G.R. No.

228356, March 09, 2020

MERIAN B. SANTIAGO, PETITIONER, v. SPOUSES EDNA L. GARCIA AND BAYANI GARCIA, RESPONDENTS.

DECISION

REYES, J. JR., J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the Decision2 dated
January 26, 2016 and Resolution3 dated November 11, 2016 of the Court of Appeals (CA) in CA-G.R. CV
No. 101908. In dismissing petitioner's appeal, the CA ruled that the contractual relation between the
parties is one of investment and, as such, entails risk on the part of the petitioner as investor. Finding
petitioner to have invested her money, the CA ruled that she has no cause of action for the return of
investment.

Facts

In November 2000, petitioner Merian B. Santiago (Merian) was enticed by respondent Edna L. Garcia
(Edna) to invest money in the latter's lending business with a promise of a high return in terms of
monthly interest ranging from 5% to 8%. The parties agreed that monthly interest shall be remitted by
Edna to Merian and that the principal amount invested shall be returned to Merian upon demand.4
Neither of the parties, however, presented evidence to show that such agreement was reduced in
writing.

Merian began investing several amounts from November 15, 2000 to June 30, 2003, reaching an
aggregate amount of P1,569,000.00.5 Edna had remitted to Merian the amount of P877,000.00 as
interest on said amounts. However, in December 2003, Edna defaulted in remitting to Merian the
interest due from said investments. Despite demands, Edna failed to remit the interest to Merian.

Consequently, Merian, through her lawyer, sent a letter dated January 20, 2004 to Edna demanding for
the return of Merian's total investment of P1,569,000.00.6 Merian also went to Edna's house where the
latter agreed to pay the principal amount invested on a "pay when able" basis. On the same day, Edna
paid Merian P15,000.00 in cash and P5,000.00 in gift cheque, for a total of P20,000.00.7 Merian then
signed a receipt prepared by Edna wherein she acknowledged that the P20,000.00 constitutes partial
payment for the principal amount of P1,569,000.00.8 The acknowledgment receipt9 reads as follows:

This is to acknowledge receipt from Edna L. Garcia partial payment from [the] principal this 18th day of
January 2004 the amount of [P]20,000 ([P] 15,000 cash and [P]5,000 gift cheque)

Signed

Me-anne Bernardo

[T]otal Principal

[P]1,569,00010 (emphasis supplied)

Because Merian learned that several other persons were likewise taken advantage of by Edna, Merian
filed the complaint a quo on February 12, 2004, for sum of money with prayer for the issuance of a writ
of preliminary attachment against spouses Edna L. Garcia and Bayani Garcia (spouses Garcia). In their
Answer, spouses Garcia admitted the facts that Merian was enticed by Edna to invest in her lending
business that will yield a high return in terms of monthly interest ranging from 5% to 8%, and that under
said investment proposal, it was agreed that the interest earned shall be remitted by Edna to Merian on
a monthly basis, while the principal amount shall be returned upon Merian's demand.11 Nevertheless,
spouses Garcia sought for the dismissal of the complaint for lack of cause of action since the amounts
given by Merian were investments, not loans.

The Regional Trial Court (RTC) rendered its decision finding that a partnership was formed between
Merian and Edna – the former as capitalist partner and the latter as industrial partner. It ruled that a
person who invested in a business which incurred losses cannot convert such investment into a loan.12
As such, the RTC dismissed Merian's complaint, and further ordered the payment of moral damages,
attorney's fees, and costs of suit in favor of spouses Garcia.

When Merian's motion for reconsideration was denied, she appealed to the CA.

The CA disagreed with the RTC in its finding that a partnership was formed between Merian and Edna.
The CA found that the money was given not as Merian's contribution or share in Edna's capital in the
lending business, but as an investment that will earn interest in case of profit. Nevertheless, the CA
agreed with the RTC that the complaint lacked cause of action as Merian was without legal right to
recover her investment in case of losses, as to what happened to Edna's lending business, since an
investment entails business risk. The CA thus affirmed the dismissal of Merian's complaint but deleted
the award for moral damages, attorney's fees, and costs of suit.

Merian's motion for partial reconsideration met similar denial from the CA. Thus, this petition.

Issue

The sole issue raised for resolution is whether the CA erred in finding that the contractual relation
between Merian and Edna is one of investment which entails the assumption of business risk. Merian
maintains that while she agreed to invest or place her money in Edna's lending business, it was their
further agreement that the amount so invested will earn interest, and that the principal amount shall be
returned to her upon demand.13

Ruling of the Court

There is merit in the petition.

