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Art 1767GREGORIO F. ORTEGA, TOMAS O. DEL "5.

"5. Order the respondents to pay petitioner moral In this petition for review under Rule 45 of the Rules of
CASTILLO, JR., and BENJAMIN T. damages with the amount of P500,000.00 and Court, petitioners confine themselves to the following
BACORRO, petitioners, vs. HON. COURT OF exemplary damages in the amount of P200,000.00. issues:
APPEALS, SECURITIES AND EXCHANGE "Petitioner likewise prayed for such other and further 1. Whether or not the Court of Appeals has erred in
COMMISSION and JOAQUIN L. reliefs that the Commission may deem just and holding that the partnership of Bito, Misa & Lozada
The law firm of ROSS, LAWRENCE, SELPH and equitable under the premises." (now Bito, Lozada, Ortega & Castillo) is a partnership
CARRASCOSO was duly registered in the Mercantile On 13 July 1988, respondents-appellees filed their at will;
Registry on 4 January 1937 and reconstituted with the opposition to the petition. 2. Whether or not the Court of Appeals has erred in
Securities and Exchange Commission on 4 August On 13 July 1988, petitioner filed his Reply to the holding that the withdrawal of private respondent
1948. The SEC records show that there were several Opposition. dissolved the partnership regardless of his good or
subsequent amendments to the articles of partnership On 31 March 1989, the hearing officer rendered a bad faith; and
on 18 September 1958, to change the firm [name] to decision ruling that: 3. Whether or not the Court of Appeals has erred in
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . "[P]etitioner's withdrawal from the law firm Bito, Misa & holding that private respondent's demand for the
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO Lozada did not dissolve the said law partnership. dissolution of the partnership so that he can get a
& MISA; on 18 April 1972 to SALCEDO, DEL Accordingly, the petitioner and respondents are hereby physical partition of partnership was not made in bad
ROSARIO, BITO, MISA & LOZADA; on 4 December enjoined to abide by the provisions of the Agreement faith;
1972 to SALCEDO, DEL ROSARIO, BITO, MISA & relative to the matter governing the liquidation of the to which matters we shall, accordingly, likewise limit
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, shares of any retiring or withdrawing partner in the ourselves.
MISA & LOZADA; on 7 June 1977 to BITO, MISA & partnership interest."1 A partnership that does not fix its term is a partnership
LOZADA; on 19 December 1980, [Joaquin L. Misa] On appeal, the SEC en banc reversed the decision of at will. That the law firm "Bito, Misa & Lozada," and
appellees Jesus B. Bito and Mariano M. Lozada the Hearing Officer and held that the withdrawal of now "Bito, Lozada, Ortega and Castillo," is indeed
associated themselves together, as senior partners Attorney Joaquin L. Misa had dissolved the such a partnership need not be unduly belabored. We
with respondents-appellees Gregorio F. Ortega, partnership of "Bito, Misa & Lozada." The Commission quote, with approval, like did the appellate court, the
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as ruled that, being a partnership at will, the law firm findings and disquisition of respondent SEC on this
junior partners. could be dissolved by any partner at anytime, such as matter; viz:
On February 17, 1988, petitioner-appellant wrote the by his withdrawal therefrom, regardless of good faith The partnership agreement (amended articles of 19
respondents-appellees a letter stating: I am or bad faith, since no partner can be forced to continue August 1948) does not provide for a specified period
withdrawing and retiring from the firm of Bito, Misa and in the partnership against his will. In its decision, dated or undertaking. The "DURATION" clause simply
Lozada, effective at the end of this month. 17 January 1990, the SEC held: states:
"I trust that the accountants will be instructed to make WHEREFORE, premises considered the appealed "5. DURATION. The partnership shall continue so long
the proper liquidation of my participation in the firm." order of 31 March 1989 is hereby REVERSED insofar as mutually satisfactory and upon the death or legal
On the same day, petitioner-appellant wrote as it concludes that the partnership of Bito, Misa & incapacity of one of the partners, shall be continued by
respondents-appellees another letter stating: Lozada has not been dissolved. The case is hereby the surviving partners."
"Further to my letter to you today, I would like to have REMANDED to the Hearing Officer for determination The hearing officer however opined that the
a meeting with all of you with regard to the mechanics of the respective rights and obligations of the parties.2 partnership is one for a specific undertaking and hence
of liquidation, and more particularly, my interest in the The parties sought a reconsideration of the above not a partnership at will, citing paragraph 2 of the
two floors of this building. I would like to have this decision. Attorney Misa, in addition, asked for an Amended Articles of Partnership (19 August 1948):
resolved soon because it has to do with my own appointment of a receiver to take over the assets of "2. Purpose. The purpose for which the partnership is
plans." the dissolved partnership and to take charge of the formed, is to act as legal adviser and representative of
On 19 February 1988, petitioner-appellant wrote winding up of its affairs. On 4 April 1991, respondent any individual, firm and corporation engaged in
respondents-appellees another letter stating: SEC issued an order denying reconsideration, as well commercial, industrial or other lawful businesses and
"The partnership has ceased to be mutually as rejecting the petition for receivership, and occupations; to counsel and advise such persons and
satisfactory because of the working conditions of our reiterating the remand of the case to the Hearing entities with respect to their legal and other affairs; and
employees including the assistant attorneys. All my Officer. to appear for and represent their principals and client
efforts to ameliorate the below subsistence level of the The parties filed with the appellate court separate in all courts of justice and government departments
pay scale of our employees have been thwarted by the appeals (docketed CA-G.R. SP No. 24638 and CA- and offices in the Philippines, and elsewhere when
other partners. Not only have they refused to give G.R. SP No. 24648). legally authorized to do so."
meaningful increases to the employees, even During the pendency of the case with the Court of The "purpose" of the partnership is not the specific
attorneys, are dressed down publicly in a loud voice in Appeals, Attorney Jesus Bito and Attorney Mariano undertaking referred to in the law. Otherwise, all
a manner that deprived them of their self-respect. The Lozada both died on, respectively, 05 September 1991 partnerships, which necessarily must have a purpose,
result of such policies is the formation of the union, and 21 December 1991. The death of the two would all be considered as partnerships for a definite
including the assistant attorneys." partners, as well as the admission of new partners, in undertaking. There would therefore be no need to
On 30 June 1988, petitioner filed with this the law firm prompted Attorney Misa to renew his provide for articles on partnership at will as none
Commission's Securities Investigation and Clearing application for receivership (in CA G.R. SP No. would so exist. Apparently what the law contemplates,
Department (SICD) a petition for dissolution and 24648). He expressed concern over the need to is a specific undertaking or "project" which has a
liquidation of partnership, docketed as SEC Case No. preserve and care for the partnership assets. The definite or definable period of completion.3
3384 praying that the Commission: other partners opposed the prayer. The birth and life of a partnership at will is predicated
"1. Decree the formal dissolution and order the The Court of Appeals, finding no reversible error on on the mutual desire and consent of the partners. The
immediate liquidation of (the partnership of) Bito, Misa the part of respondent Commission, AFFIRMED in right to choose with whom a person wishes to
& Lozada; toto the SEC decision and order appealed from. In associate himself is the very foundation and essence
"2. Order the respondents to deliver or pay for fine, the appellate court held, per its decision of 26 of that partnership. Its continued existence is, in turn,
petitioner's share in the partnership assets plus the February 1993, (a) that Atty. Misa's withdrawal from dependent on the constancy of that mutual resolve,
profits, rent or interest attributable to the use of his the partnership had changed the relation of the parties along with each partner's capability to give it, and the
right in the assets of the dissolved partnership; and inevitably caused the dissolution of the absence of a cause for dissolution provided by the law
"3. Enjoin respondents from using the firm name of partnership; (b) that such withdrawal was not in bad itself. Verily, any one of the partners may, at his sole
Bito, Misa & Lozada in any of their correspondence, faith; (c) that the liquidation should be to the extent of pleasure, dictate a dissolution of the partnership at will.
checks and pleadings and to pay petitioners damages Attorney Misa's interest or participation in the He must, however, act in good faith, not that the
for the use thereof despite the dissolution of the partnership which could be computed and paid in the attendance of bad faith can prevent the dissolution of
partnership in the amount of at least P50,000.00; manner stipulated in the partnership agreement; (d) the partnership4 but that it can result in a liability for
"4. Order respondents jointly and severally to pay that the case should be remanded to the SEC Hearing damages.5
petitioner attorney's fees and expense of litigation in Officer for the corresponding determination of the In passing, neither would the presence of a period for
such amounts as maybe proven during the trial and value of Attorney Misa's share in the partnership its specific duration or the statement of a particular
which the Commission may deem just and equitable assets; and (e) that the appointment of a receiver was purpose for its creation prevent the dissolution of any
under the premises but in no case less than ten (10%) unnecessary as no sufficient proof had been shown to partnership by an act or will of a partner.6 Among
per cent of the value of the shares of petitioner or indicate that the partnership assets were in any such partners,7 mutual agency arises and the doctrine
P100,000.00; danger of being lost, removed or materially impaired. of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner Province of Bulacan. The land on which said distillery The case for the plaintiffs is rested exclusively on the
can subject him to a possible action for damages. is located as well as the buildings and improvements provisions of article 1571 of the Civil Code, which
The dissolution of a partnership is the change in the originally used in the business were, at the time to reads in part as follows:
relation of the parties caused by any partner ceasing which reference is now made, the property of another
to be associated in the carrying on, as might be Chinaman, who resides in Hongkong, named Lo Yao, ART. 1571. The purchaser of a leased estate shall be
distinguished from the winding up of, the who, in September, 1911, leased the same to the firm entitled to terminate any lease in force at the time of
business.8 Upon its dissolution, the partnership of Lo Seng and Co. for the term of three years. making the sale, unless the contrary is stipulated, and
continues and its legal personality is retained until the Upon the expiration of this lease a new written subject to the provisions of the Mortgage Law.
complete winding up of its business culminating in its contract, in the making of which Lo Yao was In considering this provision it may be premised that a
termination.9 represented by one Lo Shui as attorney in fact, contract of lease is personally binding on all who
The liquidation of the assets of the partnership became effective whereby the lease was extended for participate in it regardless of whether it is recorded or
following its dissolution is governed by various fifteen years. The reason why the contract was made not, though of course the unrecorded lease creates no
provisions of the Civil Code; 10 however, an agreement for so long a period of time appears to have been that real charge upon the land to which it relates. The
of the partners, like any other contract, is binding the Bureau of Internal Revenue had required sundry Mortgage Law was devised for the protection of third
among them and normally takes precedence to the expensive improvements to be made in the distillery, parties, or those who have not participated in the
extent applicable over the Code's general provisions. and it was agreed that these improvements should be contracts which are by that law required to be
We here take note of paragraph 8 of the "Amendment effected at the expense of the lessees. In conformity registered; and none of its provisions with reference to
to Articles of Partnership" reading thusly: with this understanding many thousands of pesos leases interpose any obstacle whatever to the giving of
. . . In the event of the death or retirement of any were expended by Lo Seng and Co., and later by Lo full effect to the personal obligations incident to such
partner, his interest in the partnership shall be Seng alone, in enlarging and improving the plant. contracts, so far as concerns the immediate parties
liquidated and paid in accordance with the existing Among the provisions contained in said lease we note thereto. This is rudimentary, and the law appears to be
agreements and his partnership participation shall the following: so understood by all commentators, there being, so far
revert to the Senior Partners for allocation as the Know all men by these presents: as we are aware, no authority suggesting the contrary.
Senior Partners may determine; provided, however, 1. That I, Lo Shui, as attorney in fact in charge of the Thus, in the commentaries of the authors Galindo and
that with respect to the two (2) floors of office properties of Mr. Lo Yao of Hongkong, cede by way of Escosura, on the Mortgage Law, we find the following
condominium which the partnership is now acquiring, lease for fifteen years more said distillery "El Progreso" pertinent observation: "The Mortgage Law is enacted
consisting of the 5th and the 6th floors of the Alpap to Messrs. Pang Lim and Lo Seng (doing business in aid of and in respect to third persons only; it does
Building, 140 Alfaro Street, Salcedo Village, Makati, under the firm name of Lo Seng and Co.), after the not affect the relations between the contracting parties,
Metro Manila, their true value at the time of such death termination of the previous contract, because of the nor their capacity to contract. Any question affecting
or retirement shall be determined by two (2) fact that they are required, by the Bureau of Internal the former will be determined by the dispositions of the
independent appraisers, one to be appointed (by the Revenue, to rearrange, alter and clean up the special law [i.e., the Mortgage Law], while any
partnership and the other by the) retiring partner or the distillery. question affecting the latter will be determined by the
heirs of a deceased partner, as the case may be. In 2. That all the improvements and betterments which general law." (Galindo y Escosura, Comentarios a la
the event of any disagreement between the said they may introduce, such as machinery, apparatus, Legislacion Hipotecaria, vol. I, p. 461.)
appraisers a third appraiser will be appointed by them tanks, pumps, boilers and buildings which the Although it is thus manifest that, under the Mortgage
whose decision shall be final. The share of the retiring business may require, shall be, after the termination of Law, as regards the personal obligations expressed
or deceased partner in the aforementioned two (2) the fifteen years of lease, for the benefit of Mr. Lo Yao, therein, the lease in question was from the beginning,
floor office condominium shall be determined upon the my principal, the buildings being considered as and has remained, binding upon all the parties thereto
basis of the valuation above mentioned which shall be improvements. among whom is to be numbered Pang Lim, then a
paid monthly within the first ten (10) days of every 3. That the monthly rent of said distillery is P200, as member of the firm of Lo Seng and Co. this does
month in installments of not less than P20,000.00 for agreed upon in the previous contract of September 11, not really solve the problem now before us, which is,
the Senior Partners, P10,000.00 in the case of two (2) 1911, acknowledged before the notary public D. whether the plaintiffs herein, as purchasers of the
existing Junior Partners and P5,000.00 in the case of Vicente Santos; and all modifications and repairs estate, are at liberty to terminate the lease, assuming
the new Junior Partner. 11 which may be needed shall be paid for by Messrs. that it was originally binding upon all parties
The term "retirement" must have been used in the Pang Lim and Lo Seng. participating in it.
articles, as we so hold, in a generic sense to mean the We, Pang Lim and Lo Seng, as partners in said Upon this point the plaintiffs are undoubtedly
dissociation by a partner, inclusive of resignation or distillery "El Progreso," which we are at present supported, prima facie, by the letter of article 1571 of
withdrawal, from the partnership that thereby dissolves conducting, hereby accept this contract in each and all the Civil Code; and the position of the defendant
it. its parts, said contract to be effective upon the derives no assistance from the mere circumstance that
On the third and final issue, we accord due respect to termination of the contract of September 11, 1911. the lease was admittedly binding as between the
the appellate court and respondent Commission on Neither the original contract of lease nor the parties thereto.
their common factual finding, i.e., that Attorney Misa agreement extending the same was inscribed in the The words "subject to the provisions of the Mortgage
did not act in bad faith. Public respondents viewed his property registry, for the reason that the estate which Law," contained in article 1571, express a qualification
withdrawal to have been spurred by "interpersonal is the subject of the lease has never at any time been which evidently has reference to the familiar
conflict" among the partners. It would not be right, we so inscribed. proposition that recorded instruments are effective
agree, to let any of the partners remain in the On June 1, 1916, Pang Lim sold all his interest in the against third persons from the date of registration (Co-
partnership under such an atmosphere of animosity; distillery to his partner Lo Seng, thus placing the latter Tiongco vs. Co-Guia, 1 Phil., 210); from whence it
certainly, not against their will. 12 Indeed, for as long as in the position of sole owner; and on June 28, 1918, Lo follows that a recorded lease must be respected by
the reason for withdrawal of a partner is not contrary to Shui, again acting as attorney in fact of Lo Yao, any purchaser of the estate whomsoever. But there is
the dictates of justice and fairness, nor for the purpose executed and acknowledged before a notary public a nothing in the Mortgage Law which, so far as we now
of unduly visiting harm and damage upon the deed purporting to convey to Pang Lim and another see, would prevent a purchaser from exercising the
partnership, bad faith cannot be said to characterize Chinaman named Benito Galvez, the entire distillery precise power conferred in article 1571 of the Civil
the act. Bad faith, in the context here used, is no plant including the land used in connection therewith. Code, namely, of terminating any lease which is
different from its normal concept of a conscious and As in case of the lease this document also was never unrecorded; nothing in that law that can be considered
intentional design to do a wrongful act for a dishonest recorded in the registry of property. Thereafter Pang as arresting the force of article 1571 as applied to the
purpose or moral obliquity. Lim and Benito Galvez demanded possession from Lo lease now before us.
