholders, the Philippines are hereby set aside. The case is remanded to the
the Trustees will instruct Securities and Exchange Commission for appropriate action in
such proxy or proxies consonance with this decision. With costs. Let a copy of this decision
attending such meetings be furnished the Solicitor General for whatever action he may deem
to vote the shares of advisable to take in the premises. So ordered.
stock held by the Concepcion, C.J., Reyes,
Trustees in accordance J.B.L., Dizon, Regala, Makalintal, Bengzon,
_______________ J.P., Zaldivar and Sanchez, JJ., concur.
Castro, J., did not take part.
12 The voting trust agreement will expire April 7, 1967.
* Editor's note: Should be fiduciary. Orders set aside; case remanded to Securities and Exchange
944 Commission for further proceedings.

14 | P a g e
 _____________

© Copyright 2021 Central Book Supply, Inc. All rights reserved.

15 | P a g e
100 PHILIPPINE REPORTS between himself and a then partner who had died prior to the
ANNOTATED trial of the action.
Fortis vs. Gutierrez
1. 5.AGENT ; DISBURSEMENTS.—In an action by an agent to
Hermanos
recover the amount of certain disbursements and not
[No. 2484. April 11, 1906.] compensation for services, the article of the Civil Code applicable
JOSÉ FORTIS, plaintiff and appellee, vs. GUTIERREZ to the case is article 1728, and not article 1711.
HERMANOS, defendants and appellants.
APPEAL from a judgment of the Court of First Instance of Manila.
1. 1.CIVIL PROCEDURE; ERROR; JUDGMENT; REVERSAL.— The facts are stated in the opinion of the court. Hartigan, Rohde &
Error not prejudicial is no ground for the reversal of a judgment. Gutierrez, for appellants.
(Sec. 503, Code of Civil Procedure.)
W. A. Kincaid, for appellee.
1. 2.PARTNERSHIP; MANAGER; BOOKKEEPER; CONTRACT; VA
WILLARD, J.:
LIDITY.—The general manager of a general partnership has
authority to employ a bookkeeper, and a contract thus made in
Plaintiff, an employee of defendants during the years 1900, 1901,
1900 was valid, though not in writing.
and 1902, brought this action to recover a balance due him as
1. 3.CONTRACT; BOOKKEEPER; SALARY.—By the terms of the
salary for the year 1902. He alleged that he was entitled, as salary,
contract the salary of the bookkeeper was to be 5 per cent of the to 5 per cent of the net profits of the business of the defendants for
net profits of the business: Held, That this contract did not make said year. The complaint also contained a cause of action for the
the bookkeeper a partner. sum of 600 pesos, money expended by plaintiff for the defendants
during the year 1903. The court below, in its judgment, found that
101 the contract had been made as claimed by the plaintiff; that 5 per
cent of the net profits of the business for the year 1902 amounted to
VOL. 6, APRIL 11, 26,378.68 pesos, Mexican currency; that the plaintiff had received
1906 01 on account of such salary 12,811.75 pesos, Mexican currency, and
Fortis vs. Gutierrez ordered judgment against the defendants for the sum of 13,566.93
Hermanos pesos, Mexican currency, with interest thereon from December 31,
1904. The court also ordered judgment against the defendants for
1. 4.CIVIL PROCEDURE; ACTION; PARTNERSHIP.—In an action the 600 pesos mentioned in the complaint, and interest thereon.
against a partnership to recover a debt due from it to the The total judgment rendered against the defendants in favor of the
plaintiff, section 383, paragraph 7, of the Code of Civil Procedure
plaintiff, reduced to Philippine currency, amounted to P13,025.40.
does not prohibit the plaintiff from testifying to a conversation

1|P age
The defendants moved for a new trial, which was. denied, and they
have brought the case here by bill of exceptions.
(1) The evidence is sufficient to support the finding of the court
below to the effect that the plaintiff worked for
102
102 PHILIPPINE REPORTS
ANNOTATED
Fortis vs. Gutierrez
Hermanos
the defendants during the year 1902 under a contract by which he
was to receive as compensation 5 per cent of the net profits of the
business. The contract was made on the part of the defendants by
Miguel Alonzo Gutierrez. By the provisions of the articles of
partnership he was made one of the managers of the company, with
full power to transact all of the business thereof. As such manager
he had authority to make a contract of employment with the
plaintiff.
(2) Before answering in the court below, the defendants
presented a motion that the complaint be made more definite and
certain. This motion was denied. To the order denying it the
defendants excepted, and they have assigned as error such ruling of
the court below. There is nothing in the record to show that the
defendants were in any way prejudiced by this ruling of the court
below. If it were error it was error without prejudice, and not
ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the
complaint made the plaintiff a copartner of the defendants in the
business which they were carrying on. This contention can not be
sustained. It was a mere contract of employment. The plaintiff had
no voice nor vote in the management of the affairs of the company.
The fact that the compensation received by him was to be
determined with reference to the profits made by the defendants in
2|P age
their business did not in any sense make him a partner therein.
The articles of partnership between the defendants provided that
the profits should be divided among the partners named in a
certain proportion. The contract made between the plaintiff and the
then manager of the defendant partnership did not in any way vary
or modify this provision of the articles of partnership. The profits of
the business could not be determined until all of the expenses had
been paid. A part of the expenses to be paid for the year 1902 was
the salary of the plaintiff. That salary had to be deducted before the
net profits of the business. which were ,to be divided among the
partners, could be ascertained. It was undoubtedly necessary in
order to
103
VOL. 6, APRIL 11, 103
1906
Fortis vs. Gutierrez
Hermanos
determine what the salary of the plaintiff was, to determine what
the profits of the business were, after paying all of the expenses
except his, but that determination was not the final determination
of the net profits of the business. It was made for the purpose of
fixing the basis upon which his compensation should be determined.
(4) It was not necessary that the contract between the plaintiff
and the defendants should be made in writing. (Thunga
Chui vs. Que Bentec, 1 Off. Gaz., 818, October 8, 1903.)
1
(5) It appeared that Miguel Alonzo Gutierrez, with whom the
plaintiff had made the contract, had died prior to the trial of the
action, and the defendants claim that by reason of the provisions of
section 383, paragraph 7, of the Code of Civil Procedure, plaintiff
could not be a witness at the trial. That paragraph provides that
parties to an action against an executor or administrator upon a
claim or demand against the estate of a deceased person can not
testify as to any matter of fact occurring before the death of such
deceased person. This action was not brought against the
administrator of Miguel Alonzo, nor was it brought upon a claim
against his estate. It was brought against a partnership which was
in existence at the time of the trial of the action, and which was a
juridical person. The fact that Miguel Alonzo had been a partner in
this company, and that his interests therein might be affected by
the result of this suit, is not sufficient to bring the case within the
provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and
exception of the defendants, that he had been paid as salary for the
year 1900 a part of the profits of the business. This evidence was
competent for the purpose of corroborating the testimony of the
plaintiff as to the existence of the contract set out in the complaint.
(7) The plaintiff was allowed to testify as.to the contents of a
certain letter written by Miguel Gutierrez, one of the partners in
the defendant company, to Miguel Alonzo
____________
2Phil. Rep., 561.
1
104
104 PHILIPPINE REPORTS
ANNOTATED
Fortis vs. Gutierrez
Hermanos
Gutierrez, another partner, which letter was read to plaintiff by
Miguel Alonzo. It is not necessary to inquire whether the court
committed an error in admitting this evidence. The case already
made by the plaintiff was in itself sufficient to prove the contract
without reference to this letter. The error, if any there were, was
not prejudicial, and is not ground for reversal. (Sec. 503, Code of
Civil Procedure.)
3|P age
(8) For the purpose of proving what the profits of the defendants
were for the year 1902, the plaintiff presented in evidence the
ledger of defendants, which contained an entry made on the 31st of
December, 1902, as follows:
"Perdidas y Ganancias ....................................... a Varios Ps.
527,573.66 Utilidades líquidas obtenidas durante el año y que
abonamos conforme á la proporcion que hemos establecido segun el
convenio de sociedad."
The defendant presented as a witness on the subject of profits
Miguel Gutierrez, one of the defendants, who testified, among 6ther
things, that there were no profits during the year 1902, but, on the
contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witness is sufficiently
definite and certain to overcome the positive evidence furnished by
the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it
appears that the plaintiff left the employ of the defendants on the
19th of March, 1903; that at their request he went to Hongkong,
and was there for about two months looking after the business of
the defendants in the matter of the repair of a certain steamship.
The appellants in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by the
provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article is not applicable to this case, because the
amount of 600 pesos is not claimed as compensation for services but
as a reimbursement for money expended by the plaintiff in the
business of the defendants. The article of the code that is applicable
is article 1728.
105
VOL. 6, APRIL 11, 105
1906
 United States vs. Paete
The judgment of the court below is affirmed, with the costs of this
instance against the appellants. After the expiration of twenty days
from the date of this decision let final judgment be entered herein,
and ten days thereafter let the case be remanded to the lower court
for execution. So ordered.
Arellano, C.J., J., Torres, Mapa, Johnson, and Carson,
JJ., concur.

Judgment affirmed.

_____________

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4|P age
5|P age
 [No. 35840. March 31, 1933]
FRANCISCO BASTIDA, plaintiff and appellee, vs. MENZI & Co.,
INC., J. M. MENZI and P. C. SCHLOBOHM, defendants. MENZI &
Co., INC., appellant.
1. 1.CONTRACT OF EMPLOYMENT; RELATIONSHIP BETWEEN
EMPLOYER AND EMPLOYEE; COPARTNERSHIP.—The
relationship established between the defendant corporation and
the plaintiff by their contract was not that of partners, but that of
employer and employee, whereby the plaintiff was to receive 35
per cent of the net profits of the fertilizer business of the
defendant corporation in compensation for his services of
supervising the mixing of the fertilizers. Neither the provisions of
the contract nor the conduct of the parties prior or subsequent to
its execution justified the finding that it was a contract of
copartnership.
1. 2.ID.; ID.; ID.—The trial court relied on article 116 of the Code of
Commerce, which provides that articles of association by which
two or more persons obligate themselves to place in a common
fund any property, industry, or any of these things, in order to
189
VOL. 58, MARCH
31, 1933 89
Bastida, vs. Menzi & Co.
1. obtain profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the
provisions of that Code; but in the case at bar there was no
common fund, that is, a fund belonging to the parties as joint
owners or partners. Instead of receiving a fixed salary or a fixed
salary and a small percentage of the net profits, the plaintiff was
1|P age
to receive 35 per cent of the net profits as compensation for his
services. It is now well settled that the old rule that sharing
profits as profits made one a partner is overthrown. (Mechem,
second edition, p. 89.)
1. 3.ID. ; ID. ; ID.—It is nowhere stated in Exhibit A that the parties
were establishing a partnership or intended to become partners.