There is no dispute that Merian invested the total amount of P1,569,000.00 as this much was admitted
by spouses Garcia in their answer to the complaint.14 The contention lies as to whether Edna is
obligated to return the principal amount to Merian upon demand. In resolving the issue in the negative,
the RTC held that a partnership was formed between Merian and Edna; while the CA held that the
contractual relation between the parties was neither a partnership nor a contract of loan but was an
investment that entailed business risk.

A partnership, a simple contract of loan, and an investment contract carry peculiar definitions and are
governed by pertinent laws. The existence of a partnership, simple loan, or an investment contract
should not, therefore, be inferred lightly, especially where any of its requisite elements are lacking.

The Court cannot subscribe to the view that Merian and Edna formed a partnership. 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.15 Partnership is essentially
a result of an agreement or a contract, either express or implied, oral or in writing, between two or
more persons. Here, there was neither allegation nor proof that Merian and Edna agreed to enter into a
partnership for purposes of carrying out the lending business.

There was likewise no agreement for the sharing of profits, only that Merian expects to receive
remittance of monthly interest from the amount she invested. At any rate, the receipt by a person of a
share of the profits, or of a payment of a contingent amount in case of profits earned, is not a conclusive
evidence of partnership. Article (Art.) 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived".16 There must be an
unmistakable intention to form a partnership which is lacking in this case.17 Most importantly, the facts
do not disclose that there is mutual agency between Merian and Edna, that is, neither party alleged that
she can bind by her acts the other, and can be bound by the acts of the other in the ordinary course of
business.

The facts of the instant case do not support the conclusion that the parties entered into a contract of
loan either. By a contract of simple loan, one of the parties delivers to another money upon the
condition that the same amount of the same kind and quality shall be paid.18 A person who receives a
loan of money acquires ownership thereof, and is bound to pay to the creditor an equal amount of the
same kind and quality.19 Merian herself testified that Edna did not borrow money from her and Merian
consistently alleged that she invested money in Edna's lending business. This is consistent with the fact
that Merian gave to Edna money in various amounts and on various dates, in a series of transactions
beginning November 15, 2000 to June 30, 2003, for which she earned profits in the form of interest
payments.

The facts therefore demonstrate that Edna was engaged in the business of lending and that she solicited
funds from Merian which Edna then used to grant loans to other persons. The parties'
contemporaneous and subsequent acts reveal their intent to enter into an investment contract in a
lending business.20 Parenthetically, the lending activity conducted by Edna is what the law under
Republic Act (R.A.) No. 947421 or the Lending Company Act of 2007 presently seeks to regulate. Under
R.A. 9474, only corporations with a validly subsisting authority from the Securities and Exchange
Commission can engage in the business of granting loans sourced from its own capital funds or from
funds coming from not more than nineteen (19) persons. Nevertheless, since R.A. No. 9474 was passed
into law only on May 22, 2007, the lending activities of Edna conducted from 2000 to 2003 cannot be
considered unlawful.

Having established that the transaction between Merian and Edna is one of investment in a lending
business, the question to be addressed is whether Edna is contractually bound to return Merian's
capital. Investment is ordinarily defined as the placement of capital or lay out of money in a way
intended to secure income or profit from its employment. As in all contractual relations, an investment
contract is largely governed by the stipulations, clauses, terms, and conditions as the parties may deem
convenient, which shall be respected as long as it is not contrary to law, morals, good customs, public
order, or public policy.22 Thus, the parties are free to agree that the investment shall entail the sharing
of profits and losses, or otherwise.

In this case, Merian alleged that she and Edna agreed that Merian will be investing capital on the lending
business which shall earn a 5% monthly interest; that the capital will be revolving; and that the capital
shall be returned upon demand. That Edna agreed to return the principal amount to Merian is further
supported by the acknowledgment receipt which Edna herself had written. In said acknowledgment
receipt, Edna paid the amount of P20,000.00 as "partial payment from the principal" – thus
acknowledging her obligation to return the principal amount invested. Notably as well, Edna failed to
present countervailing evidence to demonstrate the real agreement between the parties as her
husband, who solely participated at the trial, merely denied knowledge of the agreement between
Merian and Edna.

Even assuming that the agreement between the parties was that Merian shall bear the risk of losing the
principal amount she invested, in case of business loss, there was no allegation nor proof presented
that, indeed, Edna's lending business suffered business loss. The ruling, therefore, that the principal
amount should no longer be returned because of Merian's assumption of risk lacks factual basis.