WHEREFORE, the decision appealed from is Seng, but the latter refused to yield; and the present Article 1549 of the Civil Code has also been cited by
AFFIRMED. No pronouncement on costs. action of unlawful detainer was thereupon initiated by the attorneys for the appellant as supplying authority
Pang Lim and Benito Galvez in the court of the justice for the proposition that the lease in question cannot be
PANG LIM and BENITO GALVEZ, plaintiffs- of the peace of Paombong to recover possession of terminated by one who, like Pang Lim, has taken part
appellees, vs.LO SENG, defendant-appellant. the premises. From the decision of the justice of the in the contract. That provision is practically identical in
For several years prior to June 1, 1916, two of the peace the case was appealed to the Court of First terms with the first paragraph of article 23 of the
litigating parties herein, namely, Lo Seng and Pang Instance, where judgment was rendered for the Mortgage Law, being to the effect that unrecorded
Lim, Chinese residents of the City of Manila, were plaintiffs; and the defendant thereupon appealed to the leases shall be of no effect as against third persons;
partners, under the firm name of Lo Seng and Co., in Supreme Court. and the same observation will suffice to dispose of it
the business of running a distillery, known as "El that was made by us above in discussing the
Progreso," in the Municipality of Paombong, in the Mortgage Law, namely, that while it recognizes the
fact that an unrecorded lease is binding on all persons anything is bound to deliver and warrant the subject- as to said instrument he is a third party. The important
who participate therein, this does not determine the matter of the sale and is responsible to the vendee for question thus raised is not absolutely necessary to the
question whether, admitting the lease to be so binding, the legal and lawful possession of the thing sold. The decision of this case, and we are inclined to pass it
it can be terminated by the plaintiffs under article 1571. pertinence of these provisions to the case now under without decision, not only because the question does
Having thus disposed of the considerations which consideration is undeniable, for among the assets of not seem to have been ventilated in the Court of First
arise in relation with the Mortgage Law, as well as the partnership which Pang Lim transferred to Lo Instance but for the further reason that we have not
article 1549 of the Civil Coded all of which, as we Seng, upon selling out his interest in the firm to the had the benefit of any written brief in this case in
have seen, are undecisive we are brought to latter, was this very lease; and while it cannot be behalf of the appellees.
consider the aspect of the case which seems to us supposed that the obligation to warrant recognized in The judgment appealed from will be reversed, and the
conclusive. This is found in the circumstance that the the articles cited would nullify article 1571, if the latter defendant will be absolved from the complaint. It is so
plaintiff Pang Lim has occupied a double role in the article had actually conferred on the plaintiffs the right ordered, without express adjudication as to costs.
transactions which gave rise to this litigation, namely, to terminate this lease, nevertheless said articles
first, as one of the lessees; and secondly, as one of (1461, 1474), in relation with other considerations, ROSARIO U. YULO, assisted by her husband JOSE
the purchasers now seeking to terminate the lease. reveal the basis of an estoppel which in our opinion C. YULO, Plaintiffs-Appellants, vs. YANG CHIAO
These two positions are essentially antagonistic and precludes Pang Lim from setting up his interest as SENG, Appeal from the judgment of the Court of First
incompatible. Every competent person is by law bond purchaser of the estate to the detriment of Lo Seng. Instance of Manila, Hon. Bienvenido A. Tan, presiding,
to maintain in all good faith the integrity of his own It will not escape observation that the doctrine thus dismissing plaintiff's complaint as well as defendant's
obligations; and no less certainly is he bound to applied is analogous to the doctrine recognized in counterclaim. The appeal is prosecuted by plaintiff.
respect the rights of any person whom he has placed courts of common law under the head of estoppel by The record discloses that on June 17, 1945, defendant
in his own shoes as regards any contract previously deed, in accordance with which it is held that if a Yang Chiao Seng wrote a letter to the palintiff Mrs.
entered into by himself. person, having no title to land, conveys the same to Rosario U. Yulo, proposing the formation of a
While yet a partner in the firm of Lo Seng and Co., another by some one or another of the recognized partnership between them to run and operate a theatre
Pang Lim participated in the creation of this lease, and modes of conveyance at common law, any title on the premises occupied by former Cine Oro at Plaza
when he sold out his interest in that firm to Lo Seng afterwards acquired by the vendor will pass to the Sta. Cruz, Manila. The principal conditions of the offer
this operated as a transfer to Lo Seng of Pang Lim's purchaser; and the vendor is estopped as against such are (1) that Yang Chiao Seng guarantees Mrs. Yulo a
interest in the firm assets, including the lease; and purchaser from asserting such after-acquired title. The monthly participation of P3,000 payable quarterly in
Pang Lim cannot now be permitted, in the guise of a indenture of lease, it may be further noted, was advance within the first 15 days of each quarter, (2)
purchaser of the estate, to destroy an interest derived recognized as one of the modes of conveyance at that the partnership shall be for a period of two years
from himself, and for which he has received full value. common law which created this estoppel. (8 R. C. L., and six months, starting from July 1, 1945 to
The bad faith of the plaintiffs in seeking to deprive the 1058, 1059.) December 31, 1947, with the condition that if the land
defendant of this lease is strikingly revealed in the From what has been said it is clear that Pang Lim, is expropriated or rendered impracticable for the
circumstance that prior to the acquisition of this having been a participant in the contract of lease now business, or if the owner constructs a permanent
property Pang Lim had been partner with Lo Seng and in question, is not in a position to terminate it: and this building thereon, or Mrs. Yulo's right of lease is
Benito Galvez an employee. Both therefore had been is a fatal obstacle to the maintenance of the action of terminated by the owner, then the partnership shall be
in relations of confidence with Lo Seng and in that unlawful detainer by him. Moreover, it is fatal to the terminated even if the period for which the partnership
position had acquired knowledge of the possibilities of maintenance of the action brought jointly by Pang Lim was agreed to be established has not yet expired; (3)
the property and possibly an experience which would and Benito Galvez. The reason is that in the action of that Mrs. Yulo is authorized personally to conduct such
have enabled them, in case they had acquired unlawful detainer, under section 80 of the Code of Civil business in the lobby of the building as is ordinarily
possession, to exploit the distillery with profit. On Procedure, the only question that can be adjudicated carried on in lobbies of theatres in operation, provided
account of his status as partner in the firm of Lo Seng is the right to possession; and in order to maintain the the said business may not obstruct the free ingress
and Co., Pang Lim knew that the original lease had action, in the form in which it is here presented, the and agrees of patrons of the theatre; (4) that after
been extended for fifteen years; and he knew the proof must show that occupant's possession is December 31, 1947, all improvements placed by the
extent of valuable improvements that had been made unlawful, i. e., that he is unlawfully withholding partnership shall belong to Mrs. Yulo, but if the
thereon. Certainly, as observed in the appellant's brief, possession after the determination of the right to hold partnership agreement is terminated before the lapse
it would be shocking to the moral sense if the condition possession. In the case before us quite the contrary of one and a half years period under any of the causes
of the law were found to be such that Pang Lim, after appears; for, even admitting that Pang Lim and Benito mentioned in paragraph (2), then Yang Chiao Seng
profiting by the sale of his interest in a business, Galvez have purchased the estate from Lo Yao, the shall have the right to remove and take away all
worthless without the lease, could intervene as original landlord, they are, as between themselves, in improvements that the partnership may place in the
purchaser of the property and confiscate for his own the position of tenants in common or owners pro premises.
benefit the property which he had sold for a valuable indiviso, according to the proportion of their respective Pursuant to the above offer, which plaintiff evidently
consideration to Lo Seng. The sense of justice recoils contribution to the purchase price. But it is well accepted, the parties executed a partnership
before the mere possibility of such eventuality. recognized that one tenant in common cannot agreement establishing the "Yang & Company,
Above all other persons in business relations, partners maintain a possessory action against his cotenant, Limited," which was to exist from July 1, 1945 to
are required to exhibit towards each other the highest since one is as much entitled to have possession as December 31, 1947. It states that it will conduct and
degree of good faith. In fact the relation between the other. The remedy is ordinarily by an action for carry on the business of operating a theatre for the
partners is essentially fiduciary, each being considered partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows exhibition of motion and talking pictures. The capital is
in law, as he is in fact, the confidential agent of the that as Lo Seng is vested with the possessory right as fixed at P100,000, P80,000 of which is to be furnished
other. It is therefore accepted as fundamental in equity against Pang Lim, he cannot be ousted either by Pang by Yang Chiao Seng and P20,000, by Mrs. Yulo. All
jurisprudence that one partner cannot, to the detriment Lim or Benito Galvez. Having lawful possession as gains and profits are to be distributed among the
of another, apply exclusively to his own benefit the against one cotenant, he is entitled to retain it against partners in the same proportion as their capital
results of the knowledge and information gained in the both. Furthermore, it is obvious that partition contribution and the liability of Mrs. Yulo, in case of
character of partner. Thus, it has been held that if one proceedings could not be maintained at the instance of loss, shall be limited to her capital contribution
partner obtains in his own name and for his own Benito Galvez as against Lo Seng, since partition can In June , 1946, they executed a supplementary
benefit the renewal of a lease on property used by the only be effected where the partitioners are cotenants, agreement, extending the partnership for a period of
firm, to commence at a date subsequent to the that is, have an interest of an identical character as three years beginning January 1, 1948 to December
expiration of the firm's lease, the partner obtaining the among themselves. (30 Cyc., 178-180.) The practical 31, 1950. The benefits are to be divided between them
renewal is held to be a constructive trustee of the firm result is that both Pang Lim and Benito Galvez are at the rate of 50-50 and after December 31, 1950, the
as to such lease. (20 R. C. L., 878-882.) And this rule bound to respect Lo Seng's lease, at least in so far as showhouse building shall belong exclusively to the
has even been applied to a renewal taken in the name the present action is concerned. second party, Mrs. Yulo. The land on which the theatre
of one partner after the dissolution of the firm and We have assumed in the course of the preceding was constructed was leased by plaintiff Mrs. Yulo from
pending its liquidation. (16 R. C. L., 906; discussion that the deed of sale under which the Emilia Carrion Santa Marina and Maria Carrion Santa
Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; plaintiffs acquired the right of Lo Yao, the owner of the Marina. In the contract of lease it was stipulated that
Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.) fee, is competent proof in behalf of the plaintiffs. It is, the lease shall continue for an indefinite period of time,
An additional consideration showing that the position however, earnestly insisted by the attorney for Lo but that after one year the lease may be cancelled by
of the plaintiff Pang Lim in this case is untenable is Seng that this document, having never been recorded either party by written notice to the other party at least
deducible from articles 1461 and 1474 of the Civil in the property registry, cannot under article 389 of the 90 days before the date of cancellation. The last
Code, which declare that every person who sells Mortgage Law, be used in court against him because contract was executed between the owners and Mrs.
Yulo on April 5, 1948. But on April 12, 1949, the filed by both parties, in view of a possible amicable expenses and earnings of the business. Were she
attorney for the owners notified Mrs. Yulo of the settlement, would be granted; that in view of the really a partner, her first concern should have been to
owner's desire to cancel the contract of lease on July decision of the Court of Appeals in two previous cases find out how the business was progressing, whether
31, 1949. In view of the above notice, Mrs. Yulo and between the owners of the land and the plaintiff the expenses were legitimate, whether the earnings
her husband brought a civil action to the Court of First Rosario Yulo, the plaintiff has no right to claim the were correct, etc. She was absolutely silent with
Instance of Manila on July 3, 1949 to declare the lease alleged participation in the profit of the business, etc. respect to any of the acts that a partner should have
of the premises. On February 9, 1950, the Municipal The court, finding the above motion, well-founded, set done; all that she did was to receive her share of
Court of Manila rendered judgment ordering the aside its decision and a new trial was held. After trial P3,000 a month, which can not be interpreted in any
ejectment of Mrs. Yulo and Mr. Yang. The judgment the court rendered the decision making the following manner than a payment for the use of the premises
was appealed. In the Court of First Instance, the two findings: that it is not true that a partnership was which she had leased from the owners. Clearly,
cases were afterwards heard jointly, and judgment created between the plaintiff and the defendant plaintiff had always acted in accordance with the
was rendered dismissing the complaint of Mrs. Yulo because defendant has not actually contributed the original letter of defendant of June 17, 1945 (Exh. "A"),
and her husband, and declaring the contract of lease sum mentioned in the Articles of Partnership, or any which shows that both parties considered this offer as
of the premises terminated as of July 31, 1949, and other amount; that the real agreement between the the real contract between them.
fixing the reasonable monthly rentals of said premises plaintiff and the defendant is not of the partnership but Plaintiff claims the sum of P41,000 as representing her
at P100. Both parties appealed from said decision and one of the lease for the reason that under the share or participation in the business from December,
the Court of Appeals, on April 30, 1955, affirmed the agreement the plaintiff did not share either in the 1949. But the original letter of the defendant, Exh. "A",
judgment. profits or in the losses of the business as required by expressly states that the agreement between the
On October 27, 1950, Mrs. Yulo demanded from Yang Article 1769 of the Civil Code; and that the fact that plaintiff and the defendant was to end upon the
Chiao Seng her share in the profits of the business. plaintiff was granted a "guaranteed participation" in the termination of the right of the plaintiff to the lease.
Yang answered the letter saying that upon the advice profits also belies the supposed existence of a Plaintiff's right having terminated in July, 1949 as
of his counsel he had to suspend the payment (of the partnership between them. It. therefore, denied found by the Court of Appeals, the partnership
rentals) because of the pendency of the ejectment suit plaintiff's claim for damages or supposed participation agreement or the agreement for her to receive a
by the owners of the land against Mrs. Yulo. In this in the profits. participation of P3,000 automatically ceased as of said
letter Yang alleges that inasmuch as he is a sublessee As to her claim for damages for the refusal of the date. We find no error in the judgment of the court
and inasmuch as Mrs. Yulo has not paid to the lessors defendant to allow the use of the supposed lobby of below and we affirm it in toto, with costs against
the rentals from August, 1949, he was retaining the the theatre, the court after ocular inspection found that plaintiff-appellant.
rentals to make good to the landowners the rentals the said lobby was very narrow space leading to the
due from Mrs. Yulo in arrears (Exh. "E"). In view of the balcony of the theatre which could not be used for VICENTE SY, TRINIDAD PAULINO,
refusal of Yang to pay her the amount agreed upon, business purposes under existing ordinances of the TRUCKING,CORPORATION, petitioners, v HON.
Mrs. Yulo instituted this action on May 26, 1954, City of Manila because it would constitute a hazard COURT OF APPEALS and JAIME SAHOT, .
alleging the existence of a partnership between them and danger to the patrons of the theatre. The court, This petition for review seeks the reversal of the
and that the defendant Yang Chiao Seng has refused therefore, dismissed the complaint; so did it dismiss decision[2] of the Court of Appeals dated February 29,
to pay her share from December, 1949 to December, the defendant's counterclaim, on the ground that the 2000, in CA-G.R. SP No. 52671, affirming with
1950; that after December 31, 1950 the partnership defendant failed to present sufficient evidence to modification the decision[3] of the National Labor
between Mrs. Yulo and Yang terminated, as a result of sustain the same. It is against this decision that the Relations Commission promulgated on June 20, 1996
which, plaintiff became the absolute owner of the appeal has been prosecuted by plaintiff to this Court. in NLRC NCR CA No. 010526-96. Petitioners also
building occupied by the Cine Astor; that the The first assignment of error imputed to the trial court pray for the reinstatement of the decision[4] of the
reasonable rental that the defendant should pay is its order setting aside its former decision and Labor Arbiter in NLRC NCR Case No. 00-09-06717-
therefor from January, 1951 is P5,000; that the allowing a new trial. This assignment of error is without 94.
defendant has acted maliciously and refuses to pay merit. As that parties agreed to postpone the trial Culled from the records are the following facts
the participation of the plaintiff in the profits of the because of a probable amicable settlement, the of this case:
business amounting to P35,000 from November, 1949 plaintiff could not take advantage of defendant's Sometime in 1958, private respondent Jaime
to October, 1950, and that as a result of such bad faith absence at the time fixed for the hearing. The lower Sahot[5] started working as a truck helper for
and malice on the part of the defendant, Mrs. Yulo has court, therefore, did not err in setting aside its former petitioners family-owned trucking business named
suffered damages in the amount of P160,000 and judgment. The final result of the hearing shown by the Vicente Sy Trucking. In 1965, he became a truck
exemplary damages to the extent of P5,000. The decision indicates that the setting aside of the previous driver of the same family business, renamed T.
prayer includes a demand for the payment of the decision was in the interest of justice. Paulino Trucking Service, later 6Bs Trucking
above sums plus the sum of P10,000 for the attorney's In the second assignment of error plaintiff-appellant Corporation in 1985, and thereafter known as SBT
fees. claims that the lower court erred in not striking out the Trucking Corporation since 1994. Throughout all these
In answer to the complaint, defendant alleges that the evidence offered by the defendant-appellee to prove changes in names and for 36 years, private
real agreement between the plaintiff and the defendant that the relation between him and the plaintiff is one of respondent continuously served the trucking business
was one of lease and not of partnership; that the the sublease and not of partnership. The action of the of petitioners.
partnership was adopted as a subterfuge to get around lower court in admitting evidence is justified by the In April 1994, Sahot was already 59 years
the prohibition contained in the contract of lease express allegation in the defendant's answer that the old. He had been incurring absences as he was
between the owners and the plaintiff against the agreement set forth in the complaint was one of lease suffering from various ailments. Particularly causing
sublease of the said property. As to the other claims, and not of partnership, and that the partnership formed him pain was his left thigh, which greatly affected the
he denies the same and alleges that the fair rental was adopted in view of a prohibition contained in performance of his task as a driver. He inquired about
value of the land is only P1,100. By way of plaintiff's lease against a sublease of the property. his medical and retirement benefits with the Social
counterclaim he alleges that by reason of an The most important issue raised in the appeal is that Security System (SSS) on April 25, 1994, but
attachment issued against the properties of the contained in the fourth assignment of error, to the discovered that his premium payments had not been
defendant the latter has suffered damages amounting effect that the lower court erred in holding that the remitted by his employer.
to P100,000. The first hearing was had on April 19, written contracts, Exhs. "A", "B", and "C, between Sahot had filed a week-long leave sometime in
1955, at which time only the plaintiff appeared. The plaintiff and defendant, are one of lease and not of May 1994. On May 27th, he was medically examined
court heard evidence of the plaintiff in the absence of partnership. We have gone over the evidence and we and treated for EOR, presleyopia, hypertensive
the defendant and thereafter rendered judgment fully agree with the conclusion of the trial court that the retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
ordering the defendant to pay to the plaintiff P41,000 agreement was a sublease, not a partnership. The respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4,
for her participation in the business up to December, following are the requisites of partnership: (1) two or p. 105),[7] and heart enlargement (Annex G, p.