Great stress is laid by the trial judge and plaintiff's attorneys on
the fact that in the sixth paragraph of said exhibit the phrase "en
sociedad con" is used in providing that defendant corporation
shall not engage in the business of prepared fertilizers except in
association with the plaintiff (en sociedad con). The fact is that en
sociedad com, as there used, merely means en reunión con or in
association with, and does not carry the meaning of "in
partnership with". Although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it
does not in its common acceptation imply any partnership
relation.
1. 4.PLEADINGS; ADMISSIBILITY AS EVIDENCE.—"Where
amended pleadings have been filed, allegations in the original
pleadings are held admissible, but in such case the original
pleadings can have no effect, unless formally offered in evidence."
(Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)
APPEAL from a judgment of the Court of First Instance of Manila.
Imperial, J.
The facts are stated in the opinion of the court.
Romualdez Brothers and Harvey & O'Brien for appellant.
Jose M. Casal, Alberto Barretto and Gibbs & McDonough for
appellee.
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of the defendants, from
a decision of the Court of First Instance of Manila. The case was
tried on the amended complaint dated May 26,1928 and defendants'
amended answer thereto of September 1, 1928. For the sake of
clearness, we shall incorporate herein the principal allegations of
the parties.
190
190 PHILIPPINE REPORTS
ANNOTATED
Bastida, vs. Menzi & Co.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J. M. Menzi, together with his wife and
daughter, owns ninety-nine per cent (99%) of the capital stock of the
defendant Menzi & Co., Inc., that the plaintiff has been informed
and therefore believes that the defendant J. M. Menzi, his wife and
daughter, together with the defendant P. C. Schlobohm and one
Juan Seiboth, constitute the board of directors of the defendant,
Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc., through its
president and general manager, J. M. Menzi, under the authority of
the board of directors, entered into a contract with the plaintiff to
engage in the business of exploiting prepared fertilizers, as
evidenced by the contract marked Exhibit A, attached to the
2|P age
original complaint as a part thereof, and likewise made a part of the
amended complaint, as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi &
Co., Inc., began to manufacture prepared fertilizers, the f ormer
superintending the work of actual preparation, and the latter,
through defendants J. M. Menzi and P. C. Schlobohm, managing
the business and opening an account entitled "FERTILIZERS" on
the books of the defendant Menzi & Co., Inc., where all the accounts
of the partnership business were supposed to be kept; the plaintiff
had no participation in the making of these entries, which were
wholly in the defendants' charge, under whose orders every entry
was made;
IV
That according to paragraph 7 of the contract Exhibit A, the
defendant Menzi & Co., Inc., was obliged to render annual balance
sheets to the plaintiff upon the 30th day of
191
VOL. 58, MARCH 31, 191
1933
Bastida vs. Menzi & Co.
June of each year; that the plaintiff had no intervention in the
preparation of these yearly balances, nor was he permitted to have
any access to the books of account; and when the balance sheets
were shown him, he, believing in good faith that they contained the
true statement of the partnership business, and relying upon the
good faith of the defendants, Menzi & Co., Inc., J. M. Menzi, and P.
C. Schlobohm, accepted and signed them, the last balance sheet
having been rendered in the year 1926;
 V VII
That by reason of the foregoing facts and especially those set forth
in the preceding paragraph, the plaintiff was kept in ignorance of
the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so
believes and alleges, that the defendants had conspired to conceal
from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the
yearly balance sheets, the exact nature and amount of which it is
impossible to ascertain, even after the examination of the books of
the business, due to the defendants' refusal to furnish all the books
and data required for the purpose, and the constant obstacles they
have placed in the way of the examination of the books of account
and vouchers;
VI
That when the plaintiff received the information mentioned in the
preceding paragraph, he demanded that the defendants permit him
to examine the books and vouchers of the business, which were in
their possession, in order to ascertain the truth of the alleged false
entries in the books and balance sheets submitted for his approval,
but the defendants refused, and did not consent to the examination
until after the original complaint was filed in this case; but up to
this time they have refused to furnish all the books, data, and
Vouchers necessary for a complete and accurate examination of all
the partnership's accounts; and
192
192 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
3|P age
That as a result of the partial examination of the books of account
of the business, the plaintiff has, through his accountants,
discovered that the defendants, conspiring and confederating
together, presented to the plaintiff during the period covered by the
partnership contract false and incorrect accounts,
1. (a)For having included therein undue interest;
2. (b)For having entered, as a charge to fertilizers, salaries and
wages which should have been paid and were in fact paid by
the defendant Menzi & Co., Inc.;
3. (c)For having collected from the partnership the income tax
which should have been paid for its own account by Menzi &
Co., Inc.;
4. (d)For having collected, to the damage and prejudice of the
plaintiff, commissions on the purchase of materials for the
manufacture of fertilizers;
5. (e)For having appropriated, to the damage and prejudice of
the plaintiff, the profits obtained from the sale of fertilizers
belonging to the partnership and bought with its own funds;
and
6. (f)For having appropriated to themselves all rebates for
freight insurance, taxes, etc., upon materials for fertilizer
bought abroad, no entries of said rebates having been made
on the books to the credit of the partnership.
Upon the strength of the facts set out in this first cause of action,
the plaintiff prays the court:
1. 1.To prohibit the defendants, each and every one of them,
from destroying and concealing the books and papers of the
 partnership constituted between the defendant Menzi &
Co., Inc., and the plaintiff;
2. 2.To summon each and every defendant to appear and give a
true account of all facts relating to the partnership between
the plaintiff and the defendant Menzi & Co., Inc., and of
each and every act and transaction connected with the
business of said partnership from the beginning to April 27,
1927, and a true statement of all merchandise of what
193
VOL. 58, MARCH 31, 193
1933
Bastida vs. Menzi & Co.
1. ever description, purchased for said partnership, and of all
the expenditures and sales of every kind, together with the
true amount thereof, besides the sums received by the
partnership from every source together with their exact
nature, and a true and complete account of the vouchers f or
all sums paid by the partnership, and of the salaries paid to
its employees;
2. 3.To declare null and void the yearly balances submitted by
the defendants to the plaintiff from 1922 to 1926, both
inclusive;
3. 4.To order the defendants to give a true statement of all
receipts and disbursements of the partnership during the
period of its existence, besides granting the plaintiff any
other remedy that the court may deem just and equitable.
EXHIBIT A
"CONTRATO
4|P age
que se celebra entre los Sres. Menzi y Compañía, de Manila, como
Primera Parte, y D. Francisco Bastida, también de Manila, como
Segunda Parte, bajo las siguientes
"CONDICIONES
1. "1.aEl objeto de este contrato es la explotación del negocio de
Abonos o Fertilizantes Preparados, para diversas
aplicaciones agrícolas;
2. "2.aLa duración de este contrato será de cinco años, a contar
desde la fecha de su firma;
3. "3.aLa Primera Parte se compromete a facilitar la ayuda
financiera necesaria para el negocio;
4. "4.aLa Segunda Parte se compromete a poner su entero
tiempo y toda su experiencia a la disposición del negocio;
5. "5.aLa Segunda Parte no podrá, directa o indirectamente,
dedicarse por sí sola ni en sociedad con otras personas, o de
manera alguna que no sea con la Primera Parte, al negocio
de Abonos, simples o preparados, o de materia alguna que se
aplique comúnmente a la fertilización de suelos y plantas,
durante la vigencia de este contrato, a
194
194 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
1. menos que obtenga autorización expresa de la Primera Parte
para ello;
2. "6.aLa Primera Parte no podrá dedicarse, por sí sola ni en
sociedad o combinación con otras personas o entidades, ni de
otro modo que en sociedad con la Segunda Parte, al negocio
 de Abonos o Fertilizantes preparados, ya sean ellos
importados, ya preparados en las Islas Filipinas; tampoco
podrá dedicarse a la venta o negocio de materias o productos
que tengan aplicación como fertilizantes, o que se usen en la
composición de fertilizantes o abonos, si ellos son productos
de suelo de la manufactura filipinos, pudiendo sin embargo
vender o negociar en materias fertilizantes simples
importados de los Estados Unidos o del Extranjero;
3. "7.aLa Primera Parte se obliga a ceder y a hacer efectivo a la
Segunda Parte el 35 por ciento (treinta y cinco por ciento) de
las utilidades netas del negocio de abonos, liquidables el 30
de junio de cada año;
4. "8.aLa Primera Parte facilitará a la Segunda, mensualmente,
la cantidad de P300 (trescientos pesos), a cuenta de su parte
de beneficios;
5. "9.aDurante el año 1923 la Primera Parte concederá a la
Segunda permiso para que éste se ausente de Filipinas por
un período de tiempo que no exceda de un año, sin
menoscabo para los derechos de la Segunda Parte con
arreglo a este contrato.
"En testimonio de lo cual firmamos el presente en la Ciudad de
Manila, I. F., a veintisiete de abril de 1922.
"MENZI & CO., INC.
"Por (Fdo.) J. MENZI
"General Manager
"Primera Parte
"(Fdo.) F. BASTIDA
"Segunda, Parte
5|P age
"MENZI & CO., INC.
"(Fdo.) MAX KAEGI
"Acting Secretary"
195
VOL. 58, MARCH 31, 195
1933
Bastida vs. Menzi & Co.
Defendants denied all the allegations of the amended complaint,
except the formal allegations as to the parties, and as a special
defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been
engaged in the general merchandise business in the Philippine
Islands since its organization in October, 1921, including the
importation and sale of all kinds of goods, wares, and merchandise,
and especially simple fertilizers and fertilizer ingredients, and as a
part of that business, it has been engaged since its organization in
the manufacture and sale of prepared fertilizers for agricultural
purposes, and has used f or that purpose trade-marks belonging to
it;
2. That on or about November, 1921, the defendant, Menzi & Co.,
Inc., made and entered into an employment agreement with the
plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in
the manufacture of prepared fertilizers in its f ertilizer department
and to obtain orders for such prepared fertilizers subject to its
approval, for a compensation of 50 per cent of the net profits which
it might derive from the sale of the fertilizers prepared by him, and
that said Francisco Bastida worked under said agreement until
April 27, 1922, and received the compensation agreed upon for his
services; that on the said 27th of April, 1922, the said Menzi & Co.,
Inc., and the said Francisco Bastida made and entered into the
written agreement, which is marked Exhibit A, and made a part of
the amended complaint in this case, whereby they mutually agreed
that the employment of the said Francisco Bastida by the said
Menzi & Co., Inc., in the capacity stated, should be for a definite
period of five years from that date and under the other terms and
conditions stated therein, but with the understanding and
agreement that the said Francisco Bastida should receive as
compensation for his said services only 35 per cent of the net profits
derived from the sale of the fer-
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196 PHILIPPINE REPORTS
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Bastida, vs. Menzi & Co.