WHEREFORE, the petition is GRANTED. The Decision dated January 26, 2016 and the Resolution dated
November 11, 2016 of the Court of Appeals are REVERSED and SET ASIDE. Spouses Edna L. Garcia and
Bayani Garcia are ORDERED to PAY Merian B. Santiago the principal amount of One Million Five Hundred
Forty-Nine Thousand Pesos (P1,549,000.00) with interest at the rate of 12% per annum from January 20,
2004, the date of extrajudicial demand, until June 30, 2013, and at the rate of 6% per annum from July
1, 2013, until full payment.

SO ORDERED.
[ G.R. No. 200555, January 20, 2021 ]

PEDRO D. DUSOL AND MARICEL M. DUSOL, PETITIONERS, VS. EMMARCK A. LAZO, AS OWNER OF RALCO
BEACH, RESPONDENT.

DECISION

LOPEZ, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assailing the
Decision2 dated May 23, 2011 and Resolution3 dated January 27, 2012 of the Court of Appeals (CA) in
CA-G.R. SP No. 03356-MIN, which ruled that petitioners were not employees of respondent.

Antecedents

This case arose from a complaint for illegal dismissal, underpayment of benefits, claim for damages, and
attorney's fees filed by petitioners Pedro (Pedro) and Maricel Dusol (Maricel) against respondent
Emmarck A. Lazo (Emmarck) as the owner of Ralco Beach. According to Pedro and Maricel, on January 6,
1993, Pedro started working as the caretaker of the Ralco Beach, a beach resort then operated by the
parents of Emmarck. As caretaker and the only employee, Pedro cleaned, watched, and secured the
beach area, cottages, rest house, store, and other properties in the resort. He also entertained guests
and occupants of the cottages. He worked from 5 a.m. to 9 p.m. every day, including weekends and
holidays, and was given an allowance of P100.00 per week, which was later increased to P239.00 in
2001.4 Sometime in 1995, Pedro was also asked to work in the fishpond business owned by the parents
of Emmarck. They agreed that Pedro will be compensated based on the income to be derived from the
harvests. However, the arrangement only lasted for two harvest seasons or a span of around seven
months. Emmarck's parents discontinued it because the business was not profitable. All the while and
even after this endeavor, Pedro continued to serve as caretaker of Ralco Beach.

In 2001, Pedro married Maricel, and on January 28, 2007, Maricel was employed by Emmarck to manage
the store in the resort.5 For her services, she was paid P1,000 a month and entitled to 15% commission
on the rentals collected from the cottages and rest house. Like Pedro, she also worked from 5 a.m. to 9
p.m. every day. Sometime in July 2008, Emmarck notified Pedro and Maricel that he will be leasing out
Ralco Beach because the business was not profitable. Thus, their services are no longer needed. Due to
this, on July 31, 2008, Pedro and Maricel no longer reported for work. Subsequently, they filed a
complaint asserting that they were illegally dismissed and deprived of procedural due process. To
substantiate their claims, they submitted accounting records of the rentals of the resort facilities and
the sales of the store. The accounting records showed that the items sold in the store had a 20% mark-
up price – with 10% to generate income and the other 10% to cover operational expenses of the resort.
The accounting also showed that Pedro's and Maricel's allowances and commission were deducted from
the rentals and sales.

For his part, Emmarck denied the employment relationship with Pedro and Maricel, and asserted that
they were his industrial partners. Emmarck explained that, in 1993, Pedro became an industrial partner
of her mother in the fishpond business with an agreement to be entitled to 1/3 of the total harvest
made, as well as receive a weekly allowance of P230.00. Emmarck merely adopted this arrangement
with Pedro when he took over the business. They agreed that Pedro was entitled to 1/3 of the total
harvest made. Pedro was also given a weekly allowance of P230 as industrial partner and overseer.6
Similarly, Maricel was taken in as an industrial partner to manage the store inside the beach property,
who was entitled to a P1,000.00 monthly allowance and 15% commission on the rent of the resort
facilities. She was also allowed to sell anything in the store with the profits solely belonging to her.7

Emmarck likewise claimed that, as the fishpond business was not doing good, he put up cottages and a
store at their beach property so that Pedro and Maricel would have a means of livelihood.8 He allowed
Pedro and Maricel to reside on the beach property free of charge.9 They then received an allowance or
commission from the income generated by the rentals on the cottages and sales of the store.10 Their
receipt of the share in the profits was in their capacity as business partners. He also asserted that he had
no power to dismiss Pedro and Maricel because the existence of a partnership depends on the viability
of the business. Since the beach resort did not produce much profit, it was not practicable nor feasible
to hire employees. Lastly, Emmarck stressed that he had no control over Pedro and Maricel, and in fact
did not control or guide them since he left the entire business operation to them.11