1950; P5,000 as monthly rental for the use and more persons who bind themselves to contribute 107).[8] On said grounds, Belen Paulino of the SBT
occupation of the building from January 1, 1951 until money, property, or industry to a common fund; (2) Trucking Service management told him to file a formal
defendant vacates the same, and P3,000 for the use intention on the part of the partners to divide the profits request for extension of his leave. At the end of his
and occupation of the lobby from July 1, 1945 until among themselves. (Art. 1767, Civil Code.). In the first week-long absence, Sahot applied for extension of his
defendant vacates the property. This decision, place, plaintiff did not furnish the supposed P20,000 leave for the whole month of June, 1994. It was at this
however, was set aside on a motion for capital. In the second place, she did not furnish any time when petitioners allegedly threatened to terminate
reconsideration. In said motion it is claimed that help or intervention in the management of the theatre. his employment should he refuse to go back to work.
defendant failed to appear at the hearing because of In the third place, it does not appear that she has ever At this point, Sahot found himself in a dilemma.
his honest belief that a joint petition for postponement demanded from defendant any accounting of the He was facing dismissal if he refused to work, But he
could not retire on pension because petitioners never WHEREFORE, the assailed decision is hereby The most important element is the employers control
paid his correct SSS premiums. The fact remained he AFFIRMED with MODIFICATION. SB Trucking of the employees conduct, not only as to the result of
could no longer work as his left thigh hurt abominably. Corporation is hereby directed to pay complainant the work to be done, but also as to the means and
Petitioners ended his dilemma. They carried out their Jaime Sahot the sum of SEVENTY-FOUR methods to accomplish it.[19]
threat and dismissed him from work, effective June 30, THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) As found by the appellate court, petitioners
1994. He ended up sick, jobless and penniless. PESOS as and for his separation pay.[10] owned and operated a trucking business since the
On September 13, 1994, Sahot filed with the Hence, the instant petition anchored on the 1950s and by their own allegations, they determined
NLRC NCR Arbitration Branch, a complaint for illegal following contentions: private respondents wages and rest day.[20] Records of
dismissal, docketed as NLRC NCR Case No. 00-09- IRESPONDENT COURT OF APPEALS IN the case show that private respondent actually
06717-94. He prayed for the recovery of separation PROMULGATING THE QUESTION[ED] DECISION engaged in work as an employee. During the entire
pay and attorneys fees against Vicente Sy and AFFIRMING WITH MODIFICATION THE DECISION course of his employment he did not have the freedom
Trinidad Paulino-Sy, Belen Paulino, Vicente Sy OF NATIONAL LABOR RELATIONS COMMISSION to determine where he would go, what he would do,
Trucking, T. Paulino Trucking Service, 6Bs Trucking DECIDED NOT IN ACCORD WITH LAW AND PUT AT and how he would do it. He merely followed
and SBT Trucking, herein petitioners. NAUGHT ARTICLE 402 OF THE CIVIL CODE.[11] instructions of petitioners and was content to do so, as
For their part, petitioners admitted they had a IIRESPONDENT COURT OF APPEALS VIOLATED long as he was paid his wages. Indeed, said the CA,
trucking business in the 1950s but denied employing SUPREME COURT RULING THAT THE NATIONAL private respondent had worked as a truck helper and
helpers and drivers. They contend that private LABOR RELATIONS COMMISSION IS BOUND BY driver of petitioners not for his own pleasure but under
respondent was not illegally dismissed as a driver THE FACTUAL FINDINGS OF THE LABOR ARBITER the latters control.
because he was in fact petitioners industrial AS THE LATTER WAS IN A BETTER POSITION TO Article 1767[21] of the Civil Code states that in a
partner. They add that it was not until the year 1994, OBSERVE THE DEMEANOR AND DEPORTMENT contract of partnership two or more persons bind
when SBT Trucking Corporation was established, and OF THE WITNESSES IN THE CASE OF themselves to contribute money, property or industry
only then did respondent Sahot become an employee ASSOCIATION OF INDEPENDENT UNIONS IN THE to a common fund, with the intention of dividing the
of the company, with a monthly salary that reached PHILIPPINES VERSUS NATIONAL CAPITAL profits among themselves.[22] Not one of these
P4,160.00 at the time of his separation. REGION (305 SCRA 233).[12] circumstances is present in this case. No written
Petitioners further claimed that sometime prior IIIPRIVATE RESPONDENT WAS NOT DISMISS[ED] agreement exists to prove the partnership between the
to June 1, 1994, Sahot went on leave and was not BY RESPONDENT SBT TRUCKING parties. Private respondent did not contribute money,
able to report for work for almost seven days. On June CORPORATION.[13] property or industry for the purpose of engaging in the
1, 1994, Sahot asked permission to extend his leave of Three issues are to be resolved: (1) Whether or supposed business. There is no proof that he was
absence until June 30, 1994. It appeared that from the not an employer-employee relationship existed receiving a share in the profits as a matter of course,
expiration of his leave, private respondent never between petitioners and respondent Sahot; (2) during the period when the trucking business was
reported back to work nor did he file an extension of Whether or not there was valid dismissal; and (3) under operation. Neither is there any proof that he had
his leave. Instead, he filed the complaint for illegal Whether or not respondent Sahot is entitled to actively participated in the management,
dismissal against the trucking company and its separation pay. administration and adoption of policies of the
owners. Crucial to the resolution of this case is the business. Thus, the NLRC and the CA did not err in
Petitioners add that due to Sahots refusal to determination of the first issue. Before a case for reversing the finding of the Labor Arbiter that private
work after the expiration of his authorized leave of illegal dismissal can prosper, an employer-employee respondent was an industrial partner from 1958 to
absence, he should be deemed to have voluntarily relationship must first be established.[14] 1994.
resigned from his work. They contended that Sahot Petitioners invoke the decision of the Labor On this point, we affirm the findings of the
had all the time to extend his leave or at least inform Arbiter Ariel Cadiente Santos which found that appellate court and the NLRC. Private respondent
petitioners of his health condition. Lastly, they cited respondent Sahot was not an employee but was in Jaime Sahot was not an industrial partner but an
NLRC Case No. RE-4997-76, entitled Manuelito fact, petitioners industrial partner.[15] It is contended employee of petitioners from 1958 to 1994. The
Jimenez et al. vs. T. Paulino Trucking Service, as a that it was the Labor Arbiter who heard the case and existence of an employer-employee relationship is
defense in view of the alleged similarity in the factual had the opportunity to observe the demeanor and ultimately a question of fact[23] and the findings thereon
milieu and issues of said case to that of Sahots, hence deportment of the parties. The same conclusion, aver by the NLRC, as affirmed by the Court of Appeals,
they are in pari material and Sahots complaint ought petitioners, is supported by substantial deserve not only respect but finality when supported
also to be dismissed. evidence.[16] Moreover, it is argued that the findings of by substantial evidence. Substantial evidence is such
The NLRC NCR Arbitration Branch, through fact of the Labor Arbiter was wrongly overturned by the amount of relevant evidence which a reasonable mind
Labor Arbiter Ariel Cadiente Santos, ruled that there NLRC when the latter made the following might accept as adequate to justify a conclusion.[24]
was no illegal dismissal in Sahots case. Private pronouncement: Time and again this Court has said that if doubt
respondent had failed to report to work. Moreover, said We agree with complainant that there was error exists between the evidence presented by the
the Labor Arbiter, petitioners and private respondent committed by the Labor Arbiter when he concluded employer and the employee, the scales of justice must
were industrial partners before January 1994. The that complainant was an industrial partner prior to be tilted in favor of the latter.[25] Here, we entertain no
Labor Arbiter concluded by ordering petitioners to pay 1994. A computation of the age of complainant shows doubt. Private respondent since the beginning was an
financial assistance of P15,000 to Sahot for having that he was only twenty-three (23) years when he employee of, not an industrial partner in, the trucking
served the company as a regular employee since started working with respondent as truck helper. How business.
January 1994 only. can we entertain in our mind that a twenty-three (23) Coming now to the second issue, was private
On appeal, the National Labor Relations year old man, working as a truck helper, be considered respondent validly dismissed by petitioners?
Commission modified the judgment of the Labor an industrial partner. Hence we rule that complainant Petitioners contend that it was private
Arbiter. It declared that private respondent was an was only an employee, not a partner of respondents respondent who refused to go back to work. The
employee, not an industrial partner, since the start. from the time complainant started working for decision of the Labor Arbiter pointed out that during
Private respondent Sahot did not abandon his job but respondent.[17] the conciliation proceedings, petitioners requested
his employment was terminated on account of his Because the Court of Appeals also found that respondent Sahot to report back for work. However, in
illness, pursuant to Article 284[9] of the Labor Code. an employer-employee relationship existed, petitioners the same proceedings, Sahot stated that he was no
Accordingly, the NLRC ordered petitioners to pay aver that the appellate courts decision gives an longer fit to continue working, and instead he
private respondent separation pay in the amount of imprimatur to the illegal finding and conclusion of the demanded separation pay. Petitioners then retorted
P60,320.00, at the rate of P2,080.00 per year for 29 NLRC. that if Sahot did not like to work as a driver anymore,
years of service. Private respondent, for his part, denies that he then he could be given a job that was less strenuous,
Petitioners assailed the decision of the NLRC was ever an industrial partner of petitioners. There such as working as a checker. However, Sahot
before the Court of Appeals. In its decision dated was no written agreement, no proof that he received a declined that suggestion. Based on the foregoing
February 29, 2000, the appellate court affirmed with share in petitioners profits, nor was there anything to recitals, petitioners assert that it is clear that Sahot
modification the judgment of the NLRC. It held that show he had any participation with respect to the was not dismissed but it was of his own volition that he
private respondent was indeed an employee of running of the business.[18] did not report for work anymore.
petitioners since 1958. It also increased the amount of The elements to determine the existence of an In his decision, the Labor Arbiter concluded
separation pay awarded to private respondent to employment relationship are: (a) the selection and that:
P74,880, computed at the rate of P2,080 per year for engagement of the employee; (b) the payment of While it may be true that respondents insisted that
36 years of service from 1958 to 1994. It decreed: wages; (c) the power of dismissal; and (d) the complainant continue working with respondents
employers power to control the employees conduct. despite his alleged illness, there is no direct evidence
that will prove that complainants illness prevents or Sahots dismissal was effected. In the same case Spouses OLIVIA V. YANSON AND RICARDO B.
incapacitates him from performing the function of a of Sevillana vs. I.T. (International) Corp., we ruled: YANSON,
driver. The fact remains that complainant suddenly Since the burden of proving the validity of the
stopped working due to boredom or otherwise when dismissal of the employee rests on the employer, the Assailed and sought to be set aside by the petition
he refused to work as a checker which certainly is a latter should likewise bear the burden of showing that before us is the Resolution of the Court of Appeals
much less strenuous job than a driver.[26] the requisites for a valid dismissal due to a disease dated June 20, 1991 which dismissed the petition for
But dealing the Labor Arbiter a reversal on this have been complied with. In the absence of the annulment of judgment filed by the Spouses Lourdes
score the NLRC, concurred in by the Court of Appeals, required certification by a competent public health and Menardo Navarro, thusly:
held that: authority, this Court has ruled against the validity of
While it was very obvious that complainant did not the employees dismissal. It is therefore incumbent The instant petition for annulment of decision is
have any intention to report back to work due to his upon the private respondents to prove by the quantum DISMISSED.
illness which incapacitated him to perform his job, of evidence required by law that petitioner was not 1. Judgments may be annulled only on the ground of
such intention cannot be construed to be an dismissed, or if dismissed, that the dismissal was not extrinsic or collateral fraud, as distinguished from
abandonment. Instead, the same should have been illegal; otherwise, the dismissal would be unjustified. intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA
considered as one of those falling under the just This Court will not sanction a dismissal premised on 160, 170). No such ground is alleged in the petition.
causes of terminating an employment. The insistence mere conjectures and suspicions, the evidence must
of respondent in making complainant work did not be substantial and not arbitrary and must be founded 2. Even if the judgment rendered by the respondent
change the scenario. on clearly established facts sufficient to warrant his Court were erroneous, it is not necessarily void
It is worthy to note that respondent is engaged in the separation from work.[32] (Chereau vs. Fuentebella, 43 Phil. 216). Hence, it
trucking business where physical strength is of utmost In addition, we must likewise determine if the cannot be annulled by the proceeding sought to be
requirement (sic). Complainant started working with procedural aspect of due process had been complied commenced by the petitioners.
respondent as truck helper at age twenty-three (23), with by the employer. 3. The petitioners' remedy against the judgment
then as truck driver since 1965. Complainant was From the records, it clearly appears that enforcement of which is sought to be stopped should
already fifty-nine (59) when the complaint was filed procedural due process was not observed in the have been appeal.
and suffering from various illness triggered by his work separation of private respondent by the management SO ORDERED. (pp. 24-25, Rollo.)
and age. of the trucking company. The employer is required to The antecedent facts of the case are as follows: On
x x x[27] furnish an employee with two written notices before July 23, 1976, herein private respondent Olivia V.
In termination cases, the burden is upon the the latter is dismissed: (1) the notice to apprise the Yanson filed a complaint against petitioner Lourdes
employer to show by substantial evidence that the employee of the particular acts or omissions for which Navarro for "Delivery of Personal Properties With
termination was for lawful cause and validly his dismissal is sought, which is the equivalent of a Damages". The complaint incorporated an application
made.[28] Article 277(b) of the Labor Code puts the charge; and (2) the notice informing the employee of for a writ of replevin. The complaint was later docketed
burden of proving that the dismissal of an employee his dismissal, to be issued after the employee has as Civil Case No. 716 (12562) of the then Court of
was for a valid or authorized cause on the employer, been given reasonable opportunity to answer and to First Instance of Bacolod (Branch 55) and was
without distinction whether the employer admits or be heard on his defense.[33] These, the petitioners subsequently amended to include private respondent's
does not admit the dismissal.[29] For an employees failed to do, even only for record purposes. What husband, Ricardo B. Yanson, as co-plaintiff, and
dismissal to be valid, (a) the dismissal must be for a management did was to threaten the employee with petitioner's husband, as co-defendant.
valid cause and (b) the employee must be afforded dismissal, then actually implement the threat when the On July 27, 1976, then Executive Judge Oscar R.
due process.[30] occasion presented itself because of private Victoriano (later to be promoted and to retire as
Article 284 of the Labor Code authorizes an respondents painful left thigh. Presiding Justice of the Court of Appeals) approved
employer to terminate an employee on the ground of All told, both the substantive and procedural private respondents' application for a writ of replevin.
disease, viz: aspects of due process were violated. Clearly, The Sheriff's Return of Service dated March 3, 1978
Art. 284. Disease as a ground for termination- An therefore, Sahots dismissal is tainted with invalidity. affirmed receipt by private respondents of all pieces of
employer may terminate the services of an employee On the last issue, as held by the Court of personal property sought to be recovered from
who has been found to be suffering from any disease Appeals, respondent Jaime Sahot is entitled to petitioners.
and whose continued employment is prohibited by law separation pay. The law is clear on the matter. An On April 30, 1990, Presiding Judge Bethel Katalbas-
or prejudicial to his health as well as the health of his employee who is terminated because of disease is Moscardon rendered a decision, disposing as follows :
co-employees: xxx entitled to separation pay equivalent to at least one Accordingly, in the light of the aforegoing findings, all
However, in order to validly terminate month salary or to one-half month salary for every year chattels already recovered by plaintiff by virtue of the
employment on this ground, Book VI, Rule I, Section 8 of service, whichever is greater xxx.[34] Following the Writ of Replevin and as listed in the complaint are
of the Omnibus Implementing Rules of the Labor Code formula set in Art. 284 of the Labor Code, his hereby sustained to belong to plaintiff being the owner
requires: separation pay was computed by the appellate court at of these properties; the motor vehicle, particularly that
Sec. 8. Disease as a ground for dismissal- Where the P2,080 times 36 years (1958 to 1994) or P74,880. We Ford Fiera Jeep registered in and which had remain in
employee suffers from a disease and his continued agree with the computation, after noting that his last the possession of the defendant is likewise declared to
employment is prohibited by law or prejudicial to his monthly salary was P4,160.00 so that one-half thereof belong to her, however, said defendant is hereby
health or to the health of his co-employees, the is P2,080.00. Finding no reversible error nor grave ordered to reimburse plaintiff the sum of P6,500.00
employer shall not terminate his employment unless abuse of discretion on the part of appellate court, we representing the amount advanced to pay part of the
there is a certification by competent public health are constrained to sustain its decision. To avoid further price therefor; and said defendant is likewise hereby
authority that the disease is of such nature or at such a delay in the payment due the separated worker, whose ordered to return to plaintiff such other equipment[s] as
stage that it cannot be cured within a period of six (6) claim was filed way back in 1994, this decision is were brought by the latter to and during the operation
months even with proper medical treatment. If the immediately executory. Otherwise, six percent (6%) of their business as were listed in the complaint and
disease or ailment can be cured within the period, the interest per annum should be charged thereon, for any not recovered as yet by virtue of the previous Writ of
employer shall not terminate the employee but shall delay, pursuant to provisions of the Civil Code. Replevin. (p. 12, Rollo.) Petitioner received a copy of
ask the employee to take a leave. The employer shall WHEREFORE, the petition is DENIED and the the decision on January 10, 1991 (almost 9 months
reinstate such employee to his former position decision of the Court of Appeals dated February 29, after its rendition) and filed on January 16, 1991 a
immediately upon the restoration of his normal 2000 is AFFIRMED. Petitioners must pay private "Motion for Extension of Time To File a Motion for
health. (Italics supplied). respondent Jaime Sahot his separation pay for 36 Reconsideration". This was granted on January 18,
As this Court stated in Triple Eight integrated years of service at the rate of one-half monthly pay for 1991. Private respondents filed their
Services, Inc. vs. NLRC,[31] the requirement for a every year of service, amounting to P74,880.00, with opposition, citing the ruling in the case of Habaluyas
medical certificate under Article 284 of the Labor Code interest of six per centum (6%) per annum from finality Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])
cannot be dispensed with; otherwise, it would sanction of this decision until fully paid. proscribing the filing of any motion for extension of
the unilateral and arbitrary determination by the Costs against petitioners. time to file a motion for a new trial or reconsideration.
employer of the gravity or extent of the employees The trial judge vacated the order dated January 18,
illness and thus defeat the public policy in the LOURDES NAVARRO AND MENARDO 1991 and declared the decision of April 30, 1990 as
protection of labor. NAVARRO, petitioners, vs.COURT OF APPEALS, final and executory. (Petitioners' motion for
In the case at bar, the employer clearly did not JUDGE BETHEL KATALBAS-MOSCARDON, reconsideration was subsequently filed on February 1,
comply with the medical certificate requirement before Presiding Judge, Regional Trial Court of Bacolod 1991 or 22 days after the receipt of the decision).
City, Branch 52, Sixth Judicial Region and
On February 4, 1991, the trial court issued a writ of in any form, a public instrument is necessary where considered all entries in the Audit Report as totally
execution (Annex "5", p. 79, Rollo). The Sheriff's immovables or any rights is constituted. Likewise, if reliable to be sustained insofar as the operation of the
Return of Service (Annex "6", p. 82, Rollo) declared the partnership involves a capitalization of P3,000.00 business is concerned, nevertheless, with this
that the writ was "duly served and satisfied". A receipt or more in money or property, the same must appear admission of the defendant and the fact that as borne
for the amount of P6,500.00 issued by Mrs. Lourdes in a public instrument which must be recorded in the out in said Report there has been disbursed and paid
Yanson, co-petitioner in this case, was likewise Office of the Securities and Exchange Commission. for in this vehicle out of the business funds in the total
submitted by the Sheriff (Annex "7", p. 83, Rollo). Failure to comply with these requirements shall only sum of P6,500.00, it is only fitting and proper that
On June 26, 1991, petitioners filed with respondent affect liability of the partners to third persons. validity of these disbursements must be sustained as
court a petition for annulment of the trial court's true (Exhs. M-1 to M-3, p. 180, Records). In this
decision, claiming that the trial judge erred in declaring In consideration of the above, it is undeniable that both connection and taking into account the earlier
the non-existence of a partnership, contrary to the the plaintiff and the defendant-wife made admission to agreement that only profits were to be shared equally,
evidence on record. have entered into an agreement of operating this Allied the plaintiff must be reimbursed of this cost if only to
The appellate court, as aforesaid, outrightly dismissed Air Freight Agency of which the plaintiff personally allow the defendant continuous possession of the
the petition due to absence of extrinsic or collateral constituted with the Manila Office in a sense that the vehicle in question. It is a fundamental moral, moral
fraud, observing further that an appeal was the proper plaintiff did supply the necessary equipments and and civil injunction that no one shall enrich himself at
remedy. money while her brother Atty. Rodolfo Villaflores was the expense of another. (pp. 71-75, Rollo.)