tilizers prepared by him during the period of the contract instead of
50 per cent of such profits, as provided in his former agreement;
that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said f ertilizer business with the
exception of over-seeing the mixing of the ingredients in the
manufacture of the same, and on or about the month of December,
1922, the def endant, Menzi & Co., Inc., in order to make said
business successful, was obliged to and actually did assume the f ull
management and direction of said business;
3. That the accounts of the business of the said fertilizer
department of Menzi & Co., Inc., were duly kept in the regular
books of its general business, in the ordinary course thereof, up to
June 30, 1923, and that after that time and during the remainder of
the period of said agreement, for the purpose of convenience in
determining the amount of compensation due to the plaintiff under
his agreement, separate books of account for its said fertilizer
business were duly kept in the name of 'Menzi & Co., Inc.,
Fertilizer', and used exclusively for that purpose, and it was
mutually agreed between the said Francisco Bastida and the said
Menzi & Co., Inc., that the yearly balances for the determination of
6|P age
the net profits of said business due to the said plaintiff as
compensation f or his services under said agreement would be made
as of December 31st, instead of June 30th, of each year, during the
period of said agreement; that the accounts of the business of its
said f ertilizer department, as recorded in its said books, and the
vouchers and records supporting the same, for each year of said
business have been duly audited by Messrs. White, Page & Co.,
certified public accountants, of Manila, who, shortly after the close
of business at the end of each year up to and including the year
1926, have prepared therefrom a manufacturing and profit and loss
account and balance sheet, showing the status of said business and
the share of the net profits pertaining to the plaintiff as his
compensation under said agreement; that after the said
manufacturing and profit and the loss account and balance sheet
for each year of the
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Bastida vs. Menzi & Co.
business of its said f ertilizer department up to and including the
year 1926, had been prepared by the said auditors and certified by
them, they were shown to and examined by the plaintiff, and duly
accepted, and approved by him, with full knowledge of their
contents, and as evidence of such approval, he signed his name on
each of them, as shown on the copies of said manufacturing and
profit and loss account and balance sheet f or each year up to and
including the year 1926, which are attached to the record of this
case, and which are hereby referred to and made a part of this
amended answer, and in accordance therewith, the said plaintiff
has actually received the portion of the net profits of its said
business for those years pertaining to him for his services under
said agreement; that at no time during the course of said fertilizer
business and the liquidation thereof has the plaintiff been in any
way denied access to the books and records pertaining thereto, but
on the contrary, said books and records have been subject to his
inspection and examination at any time during business hours, and
even since the commencement of this action, the plaintiff and his
accountants, Messrs. Haskins & Sells, of Manila, have been going
over and examining said books and records for months and the
defendant, Menzi & Co., Inc., through its officers, have turned over
to said plaintiff and his accountant the books and records of said
business and even furnished them suitable accommodations in its
own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A,
the defendant, Menzi & Co., Inc., duly notified the plaintiff that it
would not under any conditions renew his said agreement or
continue his said employment with it after its expiration, and after
the termination of said agreement of April 27, 1927, the said Menzi
& Co., Inc., had the certified public accountants, White, Page & Co.,
audit the accounts of the business of its said fertilizer department
for the four months of 1927 covered by plaintiff's agreement and
prepare a manufacturing and profit and loss account and balance
sheet of said business showing the status of said business at the
termination of said agreement, a copy of
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198 PHILIPPINE REPORTS
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Bastida vs. Menzi & Co.
which was shown to and explained to the plaintiff; that at that time
there were accounts receivable to be collected for business covered
by said agreement of over P100,000, and there was guano, ashes,
fine tobacco and other fertilizer ingredients on hand of over
P75,000, which had to be disposed of by Menzi & Co., Inc., or valued
by the parties, bef ore the net profits of said business for the period
7|P age
of the agreement could be determined; that Menzi & Co., Inc,,
offered to take the face value of said accounts and the cost value of
the other properties f or the purpose of determining the profits of
said business for that period, and to pay to the plaintiff at that time
his proportion of such profits on that basis/which the plaintiff
refused to accept, and being disgruntled because the said Menzi &
Co., Inc., would not continue him in its service, the said plaintiff
commenced this action, including therein not only Menzi & Co.,
Inc., but also its managers J. M. Menzi and P. C. Schlobohm,
wherein he knowingly make various false and malicious allegations
against the def endants; that since that time the said Menzi & Co.,
Inc., has been collecting the accounts receivable and disposing of
the stocks on hand, and there is still on hand old stock of
approximately P25,000, which it has been unable to dispose of up to
this time; that as soon as possible a final liquidation and accounting
of the net profits of the business covered by said agreement for the
last f our months thereof will be made and the share thereof
appertaining to the plaintiff will be paid to him; that the plaintiff
has been informed from time to time as to the status of the
disposition of such properties, and he and his auditors have fully
examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV,
and V of the first cause of action.
II. That the examination made by the plaintiff's auditors of some
of the books of the partnership that were furnished
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1933
 Bastida vs. Menzi & Co.
by the defendants disclosed the fact that said defendants had
charged to "purchases" of the business, undue interest, the amount
of which the plaintiff is unable to determine as he has never had at
his disposal the books and vouchers necessary for that purpose, and
especially, owing to the fact that the partnership constituted
between the plaintiff and the defendant Menzi & Co., Inc., never
kept its own cash book, but that its funds were maliciously included
in the private funds of the defendant entity, neither was there a
separate BANK ACCOUNT of the partnership, such account being
included in the defendant's bank account.
III. That from the examination of the partnership books as
aforesaid, the plaintiff estimates that the partnership between
himself and the defendant Menzi & Co., Inc., has been defrauded by
the defendants by way of interest in an amount of approximately
P184,432.51, of which 35 per cent, or P64,551.38, belongs to the
plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment
ordering the defendants jointly and severally to pay him the sum of
P64,551.38, or any amount which. may finally appear to be due and
owing from the defendants to the plaintiff upon this ground, with
legal interest from the filing of the original complaint until
payment.
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer;
2. That under the contract of employment, Exhibit A, of the
amended complaint, the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate financial aid in carrying on the
said fertilizer business, as it had been doing before the plaintiff was
employed under the said agreement; that the said defendant, Menzi
8|P age
& Co., Inc., in the course of the said business of its fertilizer
department, opened letters of credit through the banks of Manila,
accepted and paid drafts drawn upon it under said letters of credit,
and obtained loans and advances of moneys for the purchase of
materials to be used in mixing and manufacturing its fertilizers
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200 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
and in paying the expenses of said business; that such drafts and
loans naturally provided for interest at the banking rate from the
dates thereof until paid, as is the case in all such business
enterprises, and that such payments of interest as were actually
made on such drafts, loans and advances during the period of the
said employment agreement constituted legitimate expenses of said
business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
1. I.That he hereby reproduces paragraphs I, II, III, IV, and V
of the first cause of action.
2. II.That under the terms of the contract Exhibit A, neither the
defendants J. M. Menzi and P. C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a right to collect for itself
or themselves any amount whatsoever by way of salary for
services rendered to the partnership between the plaintiff
and the defendant, inasmuch as such services were
compensated with the 65 % of the net profits of the business
constituting their share.
 3. III.That the plaintiff has, on his own account and with his
own money, paid all the employees he has placed in the
service of the partnership, having expended for their
account, during the period of the contract, over P88,000,
without ever having made any claim upon the defendants
for this sum because it was included in the compensation of
35 per cent which he was to receive in accordance with the
contract Exhibit A.
4. IV.That the defendants J. M. Menzi and P. C. Schlobohm, not
satisfied with collecting undue and excessive salaries for
themselves, have made the partnership, or the fertilizer
business, pay the salaries of a number of the employees of
the defendant Menzi & Co., Inc.
5. V.That under this item of undue salaries the defendants have
appropriated P43,920 of the partnership funds, of which 35
per cent, or P15,372 belongs exclusively to the plaintiff.
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Bastida vs. Menzi & Co.
Wherefore, the plaintiff prays the court to render judgment
ordering the defendants to pay jointly and severally to the plaintiff
the amount of P15,372, with legal interest from the date of the
filing of the original complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager,
exclusively managed and conducted its said fertilizer business, in
which the plaintiff was to receive 35 percent of the net profits as
9|P age
compensation for his services, as hereinbefore alleged, from on or
about January 1, 1923, when its other departments had special
experienced Europeans in charge thereof, who received not only
salaries but also a percentage of the net profits of such
departments; that its said fertilizer business, after its manager took
charge of it, became very successful, and owing to the large volume
of business transacted, said business required great deal of time
and attention, and actually consumed at least one-half of the time
of the manager and certain employees of Menzi & Co., Inc., in
carrying it on; that the said Menzi & Co., Inc., furnished office
space, stationery and other incidentals, for said business, and had
its employees perform the duties of cashiers, accountants, clerks,
messengers, etc., for the same, and for that reason the said Menzi &
Co., Inc., charged each year, from and after 1922, as expenses of
said business, which pertained to the fertilizer department, as
certain amount as salaries and wages to cover the proportional part
of the overhead expenses of Menzi & Co., Inc.; that the same
method is f ollowed in each of the several departments of the
business of Menzi & Co., Inc., that each and every year from and
after 1922, a just proportion of said overhead expenses were
charged to said fertilizer departments and entered on the books
thereof, with the knowledge and consent of the plaintiff, and
included in the auditors'
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202 PHILIPPINE REPORTS
ANNOTATED
Bastida, vs. Menzi & Co,
reports, which were examined, accepted and approved by him, and
he is now estopped from saying that such expenses were not
legitimate and just expenses of said business,
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
1. I.That he hereby reproduces paragraphs I, II, III, IV, and V
of the first cause of action.
2. II.That the defendant Menzi & Co., Inc., through the
defendants J. M. Menzi and P. C. Schlobohm, has paid, with
the funds of the partnership between the defendant entity
and the plaintiff, the income tax due from said defendant
entity for the fertilizer business, thereby defrauding the
partnership in the amount of P10,361.72 of which 35
3. III.That the. plaintiff has, during the period of the contract,
paid with his own money the income tax corresponding to
his share which consists in 35 per cent of the profits of the
fertilizer business, expending about P5,000 without ever
having made 'any claim for reimbursement against the
partnership, inasmuch as it has always been understood
among the partners that each of them would pay his own
income tax.
Wherefore, the plaintiff prays the court to order the defendants
jointly and-severally to pay the plaintiff the sum of P3,626.60, with
legal interest from the date of the filing of the original complaint
until its payment
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was
obliged to and did make return to the Government of the Philippine
Islands each year during the period of the agreement, Exhibit A, of
the income of its whole business, including its fertilizer department;
10 | P a g e
that the proportional share of such income taxes found to be due on
the business
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1933
Bastida vs. Menzi & Co.
of the fertilizer department was charged as a proper and legitimate
expense of that department, in the same manner as was done in the
other departments of its business; that inasmuch as the agreement
with the plaintiff was an employment agreement, he was requested
to make his own return under the Income Tax Law and to pay his
own income taxes, instead of having them paid at the source, as
might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid
by the said Menzi & Co., Inc., pertaining to the business of the
fertilizer department and charged to that business, were duly
entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were
examined, accepted and approved by the plaintiff, with full
knowledge of their contents, and he is now estopped from saying
that such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of
the first cause of action.