Labor Arbiter Decision

In its Decision12 dated January 26, 2009, the Labor Arbiter (LA) dismissed the complaint for lack of
jurisdiction because Pedro and Maricel failed to prove that they were Emmarck's employees. It was not
shown that Emmarck controlled or reserved the right to control not only the ends to be achieved, but
also the manner they performed their duties. Pedro and Maricel did not state who supervised them,
whether they filled up time records, or showed any regulations and the corresponding sanctions
imposed by Emmarck. While they submitted accounting records of the proceeds of the income
generated by the rentals on the resort facilities and the sales of the store, the documents do not show
that these were wages and not commissions or share of income. Finally, the LA stressed that Emmarck
need not prove that Pedro and Maricel were not his employees because it was a negative allegation.
Aggrieved, Pedro and Maricel appealed to the National Labor Relations Commission (NLRC).

NLRC Decision
In its Resolution13 dated August 27, 2009, the NLRC granted the appeal, and ruled that Emmarck
employed Pedro and Maricel "as overseers and caretakers of [his] business involving a bangus fishpond
and beach resort."14 Applying the four-fold test, the NLRC held that Emmarck engaged the services of
Pedro and Maricel. His control over them is manifest because Pedro and Maricel did not undertake
other independent productive activities, but solely tended to the duties for Emmarck's business. Records
show that Pedro and Maricel were duly compensated for their services in the form of salaries,
allowances, and commissions since compensation in the form of a commission based on gross sales is
considered as wage.15

The NLRC was skeptical as to the presence of a business partnership, there being no parity of standing
between the parties. Pedro and Maricel merely acted as employees. There was no record of profit
sharing nor any consultation made pertaining to the affairs of the partnerships, particularly, with respect
to the cessation of the businesses.

As employees, Pedro's and Maricel's dismissal were illegal for Emmarck's failure to comply with the
procedural requirements under Article 298 of the Labor Code. Accordingly, Pedro and Maricel were
awarded separation pay, nominal damages, wage differentials, 13th month pay and attorney's fees.
Thus:

WHEREFORE, the assailed Decision dated 26 January 2009 is hereby VACATED and SET ASIDE and a new
one entered:

1. Declaring the complainants as employees of respondents;

2. Declaring their dismissal as illegal for lack of due process;

3. Directing respondents to jointly and solidarily pay each of the complainants the following:

a. MARICEL DUSOL

Separation Pay

Nominal Damages

Wage Differentials

13th Month Pay- [P]10,000.00

b. PEDRO DUSOL

Separation Pay

Nominal Damages

Wage Differentials

13th Month Pay- [P]30,000.00

4. Directing respondents to jointly and solidarily pay the complainants attorney['s] fees equivalent to
10% of the total award.

All other claims are denied for lack of merit.

The Fiscal Examiner of the Regional Arbitration Branch is hereby directed to make a computation of the
total award which is deemed part of this Resolution.

SO ORDERED.16 (Emphases in the original.)

Emmarck then moved for reconsideration, but was denied.17 Unsatisfied, Emmarck filed a petition for
certiorari with the CA.

CA Decision

In its Decision18 dated May 23, 2011, the CA reversed and set aside the NLRC's Resolutions. The CA
disagreed with the NLRC that Pedro and Maricel were employees of Emmarck in the beach resort.
Relying on the control test, the CA ruled that they were not employees because Emmarck did not have
the power to control them. On the contrary, Emmarck "allowed [Pedro and Maricel] all the leeway in
regard to the means and manner of running the business of the beach resort." The CA summarized its
reasons for concluding that control was absent and ruled as follows:

After a careful review of the evidence on record, We find that the power to control over the supposed
employees' conduct is absent. Here are at least four reasons:

First, We noted that [Pedro and Maricel] were free to conduct and promote the operations in the resort.
Second, no guidelines were imposed by [Emmarck] on how to run the business operations or improve
the income of the resort. Third, [Pedro and Maricel] were at complete liberty not only in the conduct of
their work, but also free to engage in other means of livelihood, there being nothing on record that
would show any limitation on the nature and scope of work, and fourth, Maricel was allowed to sell
anything in the store for her exclusive gain.