In the petition before us, petitioners claim that the trial the Manager and the defendant the Cashier. It was Withal, the appellate court acted properly in dismissing
judge ignored evidence that would show that the also admitted that part of this agreement was an equal the petition for annulment of judgment, the issue
parties "clearly intended to form, and (in fact) actually sharing of whatever proceeds realized. Consequently, raised therein having been directly litigated in, and
formed a verbal partnership engaged in the business the plaintiff brought into this transaction certain passed upon by, the trial court.
of Air Freight Service Agency in Bacolod"; and that the chattels in compliance with her obligation. The same WHEREFORE, the petition is DISMISSED. The
decision sustaining the writ of replevin is void since the has been done by the herein brother and the herein Resolution of the Court of Appeals dated June 20,
properties belonging to the partnership do not actually defendant who started to work in the business. A 1991 is AFFIRMED in all respects.
belong to any of the parties until the final disposition cursory examination of the evidences presented no No special pronouncement is made as to costs.
and winding up of the partnership" (p. 15, Rollo). proof that a partnership, whether oral or written had 6. Lim Tong Lim vs Phil Fishing Gear Industries GR
These issues, however, were extensively discussed by been constituted at the inception of this transaction. 136448
the trial judge in her 16-page, single-spaced decision True it is that even up to the filing of this complaint
We agree with respondents that the decision in this those movables brought by the plaintiff for the use in LIM TONG LIM, petitioner, vs. PHILIPPINE
case has become final. In fact a writ of execution had the operation of the business remain registered in her FISHING GEAR INDUSTRIES,
been issued and was promptly satisfied by the name. A partnership may be deemed to exist among
payment of P6,500.00 to private respondents. parties who agree to borrow money to pursue a
Having lost their right to appeal, petitioners resorted to While there may have been co-ownership or co- business and to divide the profits or losses that may
annulment proceedings to justify a belated judicial possession of some items and/or any sharing of arise therefrom, even if it is shown that they have not
review of their case. This was, however, correctly proceeds by way of advances received by both plaintiff contributed any capital of their own to a "common
thrown out by the Court of Appeals because and the defendant, these are not indicative and fund." Their contribution may be in the form of credit or
petitioners failed to cite extrinsic or collateral fraud to supportive of the existence of any partnership between industry, not necessarily cash or fixed assets. Being
warrant the setting aside of the trial court's decision. them. Article 1769 of the New Civil Code is explicit. partners, they are all liable for debts incurred by or on
We respect the appellate court's finding in this regard. Even the books and records retrieved by the behalf of the partnership. The liability for a contract
Petitioners have come to us in a petition for review. Commissioner appointed by the Court did not show entered into on behalf of an unincorporated
However, the petition is focused solely on factual proof of the existence of a partnership as association or ostensible corporation may lie in a
issues which can no longer be entertained. Petitioners' conceptualized by law. Such that if assuming that person who may not have directly transacted on its
arguments are all directed against the decision of the there were profits realized in 1975 after the two-year behalf, but reaped benefits from that contract.
regional trial court; not a word is said in regard to the deficits were compensated, this could only be subject The Case
appellate's court disposition of their petition for to an equal sharing consonant to the agreement to In the Petition for Review on Certiorari before us, Lim
annulment of judgment. Verily, petitioners keeps on equally divide any profit realized. However, this Court Tong Lim assails the November 26, 1998 Decision of
pressing that the idea of a partnership exists on cannot overlook the fact that the Audit Report of the the Court of Appeals in CA-GR CV 41477,[1] which
account of the so-called admissions in judicio. But the appointed Commissioner was not highly reliable in the disposed as follows:
factual premises of the trial court were more than sense that it was more of his personal estimate of WHEREFORE, [there being] no reversible error in the
enough to suppress and negate petitioners what is available on hand. Besides, the alleged profits appealed decision, the same is hereby affirmed.[2]
submissions along this line: was a difference found after valuating the assets and The decretal portion of the Quezon City
not arising from the real operation of the business. In Regional Trial Court (RTC) ruling, which was affirmed
To be resolved by this Court factually involved in the accounting procedures, strictly, this could not be profit by the CA, reads as follows:
issue of whether there was a partnership that existed but a net worth. WHEREFORE, the Court rules:
between the parties based on their verbal contention; 1. That plaintiff is entitled to the writ of preliminary
whether the properties that were commonly used in In view of the above factual findings of the Court it attachment issued by this Court on September 20,
the operation of Allied Air Freight belonged to the follows inevitably therefore that there being no 1990;
alleged partnership business; and the status of the partnership that existed, any dissolution, liquidation or 2. That defendants are jointly liable to plaintiff for the
parties in this transaction of alleged partnership. On winding up is beside the point. The plaintiff himself had following amounts, subject to the modifications as
the other hand, the legal issues revolves on the summarily ceased from her contract of agency and it is hereinafter made by reason of the special and unique
dissolution and winding up in case a partnership so a personal prerogative to desist. On the other hand, facts and circumstances and the proceedings that
existed as well as the issue of ownership over the the assumption by the defendant in negotiating for transpired during the trial of this case;
properties subject matter of recovery. herself the continuance of the Agency with the a. P532,045.00 representing [the] unpaid purchase
principal in Manila is comparable to plaintiff's. Any price of the fishing nets covered by the Agreement
As a premise, Article 1767 of the New Civil Code account of plaintiff with the principal as alleged, bore plus P68,000.00 representing the unpaid price of the
defines the contract of partnership to quote: no evidence as no collection was ever demanded of floats not covered by said Agreement;
from her. The alleged P20,000.00 assumption b. 12% interest per annum counted from date of
Art. 1767. By the contract of partnership two or more specifically, as would have been testified to by the plaintiffs invoices and computed on their respective
persons bind themselves to contribute money, defendant's husband remain a mere allegation. amounts as follows:
property, or industry to a common fund, with the i. Accrued interest of P73,221.00 on Invoice No. 14407
intention of dividing the proceeds among themselves. As to the properties sought to be recovered, the Court for P385,377.80 dated February 9, 1990;
xxx xxx xxx sustains the possession by plaintiff of all equipments ii. Accrued interest of P27,904.02 on Invoice No.
Corollary to this definition is the provision in and chattels recovered by virtue of the Writ of 14413 for P146,868.00 dated February 13, 1990;
determining whether a partnership exist as so provided Replevin. Considering the other vehicle which iii. Accrued interest of P12,920.00 on Invoice No.
under Article 1769, to wit: appeared registered in the name of the defendant, and 14426 for P68,000.00 dated February 19, 1990;
xxx xxx xxx to which even she admitted that part of the purchase c. P50,000.00 as and for attorneys fees,
Furthermore, the Code provides under Article 1771 price came from the business claimed mutually plus P8,500.00 representing P500.00 per appearance
and 1772 that while a partnership may be constituted operated, although the Court have not as much in court;
d. P65,000.00 representing P5,000.00 monthly rental Instead of answering the Complaint, Chua filed CHUA, YAO AND PETITIONER LIM ENTERED INTO
for storage charges on the nets counted from a Manifestation admitting his liability and requesting a IN A SEPARATE CASE, THAT A PARTNERSHIP
September 20, 1990 (date of attachment) to reasonable time within which to pay. He also turned AGREEMENT EXISTED AMONG THEM.
September 12, 1991 (date of auction sale); over to respondent some of the nets which were in his II SINCE IT WAS ONLY CHUA WHO REPRESENTED
e. Cost of suit. possession. Peter Yao filed an Answer, after which he THAT HE WAS ACTING FOR OCEAN QUEST
With respect to the joint liability of defendants for the was deemed to have waived his right to cross-examine FISHING CORPORATION WHEN HE BOUGHT THE
principal obligation or for the unpaid price of nets and witnesses and to present evidence on his behalf, NETS FROM PHILIPPINE FISHING, THE COURT OF
floats in the amount of P532,045.00 and P68,000.00, because of his failure to appear in subsequent APPEALS WAS UNJUSTIFIED IN IMPUTING
respectively, or for the total amount of P600,045.00, hearings. Lim Tong Lim, on the other hand, filed an LIABILITY TO PETITIONER LIM AS WELL.
this Court noted that these items were attached to Answer with Counterclaim and Crossclaim and moved III THE TRIAL COURT IMPROPERLY ORDERED
guarantee any judgment that may be rendered in favor for the lifting of the Writ of Attachment.[6] The trial court THE SEIZURE AND ATTACHMENT OF PETITIONER
of the plaintiff but, upon agreement of the parties, and, maintained the Writ, and upon motion of private LIMS GOODS.
to avoid further deterioration of the nets during the respondent, ordered the sale of the fishing nets at a In determining whether petitioner may be held
pendency of this case, it was ordered sold at public public auction. Philippine Fishing Gear Industries won liable for the fishing nets and floats purchased from
auction for not less than P900,000.00 for which the the bidding and deposited with the said court the sales respondent, the Court must resolve this key
plaintiff was the sole and winning bidder. The proceeds of P900,000.[7] issue: whether by their acts, Lim, Chua and Yao could
proceeds of the sale paid for by plaintiff was deposited On November 18, 1992, the trial court rendered be deemed to have entered into a partnership.
in court. In effect, the amount of P900,000.00 replaced its Decision, ruling that Philippine Fishing Gear This Courts Ruling

the attached property as a guaranty for any judgment Industries was entitled to the Writ of Attachment and The Petition is devoid of merit.
that plaintiff may be able to secure in this case with the that Chua, Yao and Lim, as general partners, were First and Second Issues: Existence of a Partnership and Petitioner's Liability

ownership and possession of the nets and floats jointly liable to pay respondent.[8] In arguing that he should not be held liable for
awarded and delivered by the sheriff to plaintiff as the The trial court ruled that a partnership among the equipment purchased from respondent, petitioner
highest bidder in the public auction sale. It has also Lim, Chua and Yao existed based (1) on the controverts the CA finding that a partnership existed
been noted that ownership of the nets [was] retained testimonies of the witnesses presented and (2) on a between him, Peter Yao and Antonio Chua. He asserts
by the plaintiff until full payment [was] made as Compromise Agreement executed by the three[9] in that the CA based its finding on the Compromise
stipulated in the invoices; hence, in effect, the plaintiff Civil Case No. 1492-MN which Chua and Yao had Agreement alone. Furthermore, he disclaims any
attached its own properties. It [was] for this reason brought against Lim in the RTC of Malabon, Branch direct participation in the purchase of the nets, alleging
also that this Court earlier ordered the attachment 72, for (a) a declaration of nullity of commercial that the negotiations were conducted by Chua and
bond filed by plaintiff to guaranty damages to documents; (b) a reformation of contracts; (c) a Yao only, and that he has not even met the
defendants to be cancelled and for the P900,000.00 declaration of ownership of fishing boats; (d) an representatives of the respondent company.Petitioner
cash bidded and paid for by plaintiff to serve as its injunction and (e) damages.[10] The Compromise further argues that he was a lessor, not a partner, of
bond in favor of defendants. Agreement provided: Chua and Yao, for the "Contract of Lease" dated
From the foregoing, it would appear therefore that a) That the parties plaintiffs & Lim Tong Lim agree to February 1, 1990, showed that he had merely leased
whatever judgment the plaintiff may be entitled to in have the four (4) vessels sold in the amount to the two the main asset of the purported partnership
this case will have to be satisfied from the amount of P5,750,000.00 including the fishing -- the fishing boat F/B Lourdes. The lease was for six
of P900,000.00 as this amount replaced the attached net. This P5,750,000.00 shall be applied as full months, with a monthly rental of P37,500 plus 25
nets and floats. Considering, however, that the total payment for P3,250,000.00 in favor of JL Holdings percent of the gross catch of the boat.
judgment obligation as computed above would amount Corporation and/or Lim Tong Lim; We are not persuaded by the arguments of
to only P840,216.92, it would be inequitable, unfair b) If the four (4) vessel[s] and the fishing net will be petitioner. The facts as found by the two lower courts
and unjust to award the excess to the defendants who sold at a higher price than P5,750,000.00 whatever will clearly showed that there existed a partnership among
are not entitled to damages and who did not put up a be the excess will be divided into 3: 1/3 Lim Tong Lim; Chua, Yao and him, pursuant to Article 1767 of the
single centavo to raise the amount of P900,000.00 1/3 Antonio Chua; 1/3 Peter Yao; Civil Code which provides:
aside from the fact that they are not the owners of the c) If the proceeds of the sale the vessels will be less Article 1767 - By the contract of partnership, two or
nets and floats. For this reason, the defendants are than P5,750,000.00 whatever the deficiency shall be more persons bind themselves to contribute money,
hereby relieved from any and all liabilities arising from shouldered and paid to JL Holding Corporation by 1/3 property, or industry to a common fund, with the
the monetary judgment obligation enumerated above Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11] intention of dividing the profits among themselves.
and for plaintiff to retain possession and ownership of The trial court noted that the Compromise Specifically, both lower courts ruled that a
the nets and floats and for the reimbursement of Agreement was silent as to the nature of their partnership among the three existed based on the
the P900,000.00 deposited by it with the Clerk of obligations, but that joint liability could be presumed following factual findings:[15]
Court. from the equal distribution of the profit and loss.[12] (1) That Petitioner Lim Tong Lim requested Peter Yao
SO ORDERED. [3] Lim appealed to the Court of Appeals (CA) who was engaged in commercial fishing to join him,
The Facts which, as already stated, affirmed the RTC. while Antonio Chua was already Yaos partner;
On behalf of "Ocean Quest Fishing Ruling of the Court of Appeals (2) That after convening for a few times, Lim Chua,
Corporation," Antonio Chua and Peter Yao entered In affirming the trial court, the CA held that and Yao verbally agreed to acquire two fishing boats,
into a Contract dated February 7, 1990, for the petitioner was a partner of Chua and Yao in a fishing the FB Lourdes and the FB Nelson for the sum of
purchase of fishing nets of various sizes from the business and may thus be held liable as a such for the P3.35 million;
Philippine Fishing Gear Industries, Inc. (herein fishing nets and floats purchased by and for the use of (3) That they borrowed P3.25 million from Jesus Lim,
respondent). They claimed that they were engaged in the partnership. The appellate court ruled: brother of Petitioner Lim Tong Lim, to finance the
a business venture with Petitioner Lim Tong Lim, who The evidence establishes that all the defendants venture.
however was not a signatory to the agreement. The including herein appellant Lim Tong Lim undertook a (4) That they bought the boats from CMF Fishing
total price of the nets amounted to P532,045. Four partnership for a specific undertaking, that is for Corporation, which executed a Deed of Sale over
hundred pieces of floats worth P68,000 were also sold commercial fishing x x x. Obviously, the ultimate these two (2) boats in favor of Petitioner Lim Tong Lim
to the Corporation.[4] undertaking of the defendants was to divide the profits only to serve as security for the loan extended by
The buyers, however, failed to pay for the among themselves which is what a partnership Jesus Lim;
fishing nets and the floats; hence, private respondent essentially is x x x. By a contract of partnership, two or (5) That Lim, Chua and Yao agreed that the
filed a collection suit against Chua, Yao and Petitioner more persons bind themselves to contribute money, refurbishing , re-equipping, repairing, dry docking and
Lim Tong Lim with a prayer for a writ of preliminary property or industry to a common fund with the other expenses for the boats would be shouldered by
attachment. The suit was brought against the three in intention of dividing the profits among themselves Chua and Yao;
their capacities as general partners, on the allegation (Article 1767, New Civil Code).[13] (6) That because of the unavailability of funds, Jesus
that Ocean Quest Fishing Corporation was a Hence, petitioner brought this recourse before Lim again extended a loan to the partnership in the
nonexistent corporation as shown by a Certification this Court.[14] amount of P1 million secured by a check, because of
from the Securities and Exchange Commission.[5] On The Issues which, Yao and Chua entrusted the ownership papers
September 20, 1990, the lower court issued a Writ of In his Petition and Memorandum, Lim asks this of two other boats, Chuas FB Lady Anne Mel and
Preliminary Attachment, which the sheriff enforced by Court to reverse the assailed Decision on the following Yaos FB Tracy to Lim Tong Lim.
attaching the fishing nets on board F/B Lourdes which grounds: (7) That in pursuance of the business agreement,
was then docked at the Fisheries Port, Navotas, Metro I THE COURT OF APPEALS ERRED IN HOLDING, Peter Yao and Antonio Chua bought nets from
Manila. BASED ON A COMPROMISE AGREEMENT THAT Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported the existence of a partnership was based only on the represented itself to be a corporation, will be estopped
business name. Compromise Agreement. from denying its corporate capacity in a suit against it
(8) That subsequently, Civil Case No. 1492-MN was Petitioner Was a Partner, Not a Lessor by a third person who relied in good faith on such
filed in the Malabon RTC, Branch 72 by Antonio Chua We are not convinced by petitioners argument representation. It cannot allege lack of personality to
and Peter Yao against Lim Tong Lim for (a) that he was merely the lessor of the boats to Chua and be sued to evade its responsibility for a contract it
declaration of nullity of commercial documents; (b) Yao, not a partner in the fishing venture. His argument entered into and by virtue of which it received
reformation of contracts; (c) declaration of ownership allegedly finds support in the Contract of Lease and advantages and benefits.
of fishing boats; (4) injunction; and (e) damages. the registration papers showing that he was the owner On the other hand, a third party who, knowing
(9) That the case was amicably settled through a of the boats, including F/B Lourdes where the nets an association to be unincorporated, nonetheless
Compromise Agreement executed between the were found. treated it as a corporation and received benefits from
parties-litigants the terms of which are already His allegation defies logic. In effect, he would it, may be barred from denying its corporate existence
enumerated above. like this Court to believe that he consented to the sale in a suit brought against the alleged corporation. In
From the factual findings of both lower courts, it of his own boats to pay a debt of Chua and Yao, with such case, all those who benefited from the
is clear that Chua, Yao and Lim had decided to the excess of the proceeds to be divided among the transaction made by the ostensible corporation,
engage in a fishing business, which they started by three of them. No lessor would do what petitioner despite knowledge of its legal defects, may be held
buying boats worth P3.35 million, financed by a loan did. Indeed, his consent to the sale proved that there liable for contracts they impliedly assented to or took
secured from Jesus Lim who was petitioners brother.In was a preexisting partnership among all three. advantage of.
their Compromise Agreement, they subsequently Verily, as found by the lower courts, petitioner There is no dispute that the respondent,
revealed their intention to pay the loan with the entered into a business agreement with Chua and Philippine Fishing Gear Industries, is entitled to be
proceeds of the sale of the boats, and to divide equally Yao, in which debts were undertaken in order to paid for the nets it sold. The only question here is
among them the excess or loss. These boats, the finance the acquisition and the upgrading of the whether petitioner should be held jointly[18] liable with
purchase and the repair of which were financed with vessels which would be used in their fishing Chua and Yao. Petitioner contests such liability,
borrowed money, fell under the term common fund business. The sale of the boats, as well as the division insisting that only those who dealt in the name of the
under Article 1767. The contribution to such fund need among the three of the balance remaining after the ostensible corporation should be held liable. Since his
not be cash or fixed assets; it could be an intangible payment of their loans, proves beyond cavil that F/B name does not appear on any of the contracts and
like credit or industry. That the parties agreed that any Lourdes, though registered in his name, was not his since he never directly transacted with the respondent
loss or profit from the sale and operation of the boats own property but an asset of the partnership. It is not corporation, ergo, he cannot be held liable.
would be divided equally among them also shows that uncommon to register the properties acquired from a Unquestionably, petitioner benefited from the
they had indeed formed a partnership. loan in the name of the person the lender trusts, who use of the nets found inside F/B Lourdes, the boat
Moreover, it is clear that the partnership in this case is the petitioner himself. After all, he is the which has earlier been proven to be an asset of the
extended not only to the purchase of the boat, but also brother of the creditor, Jesus Lim. partnership. He in fact questions the attachment of the
to that of the nets and the floats. The fishing nets and We stress that it is unreasonable indeed, it is nets, because the Writ has effectively stopped his use
the floats, both essential to fishing, were obviously absurd -- for petitioner to sell his property to pay a debt of the fishing vessel.