II. That the plaintiff has discovered that the defendant Menzi &
Co., Inc., had been receiving, during the period of the contract
Exhibit A, from foreign firms selling fertilizing material, a secret
commission equivalent to 5 per cent of the total value of the
purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi & Co.,
Inc., and that said 5 per cent commission was not entered by the
defendants in the books of the business, to the credit and benefit of
the partnership constituted between the plaintiff and the def
endant, but to the credit of the defendant Menzi & Co., Inc., which
appropriated it to itself.
III. That the exact amount, or even the approximate amount of
the fraud thus suffered by the plaintiff cannot be determined,
because the entries referring to these items do not appear in the
partnership books, although the plaintiff
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204 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
believes and alleges that they do appear in the private books of the
defendant Menzi & Co., Inc., which the latter has refused to
furnish, notwithstanding the demands made therefor by the
auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some
fertilizing materia! made by the partnership during the first four
years of the contract Exhibit A, the plaintiff estimates that this 5
per cent commission collected by the defendant Menzi & Co., Inc., to
the damage and prejudice of the plaintiff, amounts to P127,375.77
of which 35 per cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants
to pay jointly and severally to the plaintiff the amount of
P44,581.52, or the exact amount owed upon this ground, after both
parties have adduced their evidence upon the point.
Def endants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer;
11 | P a g e
2. That the defendant, Menzi & Co., Inc., did have during the
period of said agreement, Exhibit A, and has now what is called a
"Propaganda Agency Agreement" with the Deutsches Kalesyndikat,
G. M. B., of Berlin, which is a manufacturer of potash, by virtue of
which the said Menzi & Co., Inc., was to receive for its propaganda
work in advertising and bringing about sales of its potash a
commission of 5 per cent on all orders of potash received by it from
the Philippine Islands; that during the period of said agreement,
Exhibit A, orders were sent to said concern for potash, through C.
Andre & Co., of Hamburg, as the agent of the said Menzi & Co.,
Inc., upon which the said Menzi & Co., Inc., received a 5 per cent
commission, amounting in all to P2,222.32 for the propaganda work
which it did for said firm in the Philippine Islands; that said
commissions were not in any sense discounts on the purchase price
of said potash, and have no relation to the fertilizer business of
which the plaintiff was
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1933
Bastida vs. Menzi & Co.
to receive a share of the net profits for his services, and
consequently were not credited to that department;
3. That in going over the books of Menzi & Co., Inc., it has been f
ound that there are only two items of commissions, which were
received from the United Supply Co., of San Francisco, in the total
sum of $66.51, which, through oversight, were not credited on the
books of the fertilizer department of Menzi & Co., Inc., but due
allowance has now been given to that department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
 I. That he hereby reproduces paragraphs I, II, III, IV, and V, of
the first cause of action.
II. That the defendant Menzi & Co., Inc., in collusion with and
through the defendants J. M. Menzi and P. C. Schlobohm and their
assistants, has tampered with the books of the business making
fictitious transfers in favor of the defendant Menzi & Co., Inc., of
merchandise belonging to the partnership, purchased with the
latter's money, and deposited in its warehouses, and then sold by
Menzi & Co., Inc., to third persons, thereby appropriating to itself
the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud
suffered by the plaintiff in this respect as the real amount obtained
from such sales can only be ascertained from an examination of the
private books of the defendant entity, which the latter has refused
to permit notwithstanding the demand made for the purpose by the
auditors and the lawyers of the plaintiff, and no basis of
computation can be established, even approximately, to ascertain
the extent of the fraud sustained by the plaintiff in this respect, by
merely examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants
J. M. Menzi and P. C. Schlobohm, to make a sworn statement as to
all the profits received from the sale to third persons of the
fertilizers pertaining to the
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206 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
partnership, and the profits they have appropriated, ordering them
jointly and severally to pay 35 per cent of the net amount, with
legal interest from the filing of the original complaint until the
payment thereof,
Defendants alleged:
12 | P a g e
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer:
2. That under the express terms of the employment agreement,
Exhibit A, the defendant, Menzi & Co., Inc., had the right to import
into the Philippine Islands in the course of its fertilizer business
and sell for its exclusive account and benefit simple fertilizer
ingredients; that the only materials imported by it and sold during
the period of said agreement were simple f ertilizer ingredients,
which had nothing whatever to do with the business of mixed
fertilizers, of which the plaintiff was to receive a share of the net
profits as a part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
1. I.That he hereby reproduces paragraphs I, II, III, IV, and V
of the first cause of action.
2. II.That during the existence of the contract Exhibt A, the
defendant Menzi & Co., Inc., for the account of the
partnership constituted between itself and the plaintiff, and
with the latter's money, purchased from several foreign
firms various simple fertilizing material for the use of the
partnership.
3. III.That in the paid invoices for such purchases there are
charged, besides the cost price of the merchandise, other
amounts for freight, insurance, duty, etc., some of which
were not entirely thus spent and were later credited by the
selling firms to the defendant Menzi & Co., Inc.
4. IV.That said defendant Menzi & Co., Inc., through and in
collusion with the defendants J. M. Menzi and P. Co
 Schlobohm upon receipt of the credit notes remitted by the
selling firms of fertilizing material, for rebates upon freight.
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1933
Bastida vs. Menzi & Co.
1. insurance, duty, etc., charged in the invoice but not all
expended, did not enter them upon the books to the credit of
the partnership constituted between the defendant and the
plaintiff, but entered or had them entered to the credit of
Menzi & Co., Inc., thereby defrauding the plaintiff of 35 per
cent of the value of such reductions.
2. V.That the total amount, or even the approximate amount of
this fraud cannot be ascertained without an examination of
the private books of Menzi & Co., Inc., which the latter has
refused to permit notwithstanding the demand to this effect
made upon them by the auditors and the lawyers of the
plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.
M. Menzi and P. C. Schlobohm, to make a sworn statement as to
the total amount of such rebates, and to sentence the defendants to
pay to the plaintiff jointly and severally 35 per cent of the net
amount.
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer:
2. That during the period of said employment agreement, Exhibit
A, the defendant, Menzi & Co., Inc., received from its agent, C.
13 | P a g e
Andre & Co., of Hamburg, certain credits pertaining to the fertilizer
business in the profits of which the plaintiff was interested, by way
of refunds of German Export Taxes, in the total sum of P1,402.54;
that all of said credits were duly noted on the books of the fertilizer
department as received, but it has just recently been discovered
that through error an additional sum of P216.22 was credited to
said department, which does not pertain to said business in the
profits of which the plaintiff is interested.
EIGHTH CAUSE OF ACTION
As eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of
the first cause of action.
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208 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
II. That on or about April 21, 1927, that is, before the expiration of
the contract Exhibit A of the complaint, the defendant Menzi & Co.,
Inc., acting as manager of the fertilizer business constituted
between said defendant and the plaintiff, entered into a contract
with the Compañia General de Tabacos de Filipinas for the sale to
said entity of three thousand tons of fertilizers of the trade mark
"Corona No. 1", at the rate of P111 per ton, f. o. b. Bais, Oriental
Negros, to be delivered, as they were delivered, according to
information received by the plaintiff, during the months of
November and December, 1927, and January, February, March,
and April, 1928.
III. That both the contract mentioned above and the benefits
derived therefrom, which the plaintiff estimates at P90,000,
Philippine currency, belongs to the fertilizer business constituted
between the plaintiff and the defendant, of which 35 per cent, or
P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership
contract Exhibit A, on April 27, 1927, the defendants have not
rendered a true accounting of the profits obtained by the business
during the last four months thereof, as the proposed balance
submitted to the plaintiff was incorrect with regard to the inventory
of merchandise, transportation equipment, and the value of the
trade marks, f or which reason such proposed balance did not
represent the true status of the business of the partnership on April
30, 1927.
V. That the proposed balance submitted to the plaintiff with ref
erence to the partnership operations during the last four months of
its existence, was likewise incorrect, inasmuch as it did not include
the profit realized or to be realized from the contract entered into
with the Compañía General de Tabacos de Filipinas,
notwithstanding the fact that this contract was negotiated during
the existence of the partnership, and while the defendant Menzi &
Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract
entered into with the Compañia General de Tabaos de Filipinas
belongs to it exclusively, and refuses to
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VOL. 58, MARCH 31, 209
1933
Bastida vs. Menzi & Co.
give the plaintiff his share consisting in 35 per cent of the profits
produced thereby.
Wherefore, the plaintiff prays the honorable court to order the
defendants to render a true and detailed account of the business
during the last four months of the existence of the partnership, i. e.,
14 | P a g e
from January 1, 1927 to April 27, 1927, and to sentence them
likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to
the first cause of action in this amended answer; 2. That the said
order for 3,000 tons of mixed fertilizer, received by Menzi & Co.,
Inc., from the Compañía General de Tabacos de Filipinas on April
21, 1927, was taken by it in the regular course of its fertilizer
business, and was to be manufactured and delivered in December,
1927, and up to April, 1928; that the employment agreement of the
plaintiff expired by its own terms on April 27, 1927, and he has not
been in any way in the service of the defendant, Menzi & Co., Inc.,
since that time, and he cannot possibly have any interest in the
fertilizers manufactured and delivered by the said Menzi & Co.,
Inc., after the expiration of his contract for any service rendered to
it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
1. I.That he hereby reproduces paragraphs I, II, III, IV, and V
of the first cause of action.
2. II.That during the period of the contract Exhibit A, the
partnership constituted thereby registered in the Bureau of
Commerce and Industry the trade marks "CORONA NO. 1",
"CORONA No. 2", "ARADO", and "Hoz", the plaintiff and
the defendant having by their efforts succeeded in making
them favorably known in the market.
3. III.That the plaintiff and the defendant, laboring jointly,
have succeeded in making the fertilizing business a
 prosperous concern to such an extent that the profits
obtained
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210 PHILIPPINE REPORTS
ANNOTATED
Bastida, vs. Menzi & Co.
1. from the business during the five years it has existed,
amount to approximately P1,000,000, Philippine currency.
2. IV.That the value of the good-will and the trade marks of a
business of this nature amounts to at least P1,000,000, of
which sum 35 per cent belongs to the plaintiff, or, P350,000.
3. V.That at the time of the expiration of the contract Exhibit A,
the defendant entity, notwithstanding and in spite of the
plaintiff's insistent opposition, has assumed the charge of
liquidating the fertilizing business, without having rendered
a monthly account of the state of the liquidation, as required
by law, thereby causing the plaintiff damages.
4. VI.That the damages sustained by the plaintiff, as well as the
amount of his share in the remaining property of the
business, after its expiration, are wholly unknown to the
plaintiff, and may only be truly and correctly ascertained by
compelling the defendants J. M. Menzi and P. C. Schlo
bohm to declare under oath and explain to the court in
detail the sums obtained from the sale of the remaining
merchandise, after the expiration of the partnership
contract.
5. VII.That after the contract Exhibit A had expired, the
defendant continued to use for its own benefit the good-will
and trade marks belonging to the partnership, as well as its
transportation equipment and other machinery, thereby
15 | P a g e
indicating its intention to retain such good-will, trade
marks, transportation equipment and machinery, for the
manufacture of fertilizers, by virtue of which the defendant
is bound to pay the plaintiff 35 per cent of the value of said
property.