The total factual picture clearly shows that [Emmarck] did not have the power to control [Pedro and
Maricel] with respect to the means and methods by which [their] work were to be accomplished. There
is no employer-employee relationship when the element of control is absent.

xxxx

FOR THESE REASONS, the petition is GRANTED. The assailed Resolutions of the NLRC are REVERSED and
the Decision of the Labor Arbiter dated January 26, 2009 is REINSTATED.

SO ORDERED.

Thereafter, Pedro and Maricel's motion for reconsideration was denied by the CA it in its Resolution19
dated January 27, 2012. Hence, this petition.20

Pedro and Maricel argue that, as opposed to the absurd claim of Emmarck that they were his business
partners, they were able to prove that they were his employees in Ralco Beach. Emmarck and his
parents were the ones who engaged and hired them and paid their salaries. Later on, it was Emmarck
terminated their employment. Emmarck's control over their work and their conduct is also shown by
their regular submission of reports and the other circumstances of their employment.

They further argue that the CA erred in concluding that the element of control was lacking. Their daily
rendition of work and regular submission of accounting of the rentals and sales of the store is indicative
of control.21 Explicit or written directives and guidelines were not necessary since Ralco Beach was not
big and its operation is not complicated.22 Due to their work load, they can no longer engage in other
means of livelihood.23 There is no proof that Maricel was allowed to sell personal items in the store.
Indeed, all the items sold in the store were owned by Emmarck.24 Emmarck's claim that Pedro was an
industrial partner in the fishpond business was unsubstantiated, and as to Ralco Beach, it is absurd that
a person who is merely receiving an allowance of P230.00 is a business partner.25

In response,26 Emmarck maintains that there is sufficient proof to show that Pedro and Maricel were
his industrial partners, especially, since they shared in the profits of the businesses.27 More importantly,
Pedro admitted that he was a partner in the fishpond business. Lastly, Emmarck, echoing the
justifications of the CA, insists that Pedro and Maricel were not his employees as he had no control over
them.

In their Reply,28 Pedro and Maricel aver that Emmarck's defense that they were his industrial partners,
was a mere afterthought as shown by the lack of evidence presented to support the claim. The truth
remains, that they were not industrial partners in either Ralco Beach or the fishpond business, but were
employees of Emmarck in Ralco Beach.

Issues

1. Whether Pedro and Maricel are employees or partners of Emmarck.

2. In the event that Pedro and Maricel are employees, whether they were validly dismissed.

Ruling

We find merit in Pedro and Maricel's petition.

Rule 45 of the Rules of Court circumscribes that only questions of law may be raised in a petition for
review on certiorari as the Court is not a trier of facts. The issue of the existence of relationship,
whether that of an employer-employee or a partnership, is ultimately a question of fact. However, by
way of exception, when there is a conflict among the factual findings of the LA and the CA as opposed to
that of the NLRC, it is proper, in the exercise of the Court's equity jurisdiction, to review and re-evaluate
the factual issues and to look into the records of the case and re-examine the questioned findings.29

Proof of employment as distinguished from proof of partnership

On one hand, there is a partnership if 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.30
A particular partnership may have for its object a particular undertaking.31 The existence of a
partnership is established when it is shown that: (1) two or more persons bind themselves to contribute
money, property, or industry to a common fund; and (2) they intend to divide the profits among
themselves.32 Generally, it is not required that the agreement be in writing or in a public instrument.
However, when immovable properties or real rights are contributed to the partnership, it is required
that an inventory of the real properties or rights contributed be prepared and signed by the parties, and
attached to the public instrument, otherwise, the agreement is void.33

Undoubtedly, the best evidence to prove the existence of a partnership is the contract or articles of
partnership. Nevertheless, in its absence, its existence can be established by circumstantial evidence.34
Under Article 1769 of the Civil Code,35 "the receipt by a person of a share of the profits of a business is
a prima facie evidence that he is a partner in the business, [but] no such inference shall be drawn if such
profits were received in payment as wages of an employee [or rent to a landlord]."36 In addition, "the
sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the returns are derived."37

On the other hand, an employee is any person in the service of another under a contract for hire,
express, or implied, oral or written.38 To determine whether an employment relationship exists, the
following elements are considered: (1) the selection and engagement of the employee; (2) the payment
of wages; (3) the power of dismissal; and (4) the employer's power to control the employee's conduct.
The most important element is the employer's control of the employee's conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it. However, the
power of control refers merely to the existence of the power, and not to the actual exercise thereof.39
No particular form of evidence is required to prove the existence of an employer-employee relationship.
Any competent and relevant evidence to prove the relationship may be admitted.40 However, a finding
that such relationship exists must still rest on some substantial evidence.41

Here, it is undisputed that Pedro and Maricel rendered their services in Ralco Beach and received
compensation sourced from rentals and sales of the resort.ℒαwρhi৷ Moreover, Emmarck's allegation
that Pedro was his industrial partner in the fishpond business is inconsequential because Pedro's
complaint and claims were for his services rendered in the beach resort. Even if it is true, being an
industrial partner of the fishpond business is immaterial to Pedro's status as an employee in Ralco
Beach. Thus, the crux of controversy is the nature by which Pedro and Maricel rendered their services
and the capacity by which they received their compensation.