acquired in furtherance of their business. It would have he did not incur, if the relationship among the three of It is difficult to disagree with the RTC and the
been inconceivable for Lim to involve himself so much them was merely that of lessor-lessee, instead of CA that Lim, Chua and Yao decided to form a
in buying the boat but not in the acquisition of the partners. corporation. Although it was never legally formed for
aforesaid equipment, without which the business could Corporation by Estoppel unknown reasons, this fact alone does not preclude
not have proceeded. Petitioner argues that under the doctrine of the liabilities of the three as contracting parties in
Given the preceding facts, it is clear that there corporation by estoppel, liability can be imputed only to representation of it. Clearly, under the law on estoppel,
was, among petitioner, Chua and Yao, a partnership Chua and Yao, and not to him. Again, we disagree. those acting on behalf of a corporation and those
engaged in the fishing business. They purchased the Section 21 of the Corporation Code of the benefited by it, knowing it to be without valid existence,
boats, which constituted the main assets of the Philippines provides: are held liable as general partners.
partnership, and they agreed that the proceeds from Sec. 21. Corporation by estoppel. - All persons who Technically, it is true that petitioner did
the sales and operations thereof would be divided assume to act as a corporation knowing it to be not directly act on behalf of the corporation. However,
among them. without authority to do so shall be liable as general having reaped the benefits of the contract entered into
We stress that under Rule 45, a petition for partners for all debts, liabilities and damages incurred by persons with whom he previously had an existing
review like the present case should involve only or arising as a result thereof: Provided however, That relationship, he is deemed to be part of said
questions of law. Thus, the foregoing factual findings when any such ostensible corporation is sued on any association and is covered by the scope of the
of the RTC and the CA are binding on this Court, transaction entered by it as a corporation or on any tort doctrine of corporation by estoppel. We reiterate the
absent any cogent proof that the present action is committed by it as such, it shall not be allowed to use ruling of the Court in Alonso v. Villamor:[19]
embraced by one of the exceptions to the rule. [16] In as a defense its lack of corporate personality. A litigation is not a game of technicalities in which one,
assailing the factual findings of the two lower courts, One who assumes an obligation to an ostensible more deeply schooled and skilled in the subtle art of
petitioner effectively goes beyond the bounds of a corporation as such, cannot resist performance thereof movement and position , entraps and destroys the
petition for review under Rule 45. on the ground that there was in fact no corporation. other. It is, rather, a contest in which each contending
Compromise Agreement Not the Sole Basis of Partnership Thus, even if the ostensible corporate entity is party fully and fairly lays before the court the facts in
Petitioner argues that the appellate courts sole proven to be legally nonexistent, a party may be issue and then, brushing aside as wholly trivial and
basis for assuming the existence of a partnership was estopped from denying its corporate existence. The indecisive all imperfections of form and technicalities
the Compromise Agreement. He also claims that the reason behind this doctrine is obvious - an of procedure, asks that justice be done upon the
settlement was entered into only to end the dispute unincorporated association has no personality and merits. Lawsuits, unlike duels, are not to be won by a
among them, but not to adjudicate their preexisting would be incompetent to act and appropriate for itself rapiers thrust. Technicality, when it deserts its proper
rights and obligations. His arguments are the power and attributes of a corporation as provided office as an aid to justice and becomes its great
baseless. The Agreement was but an embodiment of by law; it cannot create agents or confer authority on hindrance and chief enemy, deserves scant
the relationship extant among the parties prior to its another to act in its behalf; thus, those who act or consideration from courts. There should be no vested
execution. purport to act as its representatives or agents do so rights in technicalities.
A proper adjudication of claimants rights without authority and at their own risk. And as it is an Third Issue: Validity of Attachment
mandates that courts must review and thoroughly elementary principle of law that a person who acts as Finally, petitioner claims that the Writ of
appraise all relevant facts. Both lower courts have an agent without authority or without a principal is Attachment was improperly issued against the
done so and have found, correctly, a preexisting himself regarded as the principal, possessed of all the nets. We agree with the Court of Appeals that this
partnership among the parties. In implying that the right and subject to all the liabilities of a principal, a issue is now moot and academic. As previously
lower courts have decided on the basis of one piece of person acting or purporting to act on behalf of a discussed, F/B Lourdes was an asset of the
document alone, petitioner fails to appreciate that the corporation which has no valid existence assumes partnership and that it was placed in the name of
CA and the RTC delved into the history of the such privileges and obligations and becomes petitioner, only to assure payment of the debt he and
document and explored all the possible consequential personally liable for contracts entered into or for other his partners owed. The nets and the floats were
combinations in harmony with law, logic and acts performed as such agent.[17] specifically manufactured and tailor-made according to
fairness. Verily, the two lower courts factual findings The doctrine of corporation by estoppel may their own design, and were bought and used in the
mentioned above nullified petitioners argument that apply to the alleged corporation and to a third party. In fishing venture they agreed upon. Hence, the issuance
the first instance, an unincorporated association, which of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by his commissions were inadequately remitted, .00 - The 15 percent share of the [respondent]
specific agreement, ownership of the nets remained [petitioner] entrusted P200,000.00 to x x x Nieves to NIEVES S. REYES in the profits of her joint
with Respondent Philippine Fishing Gear, until full be given to Gragera. x x x Nieves allegedly failed to venture with the [petitioner]. 39.2.2. Six (6)
payment thereof. account for the amount. [Petitioner] asserted that after percent of - As damages from P3,064,428.00
WHEREFORE, the Petition is DENIED and the examination of the records, he found that of the total August 3, 1987 until the P3,064,428.00 is fully
assailed Decision AFFIRMED. Costs against amount of P4,623,201.90 entrusted to [respondents], paid.
petitioner. only P3,068,133.20 was remitted to Gragera, thereby 39.2.3. P50,000.00 - As moral damages
leaving the balance of P1,555,065.70 unaccounted for. 39.2.4. P10,000.00 - As exemplary damages
FERNANDOSANTOS, petitioner, vs. Spoues In their answer, [respondents] asserted that they were 39.3. The [petitioner] FERNANDO J. SANTOS
ARSENIO and NIEVES partners and not mere employees of [petitioner]. The is ordered to pay the [respondent] ARSENIO
As a general rule, the factual findings of the complaint, they alleged, was filed to preempt and REYES, the following: 39.3.1. P2,899,739.50 -
Court of Appeals affirming those of the trial court are prevent them from claiming their rightful share to the The balance of the 15 percent share of the
binding on the Supreme Court. However, there are profits of the partnership. [respondent] ARSENIO REYES in the profits
several exceptions to this principle. In the present x x x Arsenio alleged that he was enticed by of his joint venture with the [petitioner].
case, we find occasion to apply both the rule and one [petitioner] to take the place of Zabat after [petitioner] 39.3.2. Six (6) percent of - As damages
of the exceptions. learned of Zabats activities.Arsenio resigned from his from P2,899,739.50 August 3, 1987 until
The Case job at the Asian Development Bank to join the the P2,899,739.50 is fully paid.
Before us is a Petition for Review on Certiorari partnership. 39.3.3. P25,000.00 - As moral damages
assailing the November 28, 1997 Decision,[1] as well For her part, x x x Nieves claimed that she participated 39.3.4. P10,000.00 - As exemplary damages
as the August 17, 1998 and the October 9, 1998 in the business as a partner, as the lending activity 39.4. The [petitioner] FERNANDO J. SANTOS
Resolutions,[2] issued by the Court of Appeals (CA) in with Monte Maria originated from her initiative. Except is ordered to pay the [respondents]:
CA-GR CV No. 34742. The Assailed Decision for the limited period of July 8, 1986 through August 39.4.1. P50,000.00 - As attorneys fees; and
disposed as follows: 20, 1986, she did not handle sums intended for 39.4.2 The cost of the suit.[8]
WHEREFORE, the decision appealed from is Gragera. Collections were turned over to Gragera Ruling of the Court of Appeals
AFFIRMED save as for the counterclaim which is because he guaranteed 100% payment of all sums On appeal, the Decision of the trial court was
hereby DISMISSED. Costs against [petitioner].[3] loaned by Monte Maria. Entries she made on upheld, and the counterclaim of respondents was
Resolving respondents Motion for worksheets were based on this assumptive 100% dismissed. Upon the latters Motion for
Reconsideration, the August 17, 1998 Resolution ruled collection of all loans. The loan releases were made Reconsideration, however, the trial courts Decision
as follows: less Grageras agreed commission. Because of this was reinstated in toto. Subsequently, petitioners own
WHEREFORE, [respondents] motion for arrangement, she neither received payments from Motion for Reconsideration was denied in the CA
reconsideration is GRANTED. Accordingly, the courts borrowers nor remitted any amount to Gragera. Her Resolution of October 9, 1998.
decision dated November 28, 1997 is hereby job was merely to make worksheets (Exhs. 15 to 15- The CA ruled that the following circumstances
MODIFIED in that the decision appealed from is DDDDDDDDDD) to convey to [petitioner] how much indicated the existence of a partnership among the
AFFIRMED in toto, with costs against [petitioner].[4] he would earn if all the sums guaranteed by Gragera parties: (1) it was Nieves who broached to petitioner
The October 9, 1998 Resolution denied for lack were collected. the idea of starting a money-lending business and
of merit petitioners Motion for Reconsideration of the [Petitioner] on the other hand insisted that introduced him to Gragera; (2) Arsenio received
August 17, 1998 Resolution.[5] [respondents] were his mere employees and not dividends or profit-shares covering the period July 15
The Facts partners with respect to the agreement with to August 7, 1986 (Exh. 6); and (3) the partnership
The events that led to this case are Gragera. He claimed that after he discovered Zabats contract was executed after the Agreement with
summarized by the CA as follows: activities, he ceased infusing funds, thereby causing Gragera and petitioner and thus showed the parties
Sometime in June, 1986, [Petitioner] Fernando Santos the extinguishment of the partnership. The agreement intention to consider it as a transaction of the
and [Respondent] Nieves Reyes were introduced to with Gragera was a distinct partnership [from] that of partnership. In their common venture, petitioner
each other by one Meliton Zabat regarding a lending [respondent] and Zabat. [Petitioner] asserted that invested capital while respondents contributed industry
business venture proposed by Nieves. It was verbally [respondents] were hired as salaried employees with or services, with the intention of sharing in the profits
agreed that [petitioner would] act as financier while respect to the partnership between [petitioner] and of the business.
[Nieves] and Zabat [would] take charge of solicitation Gragera. The CA disbelieved petitioners claim that
of members and collection of loan payments. The [Petitioner] further asserted that in Nieves capacity as Nieves had misappropriated a total of P200,000 which
venture was launched on June 13, 1986, with the bookkeeper, she received all payments from which was supposed to be delivered to Gragera to cover
understanding that [petitioner] would receive 70% of Nieves deducted Grageras commission. The unpaid commissions. It was his task to collect the
the profits while x x x Nieves and Zabat would earn commission would then be remitted to Gragera. She amounts due, while hers was merely to prepare the
15% each. likewise determined loan releases. daily cash flow reports (Exhs. 15-15DDDDDDDDDD)
In July, 1986, x x x Nieves introduced Cesar Gragera During the pre-trial, the parties narrowed the issues to to keep track of his collections.
to [petitioner]. Gragera, as chairman of the Monte the following points: whether [respondents] were Hence, this Petition.[9]
Maria Development Corporation[6] (Monte Maria, for employees or partners of [petitioner], whether Issue
brevity), sought short-term loans for members of the [petitioner] entrusted money to [respondents] for Petitioner asks this Court to rule on the following
corporation. [Petitioner] and Gragera executed an delivery to Gragera, whether the P1,555,068.70 issues:[10]
agreement providing funds for Monte Marias claimed under the complaint was actually remitted to Whether or not espondent Court of Appeals acted with
members. Under the agreement, Monte Maria, Gragera and whether [respondents] were entitled to grave abuse of discretion tantamount to excess or lack
represented by Gragera, was entitled to P1.31 their counterclaim for share in the profits.[7] of jurisdiction in:
commission per thousand paid daily to [petitioner] Ruling of the Trial Court
(Exh. A). x x x Nieves kept the books as representative In its August 13, 1991 Decision, the trial court Holding that private respondents were
of [petitioner] while [Respondent] Arsenio, husband of held that respondents were partners, not mere partners/joint venturers and not employees of
Nieves, acted as credit investigator. employees, of petitioner. It further ruled that Gragera Santos in connection with the agreement
On August 6, 1986, [petitioner], x x x [Nieves] and was only a commission agent of petitioner, not his between Santos and Monte Maria/Gragera;
Zabat executed the Article of Agreement which partner. Petitioner moreover failed to prove that he had
formalized their earlier verbal arrangement. entrusted any money to Nieves. Thus, respondents Affirming the findings of the trial court that the
[Petitioner] and [Nieves] later discovered that their counterclaim for their share in the partnership and for phrase Received by on documents signed by
partner Zabat engaged in the same lending business damages was granted. The trial court disposed as Nieves Reyes signified receipt of copies of the
in competition with their partnership[.] Zabat was follows: documents and not of the sums shown thereon;
thereby expelled from the partnership. The operations WHEREFORE, the Court hereby renders
with Monte Maria continued. judgment as follows: Affirming that the signature of Nieves Reyes on
On June 5, 1987, [petitioner] filed a complaint for THE SECOND AMENDED COMPLAINT dated Exhibit E was a forgery;
recovery of sum of money and damages. [Petitioner] July 26, 1989 is DISMISSED.
charged [respondents], allegedly in their capacities as The [Petitioner] FERNANDO J. SANTOS is Finding that Exhibit H [did] not establish receipt
employees of [petitioner], with having misappropriated ordered to pay the [Respondent] NIEVES S. by Nieves Reyes of P200,000.00 for delivery to
funds intended for Gragera for the period July 8, 1986 REYES, the following: Gragera;
up to March 31, 1987. Upon Grageras complaint that
Affirming the dismissal of Santos [Second] petitioner getting the lions share.[13] This stipulation Neither can we give probative value to Exhibit E which
Amended Complaint; clearly proved the establishment of a partnership. allegedly shows acknowledgment of the remittance of
Affirming the decision of the trial court, We find no cogent reason to disagree with the commissions to Verona Gonzales. The document is a
upholding private respondents counterclaim; lower courts that the partnership continued lending private one and its due execution and authenticity
Denying Santos motion for reconsideration money to the members of the Monte Maria Community have not been duly proved as required in [S]ection 20,
dated September 11, 1998. Development Group, Inc., which later on changed its Rule 132 of the Rules of Court which states:
Succinctly put, the following were the issues business name to Private Association for Community Sec. 20. Proof of Private Document Before any private
raised by petitioner: (1) whether the parties Development, Inc. (PACDI). Nieves was not merely document offered as authentic is received in evidence,
relationship was one of partnership or of employer- petitioners employee. She discharged her its due execution and authenticity must be proved
employee; (2) whether Nieves misappropriated the bookkeeping duties in accordance with paragraphs 2 either:
sums of money allegedly entrusted to her for delivery and 3 of the Agreement, which states as follows: (a) By anyone who saw the document executed or
to Gragera as his commissions; and (3) whether 2. That the SECOND PARTY and THIRD PARTY shall written; or
respondents were entitled to the partnership profits as handle the solicitation and screening of prospective (b) By evidence of the genuineness of the signature or
determined by the trial court. borrowers, and shall x x x each be responsible in handwriting of the maker.
The Courts Ruling handling the collection of the loan payments of the Any other private document need only be identified as
The Petition is partly meritorious. borrowers that they each solicited. that which it is claimed to be.
First Issue: 3. That the bookkeeping and daily balancing of The court a quo even ruled that the signature thereon
Business Relationship account of the business operation shall be handled by was a forgery, as it found that:
Petitioner maintains that he employed the the SECOND PARTY.[14] x x x. But NIEVES denied that Exh. E-1 is her
services of respondent spouses in the money-lending The Second Party named in the Agreement signature; she claimed that it is a forgery. The initial
venture with Gragera, with Nieves as bookkeeper and was none other than Nieves Reyes. On the other stroke of Exh. E-1 starts from up and goes
Arsenio as credit investigator. That Nieves introduced hand, Arsenios duties as credit investigator are downward. The initial stroke of the genuine signatures
Gragera to Santos did not make her a partner.She was subsumed under the phrase screening of prospective of NIEVES (Exhs. A-3, B-1, F-1, among others) starts
only a witness to the Agreement between the borrowers. Because of this Agreement and the from below and goes upward. This difference in the
two. Separate from the partnership between petitioner disbursement of monthly allowances and profit shares start of the initial stroke of the signatures Exhs. E-1
and Gragera was that which existed among petitioner, or dividends (Exh. 6) to Arsenio, we uphold the factual and of the genuine signatures lends credence to
Nieves and Zabat, a partnership that was dissolved finding of both courts that he replaced Zabat in the Nieves claim that the signature Exh. E-1 is a forgery.
when Zabat was expelled. partnership. xxxxxxxxx
On the other hand, both the CA and the trial Indeed, the partnership was established to Nieves testimony that the schedules of daily payment
court rejected petitioners contentions and ruled that engage in a money-lending business, despite the fact (Exhs. B and F) were based on the predetermined
the business relationship was one of partnership. We that it was formalized only after the Memorandum of 100% collection as guaranteed by Gragera is credible
quote from the CA Decision, as follows: Agreement had been signed by petitioner and and clearly in accord with the evidence. A perusal of
[Respondents] were industrial partners of [petitioner]. x Gragera. Contrary to petitioners contention, there is no Exhs. B and F as well as Exhs. 15 to 15-
x x Nieves herself provided the initiative in the lending evidence to show that a different business venture is DDDDDDDDDD reveal that the entries were indeed
activities with Monte Maria. In consonance with the referred to in this Agreement, which was executed on based on the 100% assumptive collection guaranteed
agreement between appellant, Nieves and Zabat (later August 6, 1986, or about a month after the by Gragera. Thus, the total amount recorded on Exh.
replaced by Arsenio), [respondents] contributed Memorandum had been signed by petitioner and B is exactly the number of borrowers multiplied by the
industry to the common fund with the intention of Gragera on July 14, 1986. The Agreement itself attests projected collection of P150.00 per borrower. This
sharing in the profits of the partnership. [Respondents] to this fact: holds true for Exh. F.
provided services without which the partnership would WHEREAS, the parties have decided to formalize the Corollarily, Nieves explanation that the documents
not have [had] the wherewithal to carry on the purpose terms of their business relationship in order that their were pro forma and that she signed them not to signify
for which it was organized and as such [were] respective interests may be properly defined and that she collected the amounts but that she received
considered industrial partners (Evangelista v. Abad established for their mutual benefit and the documents themselves is more believable than
Santos, 51 SCRA 416 [1973]). understanding.[15] [petitioners] assertion that she actually handled the
While concededly, the partnership between Second Issue: amounts.