6. VIII.That the true value of the transportation equipment and
machinery employed in the preparation of the fertilizers
amounts to P20,000, 35 per cent of which amounts to
P7,000.
7. IX.That the plaintiff has repeatedly demanded that the
defendant entity render a true and detailed account of the
state of the liquidation of the partnership business, but
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1933
Bastida vs. Menzi & Co.
1. said defendant has ignored such demands, so that the
plaintiff does not, at this date, know whether the liquidation
of the business has been finished, or what the status of it is
at present.
Wherefore, the plaintiff prays the Honorable Court:
1. "1.To order the defendants J. M. Menzi and P. C. Schlobohm
to render a true and detailed account of the status of the
business in liquidation, that is, from April 28, 1927, until it
is finished, ordering all the defendants to pay the plaintiff
jointly and severally 35 per cent of the net amount.
2. "2.To order the defendants to pay the plaintiff jointly and
severally the amount of P350,000, which is 35 per cent of
 the value of the goodwill and the trade marks of the
fertilizer business;
3. "3.To order the defendants to pay the plaintiff jointly and
severally the amount of P7,000, which is 35 per cent of the
value of the transportation equipment and machinery of the
business; and
4. "4.To order the def endants to pay the costs of this trial, and
further, to grant any other remedy that this Honorable
Court may deem just and equitable."
Defendants alleged:
1. That they repeat and make a part of this special defense
paragraphs 1, 2, 3 and 4, of the special defense to the first cause of
action in this amended answer;
2. That the good-will, if any, of the said fertilizer business of the
defendant, Menzi & Co., Inc., pertains exclusively to it, and the
plaintiff can have no interest therein of any nature under his said
employment agreement; that the trade-marks mentioned by the
plaintiff in his amended complaint, as a part of such good-will,
belonged to and have been used by the said Menzi & Co., Inc., in its
fertilizer business from and since its organization, and the plaintiff
can have no rights to or interest therein under his said employment
agreement; that the transportation equipment pertains to the
fertilizer department of Menzi & Co., Inc., and whenever it has
been used by the said Menzi & Co., Inc., in its own business, due
and reasonable compensation for
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212 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
its use has been allowed to said business; that the machinery
pertaining to the said fertilizer business was destroyed by fire in
16 | P a g e
October, 1926, and the value thereof in the sum of P20,000 was
collected from the Insurance Company, and the plaintiff has been
given credit for 35 per cent of that amount; that the present
machinery used by Menzi & Co., Inc., was constructed by it, and the
costs thereof was not charged to the fertilizer department, and the
plaintiff has no right to have it taken into consideration in arriving
at the net profits due to him under his said employment agreement.
The dispositive part of the decision of the trial court is as follows:
"Wherefore, let judgment be entered:
1. "(a)Holding that the contract entered into by the parties,
evidenced by Exhibit A, is a contract of general regular
commercial partnership, wherein Menzi & Co., Inc., was the
capitalist, and the plaintiff, the industrial partner;
2. "(b)Holding that the plaintiff, by the mere fact of having
signed and approved the balance sheets, Exhibits C to C-8,
is not estopped from questioning the statements of accounts
therein contained;
3. "(c)Ordering Menzi & Co., Inc., upon the second ground of
action, to pay the plaintiff the sum of P60,385.67 with legal
interest from the date of the filing of the original complaint
until paid;
4. "(d)Dismissing the third cause of action;
5. "(e)Ordering Menzi & Co., Inc., upon the fourth cause of
action, to pay the plaintiff the sum of P3,821.41, with legal
interest from the date of the filing of the original complaint
until paid;
6. "(f)Dismissing the fifth cause of action;
7. "(g)Dismissing the sixth cause of action;
8. "(h)Dismissing the seventh cause of action;
9. "(i)Ordering the defendant Menzi & Co., Inc., upon the eighth
cause of action, to pay the plaintiff the sum of P6,578.38
 with legal interest from January 1, 1929, the date of the
liquidation of the fertilizer business, until paid;
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1933
Bastida vs. Menzi & Co.
1. "(j)Ordering Menzi & Co., Inc., upon the ninth cause of action
to pay the plaintiff the sum of P196,709.20 with legal
interest from the date of the filing of the original complaint
until paid;
2. "(k)Ordering the said defendant corporation, in view of the
plaintiff's share of the profits of the business accruing from
January 1, 1927 to December 31, 1928, to pay the plaintiff
35 per cent of the net balance shown in Exhibits 51 and 51-
A, after deducting the item of P2,410 for income tax, and
any other sum charged for interest under the entry
'Purchases';
3. "(l)Ordering the defendant corporation, in connection with
the final liquidation set out in Exhibits 52 and 52-A, to pay
the plaintiff the sum of P17,463.54 with legal interest from
January 1, 1929, until fully paid;
4. "(m)Dismissing the case with reference to the other
defendants, J. M. Menzi and P. C. Schlobohm; and
5. "(n)Menzi & Co., Inc., shall pay the costs of the trial."
The appellant makes the following assignments of error:
1. "I.The trial court erred in finding and holding that the
contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant
17 | P a g e
corporation, Menzi & Co., Inc., and the plaintiff, Francisco
Bastida, and not a contract of employment.
2. "II.The trial court erred in finding and holding that the
defendant, Menzi & Co., Inc., had wrongfully charged to the
f ertilizer business in question the sum of P10,918.33 as
income taxes partners' balances, foreign drafts, local drafts,
and on other credit balances in the sum of P172,530.49, and
that 35 per cent thereof, or the sum of P60,385.67, with
legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
3. "III.The trial court erred in finding and holding that the
defendant, Menzi & Co., Inc., had wrongfully charged to the
fertilizer business in question the sum of P10,918.33 as
income taxes for the years 1923, 1924, 1925 and 1926, and
that the plaintiff is entitled to 35 per cent thereof, or the
sum of P3,821.41, with legal interest thereon from the
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214 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
1. date of filing his complaint, and in disallowing the item of
P2,410 charged as income tax in the liquidation in Exhibits
51 and 51-A for the period from January 1 to April 27, 1927.
2. "IV.The trial court erred in refusing to find and hold under
the evidence in this case that the contract, Exhibit A was
during the whole period thereof considered by the parties
and performed by them as a contract of employment in
relation to the fertilizer business of the defendant, and that
the accounts of said business were kept by the defendant,
Menzi & Co., Inc., on that theory with the knowledge and
 consent of the plaintiff, and that at the end of each year for
five years a balance sheet and profit and loss statement of
said business were prepared from the books of account of
said business on the same theory and submitted to the
plaintiff, and that each year said balance sheet and profit
and loss statement were examined, approved and signed by
said plaintiff and he was paid the amount due him under
said contract in accordance therewith with full knowledge of
the manner in which said business was conducted and the
charges for interest and income taxes made against the
same and that by reason of such facts, the plaintiff is now
estopped from raising any question as to the nature of said
contract or the propriety of such charges.
3. "V.The trial court erred in finding and holding that the
plaintiff, Francisco Bastida, is entitled to 35 per cent of the
net profits in the sum of P18,795.38 received by the
defendant, Menzi & Co., Inc., from its contract with the
Compañía General de Tabacos de Filipinas, or the sum of
P6,578.38, with legal interest thereon from January 1, 1929,
the date upon which the liquidation of said business was
terminated.
4. "VI.The trial court erred in finding and holding that the
value of the good-will of the fertilizer business in question
was P562,312, and that the plaintiff, Francisco Bastida, was
entitled to 35 per cent of such valuation, or the sum of
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1933
Bastida, vs. Menzi & Co.
18 | P a g e
1. P196,709.20, with legal interest thereon from the date of
filing his complaint.
2. "VII.The trial court erred in rendering judgment in favor of
the plaintiff and against the defendant, Menzi & Co.,
Inc., (a) on the second cause of action, for the sum of
P60,385.67, with legal interest thereon from the date of
filing the complaint; (b) on the fourth cause of action, for the
sum of P3,821.41, with legal interest thereon from the date
of filing the complaint; (c) on the eighth cause of action, for
the sum of P6,578.38, with legal interest thereon from
January 1, 1929; and (d) on the ninth cause of action, for the
sum of P196,709.20, with legal interest thereon from the
date of filing the original complaint; and (e) for the costs of
the action, and in not approving the final liquidation of said
business, Exhibits 51 and 51-A and 52 and 52-A, as true and
correct, and entering judgment against said defendant only
for the amounts admitted therein as due the plaintiff with
legal interest, with the costs against the plaintiff.
3. "VIII.The trial court erred in overruling the defendants'
motion for a new trial."
It appears from the evidence that the defendant corporation was
organized in 1921 for the purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It
acquired through John Bordman and the Menzi-Bordman Co. the
good-will, trade-marks, business, and other assets of the old
German firm of Behn, Meyer & Co., Ltd., including its fertilizer
business with its stocks and trade-marks. Behn, Meyer & Co., Ltd.,
had owned and carried on this fertilizer business from 1910 until
that firm was taken over by the Alien Property Custodian in 1917.
Among the trade-marks thus acquired by the appellant were those
known as the "ARADO", "Hoz", and "CORONA". They were
registered in the Bureau of Commerce and Industry in the name of
Menzi & Co. The
216
216 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
trade-marks "ARADO" and "Hoz" had been used by Behn, Meyer &
Co., Ltd., in the sale of its mixed fertilizers, and the trade-mark
"CORONA" had been used in its other business. The "Hoz" trade-
mark was used by John Bordman and the Menzi-Bordman Co. in
the continuation of the fertilizer business that had belonged to
Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several
different departments, each of which was in charge of a manager,
who received a fixed salary and a percentage of the profits. The
corporation had to borrow money or obtain credits f rom time to
time and to pay interest thereon. The amount paid for interest was
charged against the department concerned, and the interest
charges were taken into account in determining the net profits of
each department. The practice of the corporation was to debit or
credit each department with interest at the bank rate on its daily
balance. The fertilizer business of Menzi & Co., Inc., was carried on
in accordance with this practice under the "Sundries Department"
until July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience
in mixing and selling fertilizer, went to see Toehl, the manager of
the sundries department of Menzi & Co., Inc., and told him that he
had a written contract with the Philippine Sugar Centrals Agency
for 1,250 tons of mixed fertilizers, and that he could obtain other
contracts, including- one from the Calamba Sugar Estates for 450
tons, but that he did not have the money to buy the ingredients to
fill the order and carry on the business. He offered to assign to
19 | P a g e
Menzi & Co., Inc., his contract with the Philippine Sugar Centrals
Agency and to supervise the mixing of the fertilizer and to obtain
other orders for fifty per cent of the net profits that Menzi & Co.,
Inc., might derive therefrom. J. M. Menzi, the general manager of
Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to Menzi &
Co., Inc., his contract with the Sugar Centrals Agency, and the
defendant corporation proceeded to fill the order. Plaintiff
supervised the mixing of the f ertilizer.
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VOL. 58, MARCH 31, 217
1933
Bastida vs. Menzi & Co.