Emmarck failed to prove the existence of partnership

Based on record, there is no proof that a partnership existed between Pedro or Maricel, and Emmarck in
relation to the beach resort. No documentary evidence was submitted by Emmarck to even suggest a
partnership. Emmarck relied solely on his own statements that Pedro and Maricel did not receive wages,
but merely allowances and commission from the profits of their partnership. However, it is beyond
dispute that receipt by a person of share in the profits of a business does not by itself establish the
existence of a partnership, if the amounts are received as wages of an employee. Neither does the
sharing of gross returns establish partnership, most especially, in light of the absence of the any other
evidence to establish the existence of the partnership.

In Sy v. CA,42 Jaime Sahot served as a truck helper and later on as a truck driver for a trucking business
owned and operated by a family corporation. When Jaime filed a complaint for illegal dismissal, the
family corporation countered that Jaime was an industrial partner. The Court rejected the defense
because the existence of the partnership was not duly proven, to wit:

Article 1767 of the Civil Code states that in a contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing
the profits among themselves. Not one of these circumstances is present in this case. No written
agreement exists to prove the partnership between the parties. Private respondent did not contribute
money, property or industry for the purpose of engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business. Thus, the NLRC and the CA did
not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner
from 1958 to 1994.43 (Emphasis supplied; citations omitted.)

We reached the same conclusion in Corporal, Sr. v. National Labor Relations Commission,44 and ignored
the defense of the employer that a joint venture existed. Apart from a self-serving affidavit executed by
the president of the employer-corporation, no other documentary evidence was presented. The Court
also concluded that although barbers enjoy the privilege of profit- sharing with the barber shop, it does
not mean that they were not employees. Also, in Negre v. Workmen's Compensation Commission,45
Jose Negre (Jose) owned fishing boats and employed crew members. He paid them a fixed amount plus
a percentage in the catch. Unfortunately, all the members of his crew manning one of his ships died due
to a typhoon. To avoid payment of death benefits, Jose asserted that the crew member concerned was
his industrial partner. The Court rejected Jose's stand since he failed to present evidence to prove the
partnership, and noted that payment on a commission basis does not support Jose's theory. Similarly, in
Jo v. National Labor Relations Commission,46 Peter Mejila (Peter) worked as a barber and caretaker in
Dina's Barber Shop. As a barber, Peter was entitled to 2/3 of the fee paid for every haircut while 1/3
went to the owners. Peter subsequently sued the owners of the barbershop for illegal dismissal. The
owners raised the defense that Peter was a "partner in trade" whose compensation was based on a
sharing arrangement per haircut or shaving job done. The Court disregarded the defense since there was
no clear showing that the parties had intended to pursue a relationship of industrial partnership despite
the sharing of the fees paid by the customers.

Moreover, in Santiago v. Spouses Garcia,47 the Court ruled that no partnership existed because there
was no "unmistakable intention to form a partnership." As in this case, there is no clear indication that
the parties agreed to contribute money, property or industry to engage in particular business. Aside
from Emmarck's self-serving statements, no other piece of evidence was presented to prove their intent
to form a partnership. Neither did Emmarck bother to specify his supposed contributions to the
partnership. In addition, there is no proof that there was an intention to divide the profits as partners.
The absence of this intention is exemplified by the lack of sharing of profits.48 In Santos v. Spouses
Reyes,49 the Court ruled that net profits, upon which the industrial partner can share, is determined by
adding all the gross income from all the transactions of the partnership less the expenses or losses
sustained in the business. Here, the allowances and commission which were taken from the gross sales
of Ralco Beach, cannot be deemed as their share in the profits. There is no showing that Pedro and
Maricel shared in the net profits, as defined by law. The absence of any actual sharing of the profits
reinforces the finding that there was no intention to do it. Clearly, Emmarck palpably failed to
substantiate that Pedro and Maricel were his industrial partners.