[petitioner,] Nieves and Zabat was technically No Proof of Misappropriation of Grageras Unpaid Contrary to [petitioners] assertion, Exhibit H does not
dissolved by the expulsion of Zabat therefrom, the Commission unequivocally establish that x x x Nieves
remaining partners simply continued the business of Petitioner faults the CA finding that Nieves did received P200,000.00 as commission for Gragera. As
the partnership without undergoing the procedure not misappropriate money intended for Grageras correctly stated by the court a quo, the document
relative to dissolution. Instead, they invited Arsenio to commission. According to him, Gragera remitted his showed a liquidation of P240,000.00 and
participate as a partner in their operations. There was daily collection to Nieves. This is shown by Exhibit B not P200,000.00.
therefore, no intent to dissolve the earlier (the Schedule of Daily Payments), which bears her Accordingly, we find Nieves testimony that after
partnership. The partnership between [petitioner,] signature under the words received by. For the period August 20, 1986, all collections were made by Gragera
Nieves and Arsenio simply took over and continued July 1986 to March 1987, Gragera should have earned believable and worthy of credence. Since Gragera
the business of the former partnership with Zabat, one a total commission of P4,282,429.30. However, guaranteed a daily 100% payment of the loans, he
of the incidents of which was the lending operations only P3,068,133.20 was received by him. Thus, took charge of the collections. As [petitioners]
with Monte Maria. petitioner infers that she misappropriated the representative, Nieves merely prepared the daily cash
xxxxxxxxx difference of P1,214,296.10, which represented the flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable
Gragera and [petitioner] were not partners. The unpaid commissions. Exhibit H is an untitled tabulation [petitioner] to keep track of Grageras
money-lending activities undertaken with Monte Maria which, according to him, shows that Gragera was also operations. Gragera on the other hand devised the
was done in pursuit of the business for which the entitled to a commission of P200,000, an amount that schedule of daily payment (Exhs. B and F) to record
partnership between [petitioner], Nieves and Zabat was never delivered by Nieves.[16] the projected gross daily collections.
(later Arsenio) was organized. Gragera who On this point, the CA ruled that Exhibits B, F, E As aptly observed by the court a quo:
represented Monte Maria was merely paid and H did not show that Nieves received for delivery to 26.1. As between the versions of SANTOS and
commissions in exchange for the collection of Gragera any amount from which the P1,214,296.10 NIEVES on how the commissions of GRAGERA [were]
loans. The commissions were fixed on gross returns, unpaid commission was supposed to come, and that paid to him[,] that of NIEVES is more logical and
regardless of the expenses incurred in the operation of such exhibits were insufficient proof that she had practical and therefore, more believable. SANTOS
the business. The sharing of gross returns does not in embezzled P200,000. Said the CA: version would have given rise to this improbable
itself establish a partnership.[11] The presentation of Exhibit D vaguely denominated as situation: GRAGERA would collect the daily
We agree with both courts on this point. By the members ledger does not clearly establish that Nieves amortizations and then give them to NIEVES; NIEVES
contract of partnership, two or more persons bind received amounts from Monte Marias members. The would get GRAGERAs commissions from the
themselves to contribute money, property or industry document does not clearly state what amounts the amortizations and then give such commission to
to a common fund, with the intention of dividing the entries thereon represent. More importantly, Nieves GRAGERA.[17]
profits among themselves.[12] The Articles of made the entries for the limited period of January 11, These findings are in harmony with the trial
Agreement stipulated that the signatories shall share 1987 to February 17, 1987 only while the rest were courts ruling, which we quote below:
the profits of the business in a 70-15-15 manner, with made by Grageras own staff. 21. Exh. H does not prove that SANTOS gave to
NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth made such a determination [in its] decision dated obviously labored over a mistaken notion that Exhibit
column ADDITIONAL CASH that the additional cash August 13, 1991 on the basis of the facts on record.[20] 10-I-1 represented the net profits earned by the
was P240,000.00. If Exh. H were the liquidation of The trial courts ruling alluded to above is partnership.
the P200,000.00 as alleged by SANTOS, then his quoted below: For the purpose of determining the profit that
claim is not true. This is so because it is a liquidation 27. The defendants counterclaim for the payment of should go to an industrial partner (who shares in the
of the sum of P240,000.00. their share in the profits of their joint venture with profits but is not liable for the losses), the gross
21.1. SANTOS claimed that he learned of NIEVES SANTOS is supported by the evidence. income from all the transactions carried on by the firm
failure to give the P200,000.00 to GRAGERA when he 27.1. NIEVES testified that: Her claim to a share in the must be added together, and from this sum must be
received the latters letter complaining of its delayed profits is based on the agreement (Exhs. 5, 5-A and 5- subtracted the expenses or the losses sustained in the
release. Assuming as true SANTOS claim that he B). The profits are shown in the working papers (Exhs. business. Only in the difference representing the net
gave P200,000.00 to GRAGERA, there is no 10 to 10-I, inclusive) which she prepared. Exhs. 10 to profits does the industrial partner share. But if, on the
competent evidence that NIEVES did not give it to 10-I (inclusive) were based on the daily cash flow contrary, the losses exceed the income, the industrial
GRAGERA. The only proof that NIEVES did not give it reports of which Exh. 3 is a sample. The originals of partner does not share in the losses.[25]
is the letter. But SANTOS did not even present the the daily cash flow reports (Exhs. 3 and 15 to 15-D When the judgment of the CA is premised on a
letter in evidence. He did not explain why he did not. (10) were given to SANTOS. The joint venture had a misapprehension of facts or a failure to notice certain
21.2. The evidence shows that all money transactions net profit of P20,429,520.00 (Exh. 10-I-1), from its relevant facts that would otherwise justify a different
of the money-lending business of SANTOS were operations from June 13, 1986 to April 19, 1987 (Exh. conclusion, as in this particular issue, a review of its
covered by petty cash vouchers. It is therefore strange 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) factual findings may be conducted, as an exception to
why SANTOS did not present any voucher or receipt and ARSENIO, about P2,926,000.00, in the profits. the general rule applied to the first two issues.[26]
covering the P200,000.00.[18] 27.1.1 SANTOS never denied NIEVES testimony that The trial court has the advantage of observing
In sum, the lower courts found it unbelievable the money-lending business he was engaged in netted the witnesses while they are testifying, an opportunity
that Nieves had embezzled P1,555,068.70 from the a profit and that the originals of the daily case flow not available to appellate courts. Thus, its assessment
partnership. She did not remit P1,214,296.10 to reports were furnished to him. SANTOS however of the credibility of witnesses and their testimonies are
Gragera, because he had deducted his commissions alleged that the money-lending operation of his joint accorded great weight, even finality, when supported
before remitting his collections. Exhibits B and F are venture with NIEVES and ZABAT resulted in a loss of by substantial evidence; more so when such
merely computations of what Gragera should collect about half a million pesos to him. But such loss, even if assessment is affirmed by the CA. But when the issue
for the day; they do not show that Nieves received the true, does not negate NIEVES claim that overall, the involves the evaluation of exhibits or documents that
amounts stated therein. Neither is there sufficient proof joint venture among them SANTOS, NIEVES and are attached to the case records, as in the third issue,
that she misappropriated P200,000, because Exhibit H ARSENIO netted a profit. There is no reason for the the rule may be relaxed. Under that situation, this
does not indicate that such amount was received by Court to doubt the veracity of [the testimony of] Court has a similar opportunity to inspect, examine
her; in fact, it shows a different figure. NIEVES. and evaluate those records, independently of the lower
Petitioner has utterly failed to demonstrate why 27.2 The P26,260.50 which ARSENIO received as courts.Hence, we deem the award of the partnership
a review of these factual findings is warranted. Well- part of his share in the profits (Exhs. 6, 6-A and 6-B) share, as computed by the trial court and adopted by
entrenched is the basic rule that factual findings of the should be deducted from his total share.[21] the CA, to be incomplete and not binding on this Court.
Court of Appeals affirming those of the trial court are After a close examination of respondents WHEREFORE, the Petition is
binding and conclusive on the Supreme exhibits, we find reason to disagree with the partly GRANTED. The assailed November 28, 1997
Court.[19] Although there are exceptions to this rule, CA. Exhibit 10-I[22] shows that the partnership earned a Decision is AFFIRMED, but the challenged
petitioner has not satisfactorily shown that any of them total income of P20,429,520 for the period June 13, Resolutions dated August 17, 1998 and October 9,
is applicable to this issue. 1986 until April 19, 1987. This entry is derived from the 1998 are REVERSED and SET ASIDE. No costs.
Third Issue:Accounting of Partnership sum of the amounts under the following column
Petitioner refuses any liability for respondents headings: 2-Day Advance Collection, Service Fee, 8. Tocao vs CA 365 SCRA 463 2001
claims on the profits of the partnership. He maintains Notarial Fee, Application Fee, Net Interest Income and MARJORIE TOCAO and WILLIAM T.
that both business propositions were flops, as his Interest Income on Investment. Such entries represent BELO, petitioners, vs. COURT OF
investments were consumed and eaten up by the the collections of the money-lending business or its APPEALS and NENITA A.
commissions orchestrated to be due Gragera a gross income. ANAY, respondents.
situation that could not have been rendered possible The total income shown on Exhibit 10-I did not
without complicity between Nieves and Gragera. consider the expenses sustained by the The inherent powers of a Court to amend and
Respondent spouses, on the other hand, partnership. For instance, it did not factor in the gross control its processes and orders so as to make them
postulate that petitioner instituted the action below to loan releases representing the money loaned to conformable to law and justice includes the right to
avoid payment of the demands of Nieves, because clients. Since the business is money-lending, such reverse itself, especially when in its honest opinion it
sometime in March 1987, she signified to petitioner releases are comparable with the inventory or supplies has committed an error or mistake in judgment, and
that it was about time to get her share of the profits in other business enterprises. that to adhere to its decision will cause injustice to a
which had already accumulated to some P3 million. Noticeably missing from the computation of the party litigant.[1]
Respondents add that while the partnership has not total income is the deduction of the weekly allowance On November 14, 2001, petitioners Marjorie
declared dividends or liquidated its earnings, the disbursed to respondents. Exhibits I et seq. and J et Tocao and William T. Belo filed a Motion for
profits are already reflected on paper. To prove the seq.[23] show that Arsenio received allowances from Reconsideration of our Decision dated October 4,
counterclaim of Nieves, the spouses show that from July 19, 1986 to March 27, 1987 in the aggregate 2000. They maintain that there was no partnership
June 13, 1986 up to April 19, 1987, the profit amount of P25,500; and Nieves, from July 12, 1986 to bettween petitioner Belo, on the one hand, and
totaled P20,429,520 (Exhs. 10 et seq. and 15 et March 27, 1987 in the total amount of P25,600. These respondent Nenita A. Anay, on the other hand; and
seq.). Based on that income, her 15 percent share allowances are different from the profit already that the latter being merely an employee of petitioner
under the joint venture amounts to P3,064,428 (Exh. received by Arsenio. They represent expenses that Tocao.
10-I-3); and Arsenios, P2,026,000 minus the P30,000 should have been deducted from the business After a careful review of the evidence
which was already advanced to him (Petty Cash profits. The point is that all expenses incurred by the presented, we are convinced that, indeed, petitioner
Vouchers, Exhs. 6, 6-A to 6-B). money-lending enterprise of the parties must first be Belo acted merely as guarantor of Geminesse
The CA originally held that respondents deducted from the total income in order to arrive at the Enterprise. This was categorically affirmed by
counterclaim was premature, pending an accounting of net profit of the partnership. The share of each one of respondents own witness, Elizabeth Bantilan, during
the partnership. However, in its assailed Resolution of them should be based on this net profit and not from her cross-examination. Furthermore, Bantilan testified
August 17, 1998, it turned volte face. Affirming the trial the gross income or total income reflected in Exhibit that it was Peter Lo who was the companys
courts ruling on the counterclaim, it held as follows: 10-I, which the two courts invariably referred to as financier. Thus:
We earlier ruled that there is still need for an cash flow sheets. Q You mentioned a while ago the name William
accounting of the profits and losses of the partnership Similarly, Exhibits 15 et seq.,[24] which are the Belo. Now, what is the role of William Belo with
before we can rule with certainty as to the respective Daily Cashflow Reports, do not reflect the business Geminesse Enterprise?
shares of the partners. Upon a further review of the expenses incurred by the parties, because they show A William Belo is the friend of Marjorie Tocao and he
records of this case, however, there appears to be only the daily cash collections. Contrary to the rulings was the guarantor of the company.
sufficient basis to determine the amount of shares of of both the trial and the appellate courts, respondents Q What do you mean by guarantor?
the parties and damages incurred by exhibits do not reflect the complete financial condition
[respondents]. The fact is that the court a quo already of the money-lending business. The lower courts
A He guarantees the stocks that she owes somebody defendant's consent to the agreement, Exhibit A, was
who is Peter Lo and he acts as guarantor for us. We On November 29, 1947, the plaintiff entered on a secured by the representation of plaintiff that he was
can borrow money from him. written agreement, Exhibit A, with the defendant, the the owner, or was about to become owner of an
Q You mentioned a certain Peter Lo. Who is this Peter
most important provisions of which are (1) that they exclusive bottling franchise, which representation was
Lo? shall organize a partnership for the bottling and false, and plaintiff did not secure the franchise, but
A Peter Lo is based in Singapore. distribution of Mision soft drinks, plaintiff to act as was given to defendant himself; (2) that defendant did
Q What is the role of Peter Lo in the industrial partner or manager, and the defendant as a not fail to carry out his undertakings, but that it was
Geminesse Enterprise? capitalist, furnishing the capital necessary therefor; (2) plaintiff who failed; (3) that plaintiff agreed to contribute
A He is the one fixing our orders that open that the defendant was to decide matters of general the exclusive franchise to the partnership, but plaintiff
the L/C. policy regarding the business, while the plaintiff was to failed to do so. He also presented a counter-claim for
Q You mean Peter Lo is the financier? attend to the operation and development of the bottling P200,000 as damages. On these issues the parties
A Yes, he is the financier. plant; (3) that the plaintiff was to secure the Mission went to trial, and thereafter the Court of First Instance
Q And the defendant William Belo is merely Soft Drinks franchise for and in behalf of the proposed rendered judgment ordering defendant to render an
the guarantor of Geminesse Enterprise, am partnership; and (4) that the plaintiff was to receive 30 accounting of the profits of the bottling and distribution
I correct? per cent of the net profits of the business. The above business, subject of the action, and to pay plaintiff 15
A Yes, sir.[2] agreement was arrived at after various conferences percent thereof. it held that the execution of the
The foregoing was neither refuted nor and consultations by and between them, with the contract of partnership could not be enforced upon the
contradicted by respondents evidence. It should be assistance of their respective attorneys. Prior to parties, but it also held that the defense of fraud was
recalled that the business relationship created entering into this agreement, plaintiff had informed the not proved. Against this judgment both parties have
between petitioner Tocao and respondent Anay was Mission Dry Corporation of Los Angeles, California, appealed.
an informal partnership, which was not even recordedU.S.A., manufacturers of the bases and ingridients of The most important question of fact to be determined
with the Securities and Exchange Commission. As the beverages bearing its name, that he had interested is whether defendant had falsely represented that he
such, it was understandable that Belo, who was aftera prominent financier (defendant herein) in the had an exclusive franchise to bottle Mission
all petitioner Tocaos good friend and confidante, would
business, who was willing to invest half a million beverages, and whether this false representation or
occasionally participate in the affairs of the business,
dollars in the bottling and distribution of the said fraud, if it existed, annuls the agreement to form the
although never in a formal or official capacity.[3] Again,
beverages, and requested, in order that he may close partnership. The trial court found that it is improbable
respondents witness, Elizabeth Bantilan, confirmed the deal with him, that the right to bottle and distribute that defendant was never shown the letter, Exhibit J,
that petitioner Belos presence in Geminesse be granted him for a limited time under the condition granting plaintiff had; that the drafts of the contract
Enterprises meetings was merely as guarantor of the that it will finally be transferred to the corporation prior to the final one can not be considered for the
company and to help petitioner Tocao.[4] (Exhibit H). Pursuant for this request, plaintiff was purpose of determining the issue, as they are
Furthermore, no evidence was presented to given "a thirty-days" option on exclusive bottling and presumed to have been already integrated into the
show that petitioner Belo participated in the profits of
distribution rights for the Philippines" (Exhibit J). final agreement; that fraud is never presumed and
the business enterprise.Respondent herself professedFormal negotiations between plaintiff and defendant must be proved; that the parties were represented by
lack of knowledge that petitioner Belo received any began at a meeting on November 27, 1947, at the attorneys, and that if any party thereto got the worse
share in the net income of the partnership.[5]On theManila Hotel, with their lawyers attending. Before this part of the bargain, this fact alone would not invalidate
other hand, petitioner Tocao declared that petitioner
meeting plaintiff's lawyer had prepared the draft of the the agreement. On this appeal the defendant, as
Belo was not entitled to any share in the profits ofagreement, Exhibit II or OO, but this was not appellant, insists that plaintiff did represent to the
Geminesse Enterprise.[6] With no participation in the
satisfactory because a partnership, instead of a defendant that he had an exclusive franchise, when as
profits, petitioner Belo cannot be deemed a partner corporation, was desired. Defendant's lawyer prepared a matter of fact, at the time of its execution, he no
since the essence of a partnership is that the partners
after the meeting his own draft, Exhibit HH. This last longer had it as the same had expired, and that,
share in the profits and losses.[7] draft appears to be the main basis of the agreement, therefore, the consent of the defendant to the contract
Consequently, inasmuch as petitioner Belo was
Exhibit A. was vitiated by fraud and it is, consequently, null and
not a partner in Geminesse Enterprise, respondent The contract was finally signed by plaintiff on void.
had no cause of action against him and her complaintDecember 3, 1947. Plaintiff did not like to go to the Our study of the record and a consideration of all the
against him should accordingly be dismissed. United States without the agreement being not first surrounding circumstances lead us to believe that
As regards the award of damages, petitioners
signed. On that day plaintiff and defendant went to the defendant's contention is not without merit. Plaintiff's
argue that respondent should be deemed in bad faith United States, and on December 10, 1947, a franchise attorney, Mr. Laurea, testified that Woodhouse
for failing to account for stocks of Geminesse agreement (Exhibit V) was entered into the Mission presented himself as being the exclusive grantee of a
Enterprise amounting to P208,250.00 and that, Dry Corporation and Fortunato F. Halili and/or Charles franchise, thus:
accordingly, her claim for damages should be barred F. Woodhouse, granted defendant the exclusive right,
to that extent. We do not agree. Given the license, and authority to produce, bottle, distribute, and A. I don't recall any discussion about that matter. I took
circumstances surrounding private respondents sell Mision beverages in the Philippines. The plaintiff along with me the file of the office with regards to this
sudden ouster from the partnership by petitioner and the defendant thereafter returned to the matter. I notice from the first draft of the document
Tocao, her act of withholding whatever stocks were in
Philippines. Plaintiff reported for duty in January, 1948, which I prepared which calls for the organization of a
her possession and control was justified, if only tobut operations were not begun until the first week of corporation, that the manager, that is, Mr. Woodhouse,
serve as security for her claims against the February, 1948. In January plaintiff was given as is represented as being the exclusive grantee of a
partnership. However, while we do not agree that theadvance, on account of profits, the sum of P2,000, franchise from the Mission Dry Corporation. . . . (t.s.n.,
same renders private respondent in bad faith and besides the use of a car; in February, 1948, also p.518)
should bar her claim for damages, we find that the said
P2,000, and in March only P1,000. The car was As a matter of fact, the first draft that Mr. Laurea
sum of P208,250.00 should be deducted from withdrawn from plaintiff on March 9, 1948. prepared, which was made before the Manila Hotel
whatever amount is finally adjudged in her favor on the
When the bottling plant was already on operation, conference on November 27th, expressly states that
basis of the formal account of the partnership affairs to
plaintiff demanded of defendant that the partnership plaintiff had the exclusive franchise. Thus, the first
be submitted to the Regional Trial Court. papers be executed. At first defendant executed paragraph states:
WHEREFORE, based on the foregoing, the himself, saying there was no hurry. Then he promised
Motion for Reconsideration of petitioners is to do so after the sales of the product had been Whereas, the manager is the exclusive grantee of a
PARTIALLY GRANTED. The Regional Trial Court of increased to P50,000. As nothing definite was franchise from the Mission Dry Corporation San
Makati is hereby ordered to DISMISS the complaint, forthcoming, after this condition was attained, and as Francisco, California, for the bottling of Mission
docketed as Civil Case No. 88-509, as against defendant refused to give further allowances to products and their sale to the public throughout the
petitioner William T. Belo only. The sum of plaintiff, the latter caused his attorneys to take up the Philippines; . . . .