On January 10, 1922 the defendant corporation at plaintiff's
request gave him the following letter, Exhibit B:
"MANILA, 10 de enero de 1922
"Sr. FRANCISCO BASTIDA
"Manila
"MUY SR. NUESTRO : Interin f ormalizamos el contrato que, en
principio, tenemos convenido para la explotación del negocio de
abono y fertilizantes, por la presente venimos en confirmar su
derecho de 50 por ciento de las utilidades que se deriven del
contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250
tonel.) y del contrato con la Calamba Sugar Estates, así como de
cuantos contratos se cierren con compradores de abonos preparados
antes de la formalización definitiva de nuestro contrato mutuo, lo
que hacemos para garantía y seguridad de Vd.
"MENZI & CO.
"Por (Fdo.) W. TOEHL"
 Menzi & Co., Inc., continued to carry on its fertilizer business
under this arrangement with the plaintiff. It ordered ingredients
from the United States and other countries, and the interest on the
drafts for the purchase of these materials was charged to the
business as a part of the cost of the materials. The mixed fertilizers
were sold by Menzi & Co., Inc., between January 19 and April 1,
1922 under its "CoRONA" brand. Menzi & Co., Inc., had only one
bank account for its whole business. The fertilizer business had no
separate capital. A fertilizer account was opened in the general
ledger, and interest at the rate charged by the Bank of the
Philippine Islands was debited or credited to that account on the
daily balances of the f ertilizer business. This was in accordance
with appellant's established practice, to which the plaintiff
assented.
On or about April 24, 1922 the net profits of the business carried
on under the oral agreement were determined by Menzi & Co., Inc.,
after deducting interest charges, proportional part of warehouse
rent and salaries and wages, and the other expenses of said
business, and the plaintiff was
218
218 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
paid some twenty thousand pesos in full satisfaction of his share of
the profits.
Pursuant to the aforementioned verbal agreement, confirmed by
the letter, Exhibit B, the defendant corporation on April 27, 1922
entered into a written contract with the plaintiff, marked Exhibit A,
which is the basis of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after
the execution of Exhibit A in practically the same manner as it was
prior thereto. The intervention of the plaintiff was limited to
20 | P a g e
supervising the mixing of the fertilizers in Menzi & Co.'s, Inc.,
bodegas.
The trade-marks used in the sale of the fertilizer were registered
in the Bureau of Commerce & Industry in the name of Menzi & Co.,
Inc., and the fees were paid by that company. They were not
charged to the fertilizer business, in which the plaintiff was
interested. Only the fees for registering the formulas in the Bureau
of Science were charged to the fertilizer business, and the total
amount thereof was credited to this business in the final liquidation
on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co.,
Inc., to furnish it all the stems and scraps of tobacco that it might
need for its fertilizer business either in the Philippine Islands or for
export to other countries. This contract is referred to in the record
as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff
large sums of money f or buying and installing machinery, paying
the salaries of his employees, and other expenses in perf orming his
contract.
White, Page & Co., certified public accountants, audited the
books of Menzi & Co., Inc., every month, and at the end of each year
they prepared a balance sheet and a profit and loss statement of the
fertilizer business. These statements were delivered to the plaintiff
for examination, and after he had had an opportunity of verifying
them he approved
219
VOL. 58, MARCH 31, 219
1933
Bastida vs. Menzi & Co.
them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi & Co., Inc., as his share or 35 per
cent of the net profits of the fertilizer business the following
amounts:
 1922 P40,000, which the defendant corporation had been unable to
P1,874.73
........................................................................................................................... dispose of, be sold at public or private
1923 220
30,212.62
........................................................................................................................... 220 PHILIPPINE REPORTS
1924 ANNOTATED
101,081.56
........................................................................................................................... Bastida vs. Menzi & Co.
1925 sale,35,665.03
or divided between the parties. The plaintiff refused to agree
........................................................................................................................... to this. The defendant corporation then applied to the trial court for
1926 an order for the sale of the remaining property at public auction,
27,649.98
........................................................................................................................... but apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the
____________
final liquidation of the fertilizer business was completed in
Total ................................................................................................... P196,483.92
December, 1928, and a final balance sheet and a profit and loss
To this amount must be added plaintiff's share of the net profits
from January 1 to April 27, 1927, amounting to P34,766.87, making statement were submitted to the plaintiff during the trial. During
a total of P231,250.79. the liquidation the books of Menzi & Co., Inc., for the whole period
Prior to the expiration of the contract, Exhibit A, the manager of of the contract in question were reaudited by White, Page & Co.,
Menzi & Co., Inc., notified the plaintiff that the contract for his certain errors of bookkeeping were discovered by them. After
making the corrections they found the balance due the plaintiff to
services would not be renewed.
be P21,633.20.
When plaintiff's contract expired on April 27, 1927, the fertilizer
Plaintiff employed a certified public accountant, Vernon
department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of approximately Thompson, to examine the books and vouchers of Menzi & Co.
P75,000, and accounts receivable amounting to P103,000. There Thompson assumed the plaintiff and Menzi & Co., Inc., to be
were claims outstanding and bills to pay. Before the net profits partners, and that Menzi & Co., Inc., was obliged to furnish free of
could be finally determined, it was necessary to dispose of the charge all the capital the partnership should need. He naturally
materials and equipment, collect the outstanding accounts, and pay reached very different conclusions from those of the auditors of
Menzi & Co., Inc.
the debts of the business. The accountants f or Menzi & Co., Inc.,
We come now to a consideration of appellant's assignments of
prepared a balance sheet and a profit and loss statement for the
error. After considering the evidence and the arguments of counsel,
period from January 1 to April 27, 1927 as a basis of settlement,
but the plaintiff refused to accept it, and filed the present action. we are unanimously of the opinion that under the facts of this case
Menzi & Co., Inc., then proceeded to liquidate the fertilizer the relationship established between Menzi & Co. and the plaintiff
business in question. In October, 1927 it proposed to the plaintiff by the contract, Exhibit A, was not that of partners, but that of
that the old and damaged stocks on hand having a book value of employer and employee, whereby the plaintiff was to receive 35 per

21 | P a g e
cent of the net profits of the fertilizer business of Menzi & Co., Inc.,
in compensation for his services of supervising the mixing of the
fertilizers. Neither the provisions of the contract nor the conduct of
the parties prior or subsequent to its execution justified the finding
that it was a contract of copartnership. Exhibit A, as appears from
the statement of facts, was in effect a continuation of the verbal
agreement between the parties, whereby the plaintiff worked for
the defendant corporation for one-half of the net profits derived by
the corporation from certain fertilizer contracts.
221
VOL. 58, MARCH 31, 221
1933
Bastida vs. Menzi & Co.
Plaintiff was paid his share of the profits from those transactions
after Menzi & Co., Inc., had deducted the same items of expense
which he now protests. Plaintiff never made any objection to
defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written
agreement, Exhibit A, and for four years the plaintiff never made
any objection. On the contrary he approved and signed every year
the balance sheet and the profit and loss statement. It was only
when plaintiff's contract was about to expire and the defendant
corporation had notified him that it would not renew it that the
plaintiff began to make objections.
The trial court relied on article 116 of the Code of Commerce,
which provides that articles of association by which two or more
persons obligate themselves to place in a common f und any
property, industry, or any of these things, in order to obtain profit,
shall be commercial, no matter what its class may be, provided it
has been established in accordance with the provisions of this Code;
but in the case at bar there was no common fund, that is, a fund
belonging to the parties as joint owners or partners. The business
22 | P a g e
belonged to Menzi & Co., Inc. The plaintiff was working f or Menzi
& Co., Inc. Instead of receiving a fixed salary or a fixed salary and a
small percentage of the net profits, he was to receive 35 per cent of
the net profits as compensation for his services. Menzi & Co., Inc.,
was to advance him P300 a month on account of his participation in
the profits. It will be noted that no provision was made f or
reimbursing Menzi & Co., Inc., in case there should be no net
profits at the end of the year. It is now well settled that the old rule
that sharing profits as profits made one a partner is overthrown.
(Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were
establishing a partnership or intended to become partners. Great
stress is laid by the trial judge and plaintiff's attorneys on the fact
that in the sixth paragraph of Exhibit A the phrase "en sociedad
con" is used in providing that defendant corporation shall not
engage in the business of
222
222 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
prepared fertilizers except in association with the plaintiff (en
sociedad con). The fact is that en sociedad con as there used merely
means en reunion con or in association with, and does not carry the
meaning of "in partnership with".
The trial judge found that the defendant corporation had not
always regarded the contract in question as an employment
agreement, because in its answer to the original complaint it stated
that before the expiration of Exhibit A it notified the plaintiff that it
would not continue associated with him in said business. The trial
judge concluded that the phrase "associated with", used by the
defendant corporation, indicated that it regarded the contract,
Exhibit A, as an agreement of copartnership.
 In the first place, the complaint and answer having been
superseded by the amended complaint and the answer thereto, and
the answer to the original complaint not having been presented in
evidence as an exhibit, the trial court was not authorized to take it
into account. "Where amended pleadings have been filed,
allegations in the original pleadings are held admissible, but in
such case the original pleadings can have no effect, unless formally
offered in evidence." (Jones on Evidence, sec.
273; Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be
related etymologically to the Spanish word "socio", meaning
partner, it does not in its common acceptation imply any
partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the
defendant corporation obligated itself to pay to the plaintiff 35 per
cent of the net profits of the fertilizer business, to advance to him
P300 a month on account of his share of the profits, and to grant
him permission during 1923 to absent himself from the Philippines
for not more than one year are utterly incompatible with the claim
that it was the intention of the parties to form a copartnership.
Various other reasons for holding that the parties were not partners
are advanced in appellant's s brief. We do not deem it nec-
223
VOL. 58, MARCH 31, 223
1933
Bastida vs. Menzi & Co.
essary to discuss them here. We merely wish to add that in the
Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi
& Co., Inc., as the owners of the fertilizer business in question.
As to the various items of expense rejected by the trial judge,
they were in our opinion proper charges and erroneously
disallowed, and' this would be true even if the parties had been
23 | P a g e
partners. Although Menzi & Co., Inc., agreed to f urnish the
necessary financial aid for the fertilizer business, it did not obligate
itself to contribute any fixed sum as capital or to defray at its own
expense the cost of securing the necessary credit. Some of the
contentions 'of the plaintiff and his expert witness Thompson are so
obviously without merit as not to merit serious consideration. For
instance, they objected to the interest charges on draft for materials
purchased abroad. Their contention is that the corporation should
have f urnished the money to purchase these materials for cash,
overlooking the fact that the interest was added to the cost price,
and that the plaintiff was not prejudiced by the practice complained
of. It was also urged, and this seems to us the height of absurdity,
that the defendant corporation should have f urnished f ree of
charge such financial assistance as would have made it unnecessary
to discount customers' notes, thereby enabling the business to reap
the interest. In other words, the defendant corporation should have
enabled the fertilizer department to do business on a credit instead
of a cash basis.