Pedro and Maricel were employees of Emmarck, as owner of Ralco Beach

Considering that no partnership exists, we proceed to determine whether Pedro and Maricel were
employees. The records show that all the elements of an employer-employee relationship are present.

First, Ralco Beach engaged the services of Pedro as caretaker and Maricel as a storekeeper. While
Emmarck did not personally engage the services of Pedro, he nonetheless retained his services. Second,
Emmarck paid their wages in the form of allowances and commissions. The term 'wages' encompasses
"the remuneration or earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating
the same, which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered or to be rendered."50 Third,
Emmarck terminated their employment when he notified them that he will be leasing the beach Resort,
and that their services were no longer needed.

Finally, and most importantly, Emmarck had the power to control their conduct in the performance of
their duties. The existence of control is manifestly shown by Emmarck's express admission that he left
the entire business operation of the Resort to Pedro and Maricel. While Pedro and Maricel are to a large
extent allowed to carry out their respective duties as caretaker and store keeper on their own, this does
not negate the existence of control. It was Emmarck himself, who gave Pedro and Maricel immense
flexibility in the performance of their duties. This, alone, clearly shows that Emmarck had control over
the conduct of Pedro and Maricel in performing their duties. The apparent high latitude of freedom is to
be expected given that Pedro and Maricel were the only employees, and this is coupled with the
apparent lackadaisical attitude of Emmarck in the management of the resort. Thus, even if Emmarck
claims that he did not control nor supervise their performance of duties – which may indicate lack of
control – Emmarck's admission reveals that control resided upon him.
Thus, contrary to the findings of the CA, the lack of guidelines or limitations, and close supervision as to
the conduct of operations of the resort cannot be construed as evidence of lack of control. More so that
there is no proof that Pedro and Maricel were allowed to engage in other means of livelihood, and that
they indeed worked for or engaged in any other business. Similarly, there is no proof that Maricel sold
anything in the store for her exclusive gain.51

In any case, the record shows that Emmarck had positively exercised control when he imposed a total of
twenty percent (20%) mark-up on the items sold in the store. In addition, it is undisputed that Pedro and
Maricel labored for long hours every day and even on holidays to meet the demands of the business.
With these set up, and considering that Ralco Beach had no other staff or employees, it cannot be
certainly said that they worked at their own pleasure, and that they were not subject to definite hours
or conditions of work.52

To recall, Emmarck admits that Pedro and Maricel have rendered services in the beach resort – but he
miserably failed to substantiate his claim that they were his partners. Thus, their relationship can only
be characterized as employment.

Failure to observe procedural due process in closure of business as an authorized cause

Article 29853 of the Labor Code considers closure of business as an authorized cause for the dismissal of
employees, whether or not the closure is due to serious business losses. However, if the closure is not
due to serious business losses, the employer is required to pay its employees separation pay equivalent
to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.
In this case, the closure of the business is not disputed by Pedro and Maricel. While closure of the
business is an authorized cause, there no proof that it was due to serious business losses. In effect,
Pedro and Maricel are entitled to separation pay.

In addition, since Emmarck clearly failed to comply with the required notices,54 Pedro and Maricel are
each entitled to nominal damages in the amount of P30,000.55 Lastly, we sustain the NLRC's award of
salary differentials and 13th month pay as Emmarck failed to prove their payment.56 The total
monetary awards shall also be subject to ten percent (10%) attorney's fees.57 These awards shall earn
interest at the rate of six percent (6%) computed from the date of finality of this Decision until it is fully
paid.58

FOR THESE REASONS, the Decision dated May 23, 2011 and Resolution dated January 27, 2012 of the
Court of Appeals in CA-G.R. SP No. 03356-MIN are REVERSED and SET ASIDE. The Resolutions dated
August 27, 2009 and October 30, 2009 of the National Labor Relations Commission in NLRC CASE No.
MAC-03-010774-2009 are REINSTATED.
Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 127347 November 25, 1999

ALFREDO N. AGUILA, JR., petitioner,

vs.

HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE ABROGAR, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated November 29,
1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila,
dated April 11, 1995. The trial court dismissed the petition for declaration of nullity of a deed of sale
filed by private respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.