P208,250.00 shall be deducted from whatever amount matter with the defendant with a view to a possible
petitioner Marjorie Tocao shall be held liable to pay
settlement. as none could be arrived at, the present 3. The manager, upon the organization of the said
respondent after the formal accounting of the action was instituted. corporation, shall forthwith transfer to the said
partnership affairs. In his complaint plaintiff asks for the execution of the corporation his exclusive right to bottle Mission
contract of partnership, an accounting of the profits, products and to sell them throughout the Philippines. .
9. Woodhouse vs Halili 83 Phil 526 1953 and a share thereof of 30 per cent, as well as ...
CHARLES F. WOODHOUSE, plaintiff- damages in the amount of P200,000. In his answer The trial court did not consider this draft on the
appellant, vs.FORTUNATO F. HALILI, defendant- defendant alleges by way of defense (1) that principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of franchise for the latter if he had not actually obtained it damages. This Court had held that in order that fraud
considering the prior draft is not to vary, alter, or for himself? Defendant would not have gone into the may vitiate consent, it must be the causal (dolo
modify the agreement, but to discover the intent of the business unless the franchise was raised in his name, causante), not merely the incidental (dolo causante),
parties thereto and the circumstances surrounding the or at least in the name of the partnership. Plaintiff inducement to the making of the contract. (Article
execution of the contract. The issue of fact is: Did assured defendant he could get the franchise. Thus, in 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil.
plaintiff represent to defendant that he had an the draft prepared by defendant's attorney, Exhibit HH, 160.) The record abounds with circumstances
exclusive franchise? Certainly, his acts or statements the above provision is inserted, with the difference that indicative that the fact that the principal consideration,
prior to the agreement are essential and relevant to instead of securing the franchise for the defendant, the main cause that induced defendant to enter into
the determination of said issue. The act or statement plaintiff was to secure it for the partnership. To show the partnership agreement with plaintiff, was the ability
of the plaintiff was not sought to be introduced to that the insertion of the above provision does not of plaintiff to get the exclusive franchise to bottle and
change or alter the terms of the agreement, but to eliminate the probability of plaintiff representing distribute for the defendant or for the partnership. The
prove how he induced the defendant to enter into it himself as the exclusive grantee of the franchise, the original draft prepared by defendant's counsel was to
to prove the representations or inducements, or fraud, final agreement contains in its third paragraph the the effect that plaintiff obligated himself to secure a
with which or by which he secured the other party's following: franchise for the defendant. Correction appears in this
consent thereto. These are expressly excluded from . . . and the manager is ready and willing to allow the same original draft, but the change is made not as to
the parol evidence rule. (Bough and Bough vs. capitalists to use the exclusive franchise . . . the said obligation but as to the grantee. In the
Cantiveros and Hanopol, 40 Phil., 209; port Banga and in paragraph 11 it also expressly states: corrected draft the word "capitalist"(grantee) is
Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 1. In the event of the dissolution or termination of the changed to "partnership." The contract in its final form
602; III Moran 221,1952 rev. ed.) Fraud and false partnership, . . . the franchise from Mission Dry retains the substituted term "partnership." The
representation are an incident to the creation of a jural Corporation shall be reassigned to the manager. defendant was, therefore, led to the belief that plaintiff
act, not to its integration, and are not governed by the These statements confirm the conclusion that had the exclusive franchise, but that the same was to
rules on integration. Were parties prohibited from defendant believed, or was made to believe, that be secured for or transferred to the partnership. The
proving said representations or inducements, on the plaintiff was the grantee of an exclusive franchise. plaintiff no longer had the exclusive franchise, or the
ground that the agreement had already been entered Thus it is that it was also agreed upon that the option thereto, at the time the contract was perfected.
into, it would be impossible to prove misrepresentation franchise was to be transferred to the name of the But while he had already lost his option thereto (when
or fraud. Furthermore, the parol evidence rule partnership, and that, upon its dissolution or the contract was entered into), the principal obligation
expressly allows the evidence to be introduced when termination, the same shall be reassigned to the that he assumed or undertook was to secure said
the validity of an instrument is put in issue by the plaintiff. franchise for the partnership, as the bottler and
pleadings (section 22, par. (a), Rule 123, Rules of Again, the immediate reaction of defendant, when in distributor for the Mission Dry Corporation. We
Court),as in this case. California he learned that plaintiff did not have the declare, therefore, that if he was guilty of a false
That plaintiff did make the representation can also be exclusive franchise, was to reduce, as he himself representation, this was not the causal consideration,
easily gleaned from his own letters and his own testified, plaintiff's participation in the net profits to one or the principal inducement, that led plaintiff to enter
testimony. In his letter to Mission Dry Corporation, half of that agreed upon. He could not have had such into the partnership agreement.
Exhibit H, he said:. a feeling had not plaintiff actually made him believe But, on the other hand, this supposed ownership of an
. . . He told me to come back to him when I was able to that he (plaintiff) was the exclusive grantee of the exclusive franchise was actually the consideration or
speak with authority so that we could come to terms as franchise. price plaintiff gave in exchange for the share of 30
far as he and I were concerned. That is the reason The learned trial judge reasons in his decision that the percent granted him in the net profits of the
why the cable was sent. Without this authority, I am in assistance of counsel in the making of the contract partnership business. Defendant agreed to give
a poor bargaining position. . . made fraud improbable. Not necessarily, because the plaintiff 30 per cent share in the net profits because he
I would propose that you grant me the exclusive alleged representation took place before the was transferring his exclusive franchise to the
bottling and distributing rights for a limited period of conferences were had, in other words, plaintiff had partnership. Thus, in the draft prepared by plaintiff's
time, during which I may consummate my plants. . . . already represented to defendant, and the latter had lawyer, Exhibit II, the following provision exists:
By virtue of this letter the option on exclusive bottling already believed in, the existence of plaintiff's
was given to the plaintiff on October 14, 1947. (See exclusive franchise before the formal negotiations, and 3. That the MANAGER, upon the organization of the
Exhibit J.) If this option for an exclusive franchise was they were assisted by their lawyers only when said said corporation, shall forthwith transfer to the said
intended by plaintiff as an instrument with which to formal negotiations actually took place. Furthermore, corporation his exclusive right to bottle Mission
bargain with defendant and close the deal with him, he plaintiff's attorney testified that plaintiff had said that he products and to sell them throughout the
must have used his said option for the above-indicated had the exclusive franchise; and defendant's lawyer Philippines. As a consideration for such transfer, the
purpose, especially as it appears that he was able to testified that plaintiff explained to him, upon being CAPITALIST shall transfer to the Manager fully paid
secure, through its use, what he wanted. asked for the franchise, that he had left the papers non assessable shares of the said corporation . . .
Plaintiff's own version of the preliminary conversation evidencing it.(t.s.n., p. 266.) twenty-five per centum of the capital stock of the said
he had with defendant is to the effect that when We conclude from all the foregoing that plaintiff did corporation. (Par. 3, Exhibit II; emphasis ours.)
plaintiff called on the latter, the latter answered, "Well, actually represent to defendant that he was the holder Plaintiff had never been a bottler or a chemist; he
come back to me when you have the authority to of the exclusive franchise. The defendant was made to never had experience in the production or distribution
operate. I am definitely interested in the bottling believe, and he actually believed, that plaintiff had the of beverages. As a matter of fact, when the bottling
business." (t. s. n., pp. 60-61.) When after the exclusive franchise. Defendant would not perhaps plant being built, all that he suggested was about the
elections of 1949 plaintiff went to see the defendant have gone to California and incurred expenses for the toilet facilities for the laborers.
(and at that time he had already the option), he must trip, unless he believed that plaintiff did have that We conclude from the above that while the
have exultantly told defendant that he had the exclusive privilege, and that the latter would be able to representation that plaintiff had the exclusive franchise
authority already. It is improbable and incredible for get the same from the Mission Dry Corporation itself. did not vitiate defendant's consent to the contract, it
him to have disclosed the fact that he had only an Plaintiff knew what defendant believed about his was used by plaintiff to get from defendant a share of
option to the exclusive franchise, which was to last (plaintiff's) exclusive franchise, as he induced him to 30 per cent of the net profits; in other words, by
thirty days only, and still more improbable for him to that belief, and he may not be allowed to deny that pretending that he had the exclusive franchise and
have disclosed that, at the time of the signing of the defendant was induced by that belief. (IX Wigmore, promising to transfer it to defendant, he obtained the
formal agreement, his option had already expired. Had sec. 2423; Sec. 65, Rule 123, Rules of Court.) consent of the latter to give him (plaintiff) a big slice in
he done so, he would have destroyed all his We now come to the legal aspect of the false the net profits. This is the dolo incidente defined in
bargaining power and authority, and in all probability representation. Does it amount to a fraud that would article 1270 of the Spanish Civil Code, because it was
lost the deal itself. vitiate the contract? It must be noted that fraud is used to get the other party's consent to a big share in
The trial court reasoned, and the plaintiff on this manifested in illimitable number of degrees or the profits, an incidental matter in the agreement.
appeal argues, that plaintiff only undertook in the gradations, from the innocent praises of a salesman
agreement "to secure the Mission Dry franchise for about the excellence of his wares to those malicious Having arrived at the conclusion that the agreement
and in behalf of the proposed partnership." The machinations and representations that the law may not be declared null and void, the question that
existence of this provision in the final agreement does punishes as a crime. In consequence, article 1270 of next comes before us is, May the agreement be
not militate against plaintiff having represented that he the Spanish Civil Code distinguishes two kinds of (civil) carried out or executed? We find no merit in the claim
had the exclusive franchise; it rather strengthens belief fraud, the causal fraud, which may be a ground for the of plaintiff that the partnership was already a fait
that he did actually make the representation. How annulment of a contract, and the incidental deceit, accompli from the time of the operation of the plant, as
could plaintiff assure defendant that he would get the which only renders the party who employs it liable for it is evident from the very language of the agreement
that the parties intended that the execution of the REMOTIGUE, DOROTEO JARANTILLA and 1946-1969, she had helped in the management of the
agreement to form a partnership was to be carried out TOMASJARANTILLA, business they co-owned without receiving any salary.
at a later date. They expressly agreed that they shall This petition for review on certiorari1 seeks to modify Her salary was supposedly rolled back into the
form a partnership. (Par. No. 1, Exhibit A.) As a matter the Decision2 of the Court of Appeals dated July 30, business as additional investments in her behalf.
of fact, from the time that the franchise from the 2002 in CA-G.R. CV No. 40887, which set aside the Antonieta further claimed co-ownership of certain
Mission Dry Corporation was obtained in California, Decision3 dated December 18, 1992 of the Regional properties14 (the subject real properties) in the name of
plaintiff himself had been demanding that defendant Trial Court (RTC) of Quezon City, Branch 98 in Civil the defendants since the only way the defendants
comply with the agreement. And plaintiff's present Case No. Q-50464. could have purchased these properties were through
action seeks the enforcement of this agreement. The pertinent facts are as follows: the partnership as they had no other source of income.
Plaintiff's claim, therefore, is both inconsistent with The spouses Andres Jarantilla and Felisa Jaleco were The respondents, including petitioner herein, in their
their intention and incompatible with his own conduct survived by eight children: Federico, Delfin, Benjamin, Answer,15 denied having formed a partnership with
and suit. Conchita, Rosita, Pacita, Rafael and Antonieta in 1946. They claimed that she was in no
As the trial court correctly concluded, the defendant Antonieta.4 Petitioner Federico Jarantilla, Jr. is the position to do so as she was still in school at that time.
may not be compelled against his will to carry out the grandchild of the late Jarantilla spouses by their son In fact, the proceeds of the lands they partitioned were
agreement nor execute the partnership papers. Under Federico Jarantilla, Sr. and his wife Leda devoted to her studies. They also averred that while
the Spanish Civil Code, the defendant has an Jamili.5 Petitioner also has two other brothers: Doroteo she may have helped in the businesses that her older
obligation to do, not to give. The law recognizes the and Tomas Jarantilla. sister Conchita had formed with Buenaventura
individual's freedom or liberty to do an act he has Petitioner was one of the defendants in the complaint Remotigue, she was paid her due salary. They did not
promised to do, or not to do it, as he pleases. It falls before the RTC while Antonieta Jarantilla, his aunt, deny the existence and validity of the
within what Spanish commentators call a very was the plaintiff therein. His co-respondents before he "Acknowledgement of Participating Capital" and in fact
personal act (acto personalismo), of which courts may joined his aunt Antonieta in her complaint, were his used this as evidence to support their claim that
not compel compliance, as it is considered an act of late aunt Conchita Jarantillas husband Buenaventura Antonietas 8% share was limited to the businesses
violence to do so. Remotigue, who died during the pendency of the case, enumerated therein. With regard to Antonietas claim
The last question for us to decide is that of his cousin Cynthia Remotigue, the adopted daughter in their other corporations and businesses, the
damages,damages that plaintiff is entitled to receive of Conchita Jarantilla and Buenaventura Remotigue, respondents said these should also be limited to the
because of defendant's refusal to form the partnership, and his brothers Doroteo and Tomas Jarantilla.6 number of her shares as specified in the respective
and damages that defendant is also entitled to collect In 1948, the Jarantilla heirs extrajudicially partitioned articles of incorporation. The respondents denied
because of the falsity of plaintiff's representation. amongst themselves the real properties of their using the partnerships income to purchase the subject
(Article 1101, Spanish Civil Code.) Under article 1106 deceased parents.7 With the exception of the real real properties and said that the certificates of title
of the Spanish Civil Code the measure of damages is property adjudicated to Pacita Jarantilla, the heirs also should be binding on her.16
the actual loss suffered and the profits reasonably agreed to allot the produce of the said real properties During the course of the trial at the RTC, petitioner
expected to be received, embraced in the terms dao for the years 1947-1949 for the studies of Rafael and Federico Jarantilla, Jr., who was one of the original
emergente and lucro cesante. Plaintiff is entitled under Antonieta Jarantilla.8 defendants, entered into a compromise
the terms of the agreement to 30 per cent of the net In the same year, the spouses Rosita Jarantilla and agreement17 with Antonieta Jarantilla wherein he
profits of the business. Against this amount of Vivencio Deocampo entered into an agreement with supported Antonietas claims and asserted that he too
damages, we must set off the damage defendant the spouses Buenaventura Remotigue and Conchita was entitled to six percent (6%) of the supposed
suffered by plaintiff's misrepresentation that he had Jarantilla to provide mutual assistance to each other partnership in the same manner as Antonieta was. He
obtained a very high percentage of share in the profits. by way of financial support to any commercial and prayed for a favorable judgment in this wise:
We can do no better than follow the appraisal that the agricultural activity on a joint business arrangement. Defendant Federico Jarantilla, Jr., hereby joins in
parties themselves had adopted. This business relationship proved to be successful as plaintiffs prayer for an accounting from the other
When defendant learned in Los Angeles that plaintiff they were able to establish a manufacturing and defendants, and the partition of the properties of the
did not have the exclusive franchise which he trading business, acquire real properties, and co-ownership and the delivery to the plaintiff and to
pretended he had and which he had agreed to transfer construct buildings, among other things.9 This defendant Federico Jarantilla, Jr. of their rightful share
to the partnership, his spontaneous reaction was to partnership ended in 1973 when the parties, in an of the assets and properties in the co-
reduce plaintiff's share form 30 per cent to 15 per cent "Agreement,"10 voluntarily agreed to completely ownership.181avvphi1
only, to which reduction defendant appears to have dissolve their "joint business The RTC, in an Order19 dated March 25, 1992,
readily given his assent. It was under this relationship/arrangement."11 approved the Joint Motion to Approve Compromise
understanding, which amounts to a virtual modification On April 29, 1957, the spouses Buenaventura and Agreement20and on December 18, 1992, decided in
of the contract, that the bottling plant was established Conchita Remotigue executed a document wherein favor of Antonieta, to wit:
and plaintiff worked as Manager for the first three they acknowledged that while registered only in WHEREFORE, premises above-considered, the Court
months. If the contract may not be considered Buenaventura Remotigues name, they were not the renders judgment in favor of the plaintiff Antonieta
modified as to plaintiff's share in the profits, by the only owners of the capital of the businesses Manila Jarantilla and against defendants Cynthia Remotigue,
decision of defendant to reduce the same to one-half Athletic Supply (712 Raon Street, Manila), Remotigue Doroteo Jarantilla and Tomas Jarantilla ordering the
and the assent thereto of plaintiff, then we may Trading (Calle Real, Iloilo City) and Remotigue Trading latter:
consider the said amount as a fair estimate of the (Cotabato City). In this same "Acknowledgement of 1. to deliver to the plaintiff her 8% share or its
damages plaintiff is entitled to under the principle Participating Capital," they stated the participating equivalent amount on the real properties covered by
enunciated in the case of Varadero de Manila vs. capital of their co-owners as of the year 1952, with TCT Nos. 35655, 338398, 338399 & 335395, all of the
Insular Lumber Co., 46 Phil. 176. Defendant's decision Antonieta Jarantillas stated as eight thousand pesos Registry of Deeds of Quezon City; TCT Nos.