The charges now complained of, as we have already stated, are
the same as those made under the verbal agreement, upon the
termination of which the parties made a settlement; the charges in
question were acquiesced in by the plaintiff for years, and it is now
too late for him to contest them. The decision of this court in the
case of Kriedt vs. E. C. McCullough & Co. (37 Phil., 474), is in point.
A portion of the syllabus of that case reads as f ollows:
"1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS
ACTS OF PARTIES.—Acts done by the parties to a contract
224
224 PHILIPPINE REPORTS
ANNOTATED
Bastida vs. Menzi & Co.
in the course of its performance are admissible in evidence upon the
question of its meaning, as being their own contemporaneous
interpretation of its terms.
"2. ID.; ID.; ACTION OF PARTIES UNDER PRIOR
CONTRACT.—In an action upon a contract containing a provision
of doubtful application it appeared that under a similar prior
contract the parties had, upon the termination of said contract,
adjusted their rights and made a settlement in which the doubtful
clause had been given effect in conformity with the interpretation
placed thereon by one of the parties. Held: That this action of the
parties under the prior contract could properly be considered upon
the question of the interpretation of the same clause in the later
contract.
"3. ID. ; ID. ; ACQUIESCENCE.—Where one of the parties to a
contract acquiesces in the interpretation placed by the other upon a
provision of doubtful application, the party so acquiescing is bound
by such interpretation.
"4. ID. ; ID. ; ILLUSTRATION.—One of the parties to a contract,
being aware at the time of the execution thereof that the other
placed a certain interpretation upon a provision of doubtful
application, nevertheless proceeded, without raising any question
upon the point, to perform the services which he was bound to
render under the contract. Upon the termination of the contract by
mutual consent a question was raised as to the proper
interpretation of the doubtful provision. Held: That the party
raising such question had acquiesced in the interpretation placed
upon the contract by the other party and was bound thereby."
The trial court held that the plaintiff was entitled to P6,578.38 or
35 per cent of the net profits derived by Menzi & Co., Inc., from its
contract for fertilizers with the Tabacalera. This finding in our
opinion is not justified by the evidence. This contract was obtained
by Menzi & Co., Inc., shortly before plaintiff's contract with the
24 | P a g e
defendant corporation expired. Plaintiff tried to get the Tabacalera
contract for himself. When this contract was filled, plaintiff
225
VOL. 58, MARCH 31, 225
1933
Bastida vs. Menzi & Co.
had ceased to work for Menzi & Co., Inc., and he has no right to
participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred
in finding the value of the good-will of the f ertilizer business in
question to be P562,312, and that the plaintiff was entitled to 35
per cent thereof or P196,709.20. In reaching this conclusion the
trial court unfortunately relied on the opinion of the accountant,
Vernon Thompson, who assumed, erroneously as we have seen, that
the plaintiff and Menzi & Co., Inc., were partners; but even if they
had been partners there would have been no good-will to dispose of.
The defendant corporation had a fertilizer business before it
entered into any agreement with the plaintiff; plaintiff's agreement
was for a fixed period, five years, and during that time the business
was carried on in the name of Menzi & Co., Inc., and in Menzi &
Co.'s warehouses and after the expiration of plaintiff's contract
Menzi & Co., Inc., continued its f ertilizer business, as it had a perf
ect right to do. There was really nothing to which any good-will
could attach. Plaintiff maintains, however, that the trade-marks
used in the fertilizer business during the time that he was
connected with it acquired great value, and that they have been
appropriated by the appellant to its own use. That seems to be the
only basis of the alleged good-will, to which a fabulous valuation
was given. As we have seen, the trademarks were not new. They
had been used by Behn, Meyer & Co. in its business for other goods
and one of them for fertilizer. They belonged to Menzi & Co., Inc.,
and were registered in its name; only the expense of registering the
formulas in the Bureau of Science was charged to the business in
which the plaintiff was interested. These trademarks remained the
exclusive property of Menzi & Co., and the plaintiff had no interest
therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is
P21,633.20. We are satisfied by the evidence that said balance is
correct.
226
226 PHILIPPINE REPORTS
ANNOTATED
Arroyo vs. Gerona
For the foregoing reasons, the decision appealed from is modified
and the defendant corporation is sentenced to pay the plaintiff
twenty-one thousand, six hundred and thirtythree pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of
the filing of the complaint or June 17, 1927, without a special
finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.

Justice Hull participated in this case, but on account of his

absence on leave at the time of the promulgation of the decision he
authorized the undersigned to certify that he voted to modify the
decision of the trial court as appears in the foregoing decision of this
court.—VILLAMOR, J., Presiding.
Judgment modified.

_______________

© Copyright 2021 Central Book Supply, Inc. All rights reserved.

25 | P a g e
 [No. 35469. March 17, 1932]
E. S. LYONS, plaintiff and appellant, vs. C. W. ROSENSTOCK,
Executor of the Estate of Henry W. Elser, deceased, defendant and
appellee.
1. 1.PRINCIPAL AND AGENT; RATIFICATION OF ACT OF
AGENT; RIGHTS INCIDENT TO OWNERSHIP.—Where one of
two individuals who had been associated in certain real estate
deals, owing a sum of money to his associate, invested it in the
shares of a new company promoted by himself, and this action
was ratified by the associate, to whom the shares were
accordingly issued, no legal or equitable rights, other than those
ordinarily incident to ownership, can be deduced from the
transaction in favor of the owner thus acquiring such shares.
1. 2.ID.; AGENT'S LIABILITY FOR INTEREST ON, MONEY OF
HIS CONSTITUENT.—Under article 1724 of the Civil Code and
article 264 of the Code of Commerce, an agent is liable for
interest on funds belonging to his principal (constituent) which
have been applied by the agent to unauthorized uses.
1. 3.EQUITY; TRUSTS; FOLLOWING TRUST FUNDS; WHEN
CASE GOVERNED BY ORDINARY RULE OF CIVIL
LIABILITY.—The doctrine developed in the courts of England
and the United States relative to the pursuing of trust funds is
conversant with rights deducible from the application, by a
person in a trust relation with another,
633
VOL. 56, MARCH
17, 1932 33
Lyons vs. Rosenstock
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1. of specific property belonging to such other person to some
unauthorized purpose. The fact that one of two coöwners subjects
their joint property to a contingent liability which results in no
damage does not create a trust in favor of the other, and the
liability thereby incurred must be determined in conformity with
the principles of the civil law properly applicable to the case.
1. 4.ID.; ID.; ID.; ID.; CASE AT BAR.—Where two individuals had
been jointly associated in various real estate deals, one of them,
while the other was away, bought a valuable piece of property
with a view to the promotion of a suburban development, and as
he expected that his absent former associate would come into this
deal and contribute some capital to the purchase and
development of the property, he subjected a piece of mortgaged
property owned by them jointly to a second mortgage, to secure
against loss a surety company which had been induced to sign a
note with the active promoter to secure a loan necessary to
complete the first payment on the property purchased. After the
second individual returned to Manila he consented for this second
mortgage (which had been executed under a sufficient power of
attorney) to remain upon the property until it was paid off, as
was presently done. Held, that the use to which the joint property
was thus subjected did not create a trust in favor of the second
individual, with the effect of making him a co-partner in the
ownership of the property purchased as aforesaid.
APPEAL from a judgment of the Court of First Instance of Manila.
Concepcion, J.
The facts are stated in the opinion of the court.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brady for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of the City
of Manila, by E. S. Lyons against C. W. Rosenstock, as executor of
the estate of H. W. Elser, deceased, consequent upon the taking of
an appeal by the executor from the allowance of the claim sued
upon by the committee on claims in said estate. The purpose of the
action is to recover four hundred forty-six and two thirds shares
634
634 PHILIPPINE REPORTS
ANNOTATED
Lyons vs. Rosenstock
of the stock of J. K. Pickering & Co., Ltd., together with the sum of
about P125,000, representing the dividends which accrued on said
stock prior to October 21, 1926, with lawful interest. Upon hearing
the cause the trial court absolved the defendant executor from the
complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a
resident of the City of Manila where he was engaged during the
years with which we are here concerned in buying, selling, and
administering real estate. In several ventures which he had made
in buying and selling property of this kind the plaintiff, E. S. Lyons,
had joined with him, the profits being shared by the two in equal
parts. In April, 1919, Lyons, whose regular vocation was that of a
missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly
a year and a half, returning on September 21, 1920. On the eve of
his departure Elser made a written statement showing that Lyons
was, at that time, half owner with Elser of three particular pieces of
real property. Concurrently with this act Lyons executed in favor of
Elser a general power of attorney empowering him to manage and
dispose of said properties at will and to represent Lyons fully and
amply, to the mutual advantage of both. During the absence of
Lyons two of the pieces of- property above referred to were sold by
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Elser, leaving in his hands a single piece of property located at 616-
618 Carriedo Street, in the City of Manila, containing about 282
square meters of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece
of land, containing about 1,500,000 square meters, near the City of
Manila, and he discerned therein a fine opportunity for the
promotion and development of a suburban improvement. This
property, which will be herein referred to as the San Juan Estate,
was offered by its owners for P570,000. To afford a little time for
maturing his plans, Elser purchased an option on this property for
635
VOL. 56, MARCH 17, 635
1932
Lyons vs. Rosenstock
P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000
more for an extension of the option, with the understanding in both
cases that, in case the option should be exercised, the amounts thus
paid should be credited as part of the first payment. The amounts
paid for this option and its extension were supplied by Elser
entirely from his own funds. In the end he was able from his own
means, and with the assistance which he obtained from others, to
acquire said estate. The amount required for the first payment was
P150,000, and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it was necessary
to raise the remainder by obtaining a loan for P50,000. This amount
was finally obtained from a Chinese merchant of the city named Uy
Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not
only to give a personal note signed by himself and his two
associates in the projected enterprise, but also by the Fidelity &
Surety Company. The money thus raised was delivered to Elser by
Uy Siuliong on June 24, 1920. With this money and what he
already had in bank Elser purchased the San Juan Estate on or
about June 28, 1920. For the purpose of the further development of
the property a limited partnership had, about this time, been
organized by Elser and three associates, under the name of J. K.
Pickering & Company; and when the transfer of the property was
effected the deed was made directly to this company. As Elser was
the principal capitalist in the enterprise he received by far the
greater number of the shares issued, his portion amounting in the
beginning .to 3,290 shares.
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced to come in
with him and supply part of the means necessary to carry the
enterprise through. In this connection it appears that on May 20,
1920, Elser wrote Lyons a letter,
636
636 PHILIPPINE REPORTS
ANNOTATED
Lyons vs. Rosenstock
informing him that he had made an offer f or a big subdivision and
that, if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days
before the first option expired, Elser cabled Lyons that he had
bought the San Juan Estate and thought it advisable for Lyons to
resign (Exhibit M-13), meaning that he should resign his position
with the mission board in New York. On the same date he wrote
Lyons a letter explaining some details of the purchase, and added
"Have advised in my cable that you resign and I hope you can do so
immediately and will come and join me on the lines we have so
often spoken about. * * * There is plenty of business for us all now
and I believe we have started something that will keep us going for
some time." In one or more communications prior to this, Elser had
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sought to impress Lyons with the idea that he should raise all the
money he could for the purpose of giving the necessary assistance in
future deals in real estate.