The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private
respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot,
covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private
respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner, entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the
FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property
within a period of ninety (90) days from the execution of this memorandum of agreement effective April
18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);

(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a
period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the expiration of the said 90 day grace
period;

(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or whatever
claims on the property nor shall be cause the annotation of say claim at the back of the title to the said
property;

(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the
property and shall defend the rights of the SECOND PARTY against any party whom may have any
interests over the property;

(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST
PARTY;

(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY
after the expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay an
amount equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;

(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90) days
period above-mentioned, this memorandum of agreement shall be deemed cancelled and the Deed of
Absolute Sale, executed by the parties shall be the final contract considered as entered between the
parties and the SECOND PARTY shall proceed to transfer ownership of the property above described to
its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale, 3 dated June 11,
1991, wherein private respondent, with the consent of her late husband, sold the subject property to
A.C. Aguila & Sons, Co., represented by petitioner, for P200,000,00. In a special power of attorney dated
the same day, April 18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the
event she failed to redeem the subject property as provided in the Memorandum of Agreement. 4

Private respondent failed to redeem the property within the 90-day period as provided in the
Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned above,
petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the
name of A.C. Aguila and Sons, Co. 5

Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil,
counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt
of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter
would bring the appropriate action in court. 6

Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an
ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a
decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the
ground that private respondent did not redeem the subject property before the expiration of the 90-day
period provided in the Memorandum of Agreement. Private respondent appealed first to the Regional
Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to this Court, but
she lost in all the cases.

Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial
Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her
husband on the deed of sale was a forgery because he was already dead when the deed was supposed
to have been executed on June 11, 1991.

It appears, however, that private respondent had filed a criminal complaint for falsification against
petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.

On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because they could not personally
appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the execution of the Deed of Absolute
Sale, while the plaintiff was still in the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The Court is convinced
that the three required documents, to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties on the same date on April 18,
1991. It is a common and accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various reasons, foremost of
which is the evasion of taxes and surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common sense dictates that an established
lending and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar
spouses, who are virtual strangers to it, without the simultaneous accomplishment and signing of all the
required documents, more particularly the Deed of Absolute Sale, to protect its interest.

xxx xxx xxx

WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED, with
costs against the plaintiff.

On appeal, the Court of Appeals reversed. It held:

The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is
indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong application in the
case at bar in the light of the following circumstances.

First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The
property is a two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant
stands. The property is inside a subdivision/village. The property is situated in Marikina which is already
part of Metro Manila. The alleged sale took place in 1991 when the value of the land had considerably
increased.

For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for
both the land and for the house.

Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is

obliged to deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15)
days after the expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant is
to retain physical possession of the thing allegedly sold.

In fact, plaintiff-appellant retained possession of the property "sold" as if they were still the absolute
owners. There was no provision for maintenance or expenses, much less for payment of rent.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property "sold". It
is well-known that payment of taxes accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under whose name the real taxes were
declared has a claim of right over the land.

It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil
Code is sufficient to declare a contract of sale with right to repurchase an equitable mortgage.

Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has
retained possession of the subject property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it must
be conclusively presumed that the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase. The factors cited are in support to the finding that the
Deed of Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable mortgage.

Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the
loan extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same with the
amount of the purchase price.

xxx xxx xxx

Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase
price: the transaction shall then be considered to be an equitable mortgage.

Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium
which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code
reads:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged and mortgaged in the event of non-payment of the
principal obligation within the stipulated period.

In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by

a mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90) days, the
period within which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay
P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000.00 within the ninety (90) days period, the property shall
automatically belong to defendant-appellee by virtue of the deed of sale executed.

Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore,
the deed of sale should be declared void as we hereby so declare to be invalid, for being violative of law.

xxx xxx xxx

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. The
questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant
and the issuance of TCT No. 267073 issued in favor of defendant-appellee pursuant to the questioned
Deed of Sale is hereby declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101
of the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount of P230,000.00 shall
be paid within ninety (90) days from the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be given to the owner.

Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which
this case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the
complaint for declaration of nullity of a deed of sale in this case; and (3) the contract between A.C.
Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as held
by the appellate court.

The petition is meritorious.

Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that
"every action must be prosecuted and defended in the name of the real party in interest." A real party in
interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the
suit. 7 This ruling is now embodied in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case cannot be executed. 8
Hence, a complaint filed against such a person should be dismissed for failure to state a cause of action.
9

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from
that of each of the partners." The partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. 10 In this case, private respondent has not shown that A.C. Aguila & Sons, Co.,
as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title
to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement
was executed between private respondent, with the consent of her late husband, and A.C. Aguila &
Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should
be impleaded in any litigation involving property registered in its name. A violation of this rule will result
in the dismissal of the complaint. 11 We cannot understand why both the Regional Trial Court and the
Court of Appeals sidestepped this issue when it was squarely raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against whom this action should be
prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against
petitioner is DISMISSED.

SO ORDERED.