The enthusiasm of Elser did not communicate itself in any
marked degree to Lyons, and found him averse from joining in the
purchase of the San Juan Estate. In fact upon this visit of Lyons to
the United States a grave doubt had arisen as to whether he would
ever return to Manila, and it was only in the summer of 1920 that
the board of missions of his church prevailed upon him to return to
Manila and resume his position as managing treasurer and one of
its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter
from New York thanking Elser for his offer to take Lyons into his
new project and adding that from the standpoint of making money,
he had passed up a good thing.
One source of embarrassment which had operated on Lyons to
bring him to the resolution to stay out of this venture, was that the
board of missions was averse to his engaging in business activities
other than those in which the church was concerned; and some of
Lyons' missionary associates had apparently been criticizing his
independent
637
VOL. 56, MARCH 17, 637
1932
Lyons vs. Rosenstock
commercial activities. This fact was dwelt upon in the letter above-
mentioned. Upon receipt of this letter Elser was of course informed
that it would be out of the question to expect assistance from Lyons
in carrying out the San Juan project. No further efforts to this end
were therefore made by Elser.
When Elser was concluding the transaction for the purchase of
the San Juan Estate, his books showed that he was indebted to
Lyons to the extent of, possibly, P11,669.72, which had accrued to
Lyons from profits and earnings derived f rom other properties; and
when the J. K. Pickering & Company was organized and stock
issued, Elser indorsed to Lyons 200 of the shares allocated to
himself, as he then believed that Lyons would be one of his
associates in the deal. It will be noted that the par value of these
200 shares was more than P8,000 in excess of the amount which
Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his
own benefit. It seems to be supposed in the appellant's brief that
the transfer of these shares to Lyons by Elser supplies some sort of
basis for the present action, or at least strengthens the
considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the ratification
of the transaction by Lyons and the appropriation by him of the
shares which were issued to him leaves no ground whatever for
treating the transaction as a source of further equitable rights in
Lyons. We should perhaps add that after Lyons' return to the
Philippine Islands he acted for a time as one of the members of the
board of directors of the J. K. Pickering & Company, his
qualification for this office being derived precisely from the
ownership of these shares.
We now turn to the incident which supplies the main basis of
this action. It will be remembered that, when Elser obtained the
loan of P50,000 to complete the amount needed for the first
payment on the San Juan Estate, the lender, Uy Siuliong, insisted
that he should procure the sig-
638
638 PHILIPPINE REPORTS
ANNOTATED
Lyons vs. Rosenstock
nature of the Fidelity & Surety Co. on the note to be given for said
loan. But before signing the note with Elser and his associates, the
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Fidelity & Surety Co. insisted upon having security for the liability
thus assumed by it. To meet this requirement Elser mortgaged to
the Fidelity & Surety Co. the equity of redemption in the property
owned by himself and Lyons on Carriedo Street. This mortgage was
executed on June 30, 1920, at which time Elser expected that Lyons
would come in on the purchase of the San Juan Estate. But when
he learned from the letter from Lyons of July 21, 1920, that the
latter had determined not to come into this deal, Elser began to cast
around for means to relieve the Carriedo property of the
encumbrance which he had placed upon it. For this purpose, on
September 9, 1920, he addressed a letter to the Fidelity & Surety
Co., asking it to permit him to substitute a property owned by
himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of
the J. K. Pickering & Company, in lieu of the Carriedo property, as
security. The Fidelity & Surety Co. agreed to the proposition; and
on September 15, 1920, Elser executed in favor of the
Fidelity & Surety Co. a new mortgage on the M. H. del Pilar
property and delivered the same, with 1,000 shares of J. K.
Pickering & Company, to said company. The latter thereupon in
turn executed a cancellation of the mortgage on the Carriedo
property and delivered it to Elser. But notwithstanding the fact
that these documents were executed and delivered, the new
mortgage and the release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the cancellation of
the mortgage on the Carriedo property and took back from the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar
property, together with the 1,000 shares of the J. K. Pickering &
Company which he had delivered to it.
The explanation of this change of purpose is undoubtedly to be
found in the fact that Lyons had arrived in Manila on September
21, 1920, and shortly thereafter, in the course of
639
VOL. 56, MARCH 17, 639
1932
Lyons vs. Rosenstock
a conversation with Elser told him to let the Carriedo mortgage
remain on the property ("Let the Carriedo mortgage ride"). Mrs.
Elser testified to the conversation in which Lyons used the words
above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of
relieving the Carriedo property, the trial court was, in our opinion,
well justified in accepting as a proven fact the consent of Lyons for
the mortgage to remain on the Carriedo property. This concession
was not only reasonable under the circumstances, in view of the
abundant solvency of Elser, but in view of the further fact that
Elser had given to Lyons 200 shares of the stock of the J. K.
Pickering & Co., having a value of nearly P8,000 in excess of the
indebtedness which Elser had owed to Lyons upon statement of
account. The trial court found in effect that the excess value of
these shares over Elser's actual indebtedness was conceded by Elser
to Lyons in consideration of the assistance that had been derived
from the mortgage placed upon Lyons' interest in the Carriedo
property. Whether the agreement was reached exactly upon this
precise line of thought is of little moment, but the relations of the
parties had been such that it was to be expected that Elser would be
generous; and he could scarcely have failed to take account of the
use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from
the start, Elser paid the note of P50,000 to Uy Siuliong on January
18, 1921, although it was not due until more than five months later.
It will thus be seen that the mortgaging of the Carriedo property
never resulted in damage to Lyons to the extent of a single cent;
and although the court refused to allow the defendant to prove that
Elser was solvent at this time in an amount much greater than the
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entire encumbrance placed upon the property, it is evident that the
risk imposed upon Lyons was negligible. It is also plain that no
money actually deriving from this mortgage was ever applied to the
purchase of the San Juan
640
640 PHILIPPINE REPORTS
ANNOTATED
Lyons vs. Rosenstock
Estate. What really happened was that Elser merely subjected the
property to a contingent liability, and no actual liability ever
resulted therefrom. The financing of the purchase of the San Juan
Estate, apart from the modest financial participation of his three
associates in the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a
mortgage for P50,000 upon the equity of redemption in the Carriedo
property, Lyons, as half owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the property
acquired partly by that money; and it is insisted for him that, in
consideration of this fact, he is entitled to the four hundred forty-six
and two-thirds shares of J. K. Pickering & Company, with the
earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that
the money obtained from Uy Siuliong in the manner already
explained had been used to help finance the purchase of the San
Juan Estate. He seems to have supposed that the Carriedo property
had been mortgaged to aid in putting through another deal, namely,
the purchase of a property referred to in the correspondence as the
"Ronquillo property"; and in this connection a letter of Elser of the
latter part of May, 1920, can be quoted in which he uses this
language:
 "As stated in cablegram I have arranged for P50,000 loan on
Carriedo property. Will use part of the money for Ronquillo buy
(P60,000) if the owner comes through."
Other correspondence shows that Elser had apparently been
trying to buy the Ronquillo property, and Lyons leads us to infer
that he thought that the money obtained by mortgaging the
Carriedo property had been used in the purchase of this property. It
doubtless appeared so to him in the retrospect, but certain
considerations show that he was inattentive to the contents of the
quotation from the letter above given. He had already been
informed that,
641
VOL. 56, MARCH 17, 641
1932
Lyons vs. Rosenstock
although Elser was angling for the Ronquillo property, its price had
gone up, thus introducing a doubt as to whether he would get it;
and the quotation above given shows that the intended use of the
money obtained by mortgaging the Carriedo property was that only
part of the P50,000 thus obtained would be used in this way, if the
deal went through. Naturally, upon the arrival of Lyons in
September, 1920, one of his first inquiries would have been, if he
did not know before, what was the status of the proposed trade for
the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15,
1920, Elser cabled Lyons something to this effect: "I have
mortgaged the property on Carriedo Street, secured by my personal
note, You are amply protected. I wish you to join me in the San
Juan Subdivision. Borrow all money you can." Lyons says that no
such cablegram was received by him, and we consider this point of
fact of little moment, since the proof shows that Lyons knew that
the Carriedo mortgage had been executed, and after his arrival in
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Manila he consented for the mortgage to remain on the property
until it was paid off, as shortly occurred. It may well be that Lyons
did not at first clearly understand all the ramifications of the
situation, but he knew enough, we think, to apprise him of the
material factors in the situation, and we concur in the conclusion of
the trial court that Elser did not act in bad faith and was guilty of
no fraud.
In the purely legal aspect of the case, the position of the
appellant is, in our opinion, untenable. If Elser had used any money
.actually belonging to Lyons in this deal, he would under article
1724 of the Civil Code and article 264 of the Code of Commerce, be
obligated to pay interest upon the money so applied to his own use.
Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person who
uses money belonging to another (Martinez vs. Martinez, 1 Phil.,
647; Enriquez vs. Olaguer, 25 Phil., 641). Of
642
642 PHILIPPINE REPORTS
ANNOTATED
Lyons vs. Rosenstock
course, if an actual relation of partnership had existed in the money
used, the case might be different; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of
partnership between the parties; and the most that can be said is
that Elser and Lyons had been coparticipants in various
transactions in real estate. No objection can be made to the use of
the word partnership as a term descriptive of the relation in those
particular transactions, but it must be remembered that it was in
each case a particular partnership, under article 1678 of the Civil
Code. It is clear that Elser, in buying the San Juan Estate, was not
acting for any partnership composed of himself and Lyons, and the
law cannot be distorted into a proposition which would make Lyons Judgment affirmed.
a participant in this deal contrary to his express determination.
It seems to be supposed that the doctrines of equity worked out _____________
in the jurisprudence of England and the United States with
reference to trusts supply a basis for this action. The doctrines © Copyright 2021 Central Book Supply, Inc. All rights reserved.
referred to operate, however, only where money belonging to one
person is used by another for the acquisition of property which
should belong to both; and it takes but little discernment to see that
the situation here involved is not one for the application of that
doctrine, for no money belonging to Lyons or any partnership
composed of Elser and Lyons was in fact used by Elser in the
purchase of the San Juan Estate. Of course, if any damage had been
caused to Lyons by the placing of the mortgage upon the equity of
redemption in the Carriedo property, Elser's estate would be liable
for such damage. But it is evident that Lyons was not prejudiced by
that act.
The appellee insists that the trial court committed error in
admitting the testimony of Lyons upon matters that passed
between him and Elser while the latter was still alive. While the
admission of this testimony was of questionable propriety, any error
made by the trial court on
643
VOL. 56, MARCH 18, 643
1932
People vs. Sumicad
this point was error without injury, and the determination of the
question is not necessary to this decision. We therefore pass the
point without further discussion.
The judgment appealed from will be affirmed, and it is so
ordered, with costs against the appellant.
Avanceña, C. J., Johnson, Malcolm, Villamor, Villa-
Real, and Imperial, JJ., concur.

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