to reduce plaintiff's share and plaintiff's consent (8,000.00) and Federico Jarantilla, Jr.s as five (18303)23341, 142882 & 490007(4615), all of the
thereto amount to an admission on the part of each of thousand pesos (5,000.00).12 Registry of Deeds of Rizal; and TCT No. T-6309 of the
the reasonableness of this amount as plaintiff's share. The present case stems from the amended Registry of Deeds of Cotabato based on their present
This same amount was fixed by the trial court. The complaint13 dated April 22, 1987 filed by Antonieta market value;
agreement contains the stipulation that upon the Jarantilla against Buenaventura Remotigue, Cynthia 2. to deliver to the plaintiff her 8% share or its
termination of the partnership, defendant was to Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla equivalent amount on the Remotigue Agro-Industrial
convey the franchise back to plaintiff (Par. 11, Exhibit and Tomas Jarantilla, for the accounting of the assets Corporation, Manila Athletic Supply, Inc., MAS Rubber
A). The judgment of the trial court does not fix the and income of the co-ownership, for its partition and Products, Inc. and Buendia Recapping Corporation
period within which these damages shall be paid to the delivery of her share corresponding to eight based on the shares of stocks present book value;
plaintiff. In view of paragraph 11 of Exhibit A, we percent (8%), and for damages. Antonieta claimed that 3. to account for the assets and income of the co-
declare that plaintiff's share of 15 per cent of the net in 1946, she had entered into an agreement with ownership and deliver to plaintiff her rightful share
profits shall continue to be paid while defendant uses Conchita and Buenaventura Remotigue, Rafael thereof equivalent to 8%;
the franchise from the Mission Dry Corporation. Jarantilla, and Rosita and Vivencio Deocampo to 4. to pay plaintiff, jointly and severally, the sum of
10. Jarantilla vs Jarantila 636 Scra 299 2010 engage in business. Antonieta alleged that the initial 50,000.00 as moral damages;
G.R. No. 154486 December 1, 2010 contribution of property and money came from the 5. to pay, jointly and severally, the sum of 50,000.00
FEDERICO JARANTILLA, JR., Petitioner, heirs inheritance, and her subsequent annual as attorneys fees; and
vs.ANTONIETA JARANTILLA, BUENAVENTURA investment of seven thousand five hundred pesos 6. to pay, jointly and severally, the costs of the suit.21
REMOTIGUE, substituted by CYNTHIA (7,500.00) as additional capital came from the Both the petitioner and the respondents appealed this
proceeds of her farm. Antonieta also alleged that from decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a truth or falsity of the alleged facts. For a question to be affirmed in the 1957 Acknowledgement of Participating
complete judgment and ordering the partition of the co- one of law, the same must not involve an examination Capital.
ownership and giving to [him] six per centum (6%) of of the probative value of the evidence presented by There is a co-ownership when an undivided thing or
the properties."22 the litigants or any of them. The resolution of the issue right belongs to different persons.34 It is a partnership
While the Court of Appeals agreed to some of the must rest solely on what the law provides on the given when two or more persons bind themselves to
RTCs factual findings, it also established that set of circumstances. Once it is clear that the issue contribute money, property, or industry to a common
Antonieta Jarantilla was not part of the partnership invites a review of the evidence presented, the fund, with the intention of dividing the profits among
formed in 1946, and that her 8% share was limited to question posed is one of fact. Thus, the test of whether themselves.35 The Court, in Pascual v. The
the businesses enumerated in the Acknowledgement a question is one of law or of fact is not the appellation Commissioner of Internal Revenue,36 quoted the
of Participating Capital. On July 30, 2002, the Court of given to such question by the party raising the same; concurring opinion of Mr. Justice Angelo Bautista in
Appeals rendered the herein challenged decision rather, it is whether the appellate court can determine Evangelista v. The Collector of Internal Revenue37 to
setting aside the RTCs decision, as follows: the issue raised without reviewing or evaluating the further elucidate on the distinctions between a co-
WHEREFORE, the decision of the trial court, dated 18 evidence, in which case, it is a question of law; ownership and a partnership, to wit:
December 1992 is SET ASIDE and a new one is otherwise it is a question of fact.30 I wish however to make the following observation:
hereby entered ordering that: Since the Court of Appeals did not fully adopt the Article 1769 of the new Civil Code lays down the rule
(1) after accounting, plaintiff Antonieta Jarantilla be factual findings of the RTC, this Court, in resolving the for determining when a transaction should be deemed
given her share of 8% in the assets and profits of questions of law that are now in issue, shall look into a partnership or a co-ownership. Said article
Manila Athletic Supply, Remotigue Trading in Iloilo City the facts only in so far as the two courts a quo differed paragraphs 2 and 3, provides;
and Remotigue Trading in Cotabato City; in their appreciation thereof. (2) Co-ownership or co-possession does not itself
(2) after accounting, defendant Federico Jarantilla, Jr. The RTC found that an unregistered partnership establish a partnership, whether such co-owners or co-
be given his share of 6% of the assets and profits of existed since 1946 which was affirmed in the 1957 possessors do or do not share any profits made by the
the above-mentioned enterprises; and, holding that document, the "Acknowledgement of Participating use of the property;
(3) plaintiff Antonieta Jarantilla is a stockholder in the Capital." The RTC used this as its basis for giving (3) The sharing of gross returns does not of itself
following corporations to the extent stated in their Antonieta Jarantilla an 8% share in the three establish a partnership, whether or not the persons
Articles of Incorporation: businesses listed therein and in the other businesses sharing them have a joint or common right or interest
(a) Rural Bank of Barotac Nuevo, Inc.; and real properties of the respondents as they had in any property from which the returns are derived;
(b) MAS Rubber Products, Inc.; supposedly acquired these through funds from the From the above it appears that the fact that those who
(c) Manila Athletic Supply, Inc.; and partnership.31 agree to form a co- ownership share or do not share
(d) B. Remotigue Agro-Industrial Development Corp. The Court of Appeals, on the other hand, agreed with any profits made by the use of the property held in
(4) No costs.23 the RTC as to Antonietas 8% share in the business common does not convert their venture into a
The respondents, on August 20, 2002, filed a Motion enumerated in the Acknowledgement of Participating partnership. Or the sharing of the gross returns does
for Partial Reconsideration but the Court of Appeals Capital, but not as to her share in the other not of itself establish a partnership whether or not the
denied this in a Resolution24 dated March 21, 2003. corporations and real properties. The Court of Appeals persons sharing therein have a joint or common right
Antonieta Jarantilla filed before this Court her own ruled that Antonietas claim of 8% is based on the or interest in the property. This only means that, aside
petition for review on certiorari25 dated September 16, "Acknowledgement of Participating Capital," a duly from the circumstance of profit, the presence of other
2002, assailing the Court of Appeals decision on notarized document which was specific as to the elements constituting partnership is necessary, such
"similar grounds and similar assignments of errors as subject of its coverage. Hence, there was no reason to as the clear intent to form a partnership, the existence
this present case"26 but it was dismissed on November pattern her share in the other corporations from her of a juridical personality different from that of the
20, 2002 for failure to file the appeal within the share in the partnerships businesses. The Court of individual partners, and the freedom to transfer or
reglementary period of fifteen (15) days in accordance Appeals also said that her claim in the respondents assign any interest in the property by one with the
with Section 2, Rule 45 of the Rules of Court.27 real properties was more "precarious" as these were consent of the others.
Petitioner filed before us this petition for review on the all covered by certificates of title which served as the It is evident that an isolated transaction whereby two
sole ground that: best evidence as to all the matters contained or more persons contribute funds to buy certain real
THE HONORABLE COURT OF APPEALS therein.32 Since petitioners claim was essentially the estate for profit in the absence of other circumstances
SERIOUSLY ERRED IN NOT RULING THAT same as Antonietas, the Court of Appeals also ruled showing a contrary intention cannot be considered a
PETITIONER FEDERICO JARANTILLA, JR. IS that petitioner be given his 6% share in the same partnership.
ENTITLED TO A SIX PER CENTUM (6%) SHARE OF businesses listed in the Acknowledgement of Persons who contribute property or funds for a
THE OWNERSHIP OF THE REAL PROPERTIES Participating Capital. common enterprise and agree to share the gross
ACQUIRED BY THE OTHER DEFENDANTS USING Factual findings of the trial court, when confirmed by returns of that enterprise in proportion to their
COMMON FUNDS FROM THE BUSINESSES the Court of Appeals, are final and conclusive except contribution, but who severally retain the title to their
WHERE HE HAD OWNED SUCH SHARE.28 in the following cases: (1) when the inference made is respective contribution, are not thereby rendered
Petitioner asserts that he was in a partnership with the manifestly mistaken, absurd or impossible; (2) when partners. They have no common stock or capital, and
Remotigue spouses, the Deocampo spouses, Rosita there is a grave abuse of discretion; (3) when the no community of interest as principal proprietors in the
Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and finding is grounded entirely on speculations, surmises business itself which the proceeds derived.
Quintin Vismanos, as evidenced by the or conjectures; (4) when the judgment of the Court of A joint purchase of land, by two, does not constitute a
Acknowledgement of Participating Capital the Appeals is based on misapprehension of facts; (5) co-partnership in respect thereto; nor does an
Remotigue spouses executed in 1957. He contends when the findings of fact are conflicting; (6) when the agreement to share the profits and losses on the sale
that from this partnership, several other corporations Court of Appeals, in making its findings, went beyond of land create a partnership; the parties are only
and businesses were established and several real the issues of the case and the same is contrary to the tenants in common.
properties were acquired. In this petition, he is admissions of both appellant and appellee; (7) when Where plaintiff, his brother, and another agreed to
essentially asking for his 6% share in the subject real the findings of the Court of Appeals are contrary to become owners of a single tract of realty, holding as
properties. He is relying on the Acknowledgement of those of the trial court; (8) when the findings of fact are tenants in common, and to divide the profits of
Participating Capital, on his own testimony, and conclusions without citation of specific evidence on disposing of it, the brother and the other not being
Antonieta Jarantillas testimony to support this which they are based; (9) when the Court of Appeals entitled to share in plaintiffs commission, no
contention. manifestly overlooked certain relevant facts not partnership existed as between the three parties,
The core issue is whether or not the partnership disputed by the parties and which, if properly whatever their relation may have been as to third
subject of the Acknowledgement of Participating considered, would justify a different conclusion; and parties.
Capital funded the subject real properties. In other (10) when the findings of fact of the Court of Appeals In order to constitute a partnership inter sese there
words, what is the petitioners right over these real are premised on the absence of evidence and are must be: (a) An intent to form the same; (b) generally
properties? contradicted by the evidence on record.33 participating in both profits and losses; (c) and such a
It is a settled rule that in a petition for review In this case, we find no error in the ruling of the Court community of interest, as far as third persons are
on certiorari under Rule 45 of the Rules of Civil of Appeals. concerned as enables each party to make contract,
Procedure, only questions of law may be raised by the Both the petitioner and Antonieta Jarantilla manage the business, and dispose of the whole
parties and passed upon by this Court.29 characterize their relationship with the respondents as property. x x x.
A question of law arises when there is doubt as to a co-ownership, but in the same breath, assert that a The common ownership of property does not itself
what the law is on a certain state of facts, while there verbal partnership was formed in 1946 and was create a partnership between the owners, though they
is a question of fact when the doubt arises as to the may use it for the purpose of making gains; and they
may, without becoming partners, agree among share of each in the losses shall be in the same "As a rule, the burden of proving the existence of a
themselves as to the management, and use of such proportion. trust is on the party asserting its existence, and such
property and the application of the proceeds In the absence of stipulation, the share of each partner proof must be clear and satisfactorily show the
therefrom.38 (Citations omitted.) in the profits and losses shall be in proportion to what existence of the trust and its elements. While implied
Under Article 1767 of the Civil Code, there are two he may have contributed, but the industrial partner trusts may be proved by oral evidence, the evidence
essential elements in a contract of partnership: (a) an shall not be liable for the losses. As for the profits, the must be trustworthy and received by the courts with
agreement to contribute money, property or industry to industrial partner shall receive such share as may be extreme caution, and should not be made to rest on
a common fund; and (b) intent to divide the profits just and equitable under the circumstances. If besides loose, equivocal or indefinite declarations. Trustworthy
among the contracting parties. The first element is his services he has contributed capital, he shall also evidence is required because oral evidence can easily
undoubtedly present in the case at bar, for, admittedly, receive a share in the profits in proportion to his be fabricated." 46
all the parties in this case have agreed to, and did, capital. (Emphases supplied.) The petitioner has failed to prove that there exists a
contribute money and property to a common It is clear from the foregoing that a partner is entitled trust over the subject real properties. Aside from his
fund. Hence, the issue narrows down to their intent in only to his share as agreed upon, or in the absence of bare allegations, he has failed to show that the
acting as they did.39 It is not denied that all the parties any such stipulations, then to his share in proportion to respondents used the partnerships money to
in this case have agreed to contribute capital to a his contribution to the partnership. The petitioner purchase the said properties. Even assuming
common fund to be able to later on share its profits. himself claims his share to be 6%, as stated in the arguendo that some partnership income was used to
They have admitted this fact, agreed to its veracity, Acknowledgement of Participating Capital. However, acquire these properties, the petitioner should have
and even submitted one common documentary petitioner fails to realize that this document specifically successfully shown that these funds came from his
evidence to prove such partnership - the enumerated the businesses covered by the share in the partnership profits. After all, by his own
Acknowledgement of Participating Capital. partnership: Manila Athletic Supply, Remotigue admission, and as stated in the Acknowledgement of
As this case revolves around the legal effects of the Trading in Iloilo City and Remotigue Trading in Participating Capital, he owned a mere 6% equity in
Acknowledgement of Participating Capital, it would be Cotabato City. Since there was a clear agreement that the partnership.
instructive to examine the pertinent portions of this the capital the partners contributed went to the three In essence, the petitioner is claiming his 6% share in
document: businesses, then there is no reason to deviate from the subject real properties, by relying on his own self-
ACKNOWLEDGEMENT OF such agreement and go beyond the stipulations in the serving testimony and the equally biased testimony of
PARTICIPATING CAPITAL document. Therefore, the Court of Appeals did not err Antonieta Jarantilla. Petitioner has not presented
KNOW ALL MEN BY THESE PRESENTS: in limiting petitioners share to the assets of the evidence, other than these unsubstantiated
That we, the spouses Buenaventura Remotigue and businesses enumerated in the Acknowledgement of testimonies, to prove that the respondents did not
Conchita Jarantilla de Remotigue, both of legal age, Participating Capital. have the means to fund their other businesses and
Filipinos and residents of Loyola Heights, Quezon City, In Villareal v. Ramirez,41 the Court held that since a real properties without the partnerships income. On
P.I. hereby state: partnership is a separate juridical entity, the shares to the other hand, the respondents have not only, by
That the Manila Athletic Supply at 712 Raon, Manila, be paid out to the partners is necessarily limited only testimonial evidence, proven their case against the
the Remotigue Trading of Calle Real, Iloilo City and to its total resources, to wit: petitioner, but have also presented sufficient
the Remotigue Trading, Cotabato Branch, Cotabato, Since it is the partnership, as a separate and distinct documentary evidence to substantiate their claims,
P.I., all dealing in athletic goods and equipments, and entity, that must refund the shares of the partners, the allegations and defenses. They presented
general merchandise are recorded in their respective amount to be refunded is necessarily limited to its total preponderant proof on how they acquired and funded
books with Buenaventura Remotigue as the registered resources. In other words, it can only pay out what it such properties in addition to tax receipts and tax
owner and are being operated by them as such: has in its coffers, which consists of all its assets. declarations.47 It has been held that "while tax
That they are not the only owners of the capital of the However, before the partners can be paid their shares, declarations and realty tax receipts do not conclusively
three establishments and their participation in the the creditors of the partnership must first be prove ownership, they may constitute strong evidence
capital of the three establishments together with the compensated. After all the creditors have been paid, of ownership when accompanied by possession for a
other co-owners as of the year 1952 are stated as whatever is left of the partnership assets becomes period sufficient for prescription."48 Moreover, it is a
follows: available for the payment of the partners shares.42 rule in this jurisdiction that testimonial evidence cannot
1. Buenaventura Remotigue (TWENTY-FIVE There is no evidence that the subject real properties prevail over documentary evidence.49 This Court had
THOUSAND)25,000.00 were assets of the partnership referred to in the on several occasions, expressed our disapproval on
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE Acknowledgement of Participating Capital. using mere self-serving testimonies to support ones
THOUSAND) 25,000.00 The petitioner further asserts that he is entitled to claim. In Ocampo v. Ocampo,50 a case on partition of a
3. Vicencio Deocampo (FIFTEEN THOUSAND) respondents properties based on the concept of trust. co-ownership, we held that:
15,000.00 He claims that since the subject real properties were Petitioners assert that their claim of co-ownership of
4. Rosita J. Deocampo (FIFTEEN THOUSAND) purchased using funds of the partnership, wherein he the property was sufficiently proved by their witnesses
15,000.00 has a 6% share, then "law and equity mandates that -- Luisa Ocampo-Llorin and Melita Ocampo. We
5. Antonieta Jarantilla (EIGHT THOUSAND).. he should be considered as a co-owner of those disagree. Their testimonies cannot prevail over the
8,000.00 properties in such proportion."43 In Pigao v. array of documents presented by Belen. A claim of
6. Rafael Jarantilla (SIX THOUSAND).. ... Rabanillo,44 this Court explained the concept of trusts, ownership cannot be based simply on the testimonies
6,000.00 to wit: of witnesses; much less on those of interested parties,
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. Express trusts are created by the intention of the self-serving as they are.51
5,000.00 trustor or of the parties, while implied trusts come into It is true that a certificate of title is merely an evidence
8. Quintin Vismanos (TWO THOUSAND)... being by operation of law, either through implication of of ownership or title over the particular property
2,000.00 an intention to create a trust as a matter of law or described therein. Registration in the Torrens system
That aside from the persons mentioned in the next through the imposition of the trust irrespective of, and does not create or vest title as registration is not a
preceding paragraph, no other person has any interest even contrary to, any such intention. In turn, implied mode of acquiring ownership; hence, this cannot
in the above-mentioned three establishments. trusts are either resulting or constructive trusts. deprive an aggrieved party of a remedy in
IN WITNESS WHEREOF, they sign this instrument in Resulting trusts are based on the equitable doctrine law.52 However, petitioner asserts ownership over
the City of Manila, P.I., this 29th day of April, 1957. that valuable consideration and not legal title portions of the subject real properties on the strength
[Sgd.] BUENAVENTURA REMOTIGUE determines the equitable title or interest and are of his own admissions and on the testimony of
[Sgd.] CONCHITA JARANTILLA DE REMOTIGUE40 presumed always to have been contemplated by the Antonieta Jarantilla.1avvphi1 As held by this Court in
The Acknowledgement of Participating Capital is a parties. They arise from the nature or circumstances of Republic of the Philippines v. Orfinada, Sr.53:
duly notarized document voluntarily executed by the consideration involved in a transaction whereby Indeed, a Torrens title is generally conclusive evidence
Conchita Jarantilla-Remotigue and Buenaventura one person thereby becomes invested with legal title of ownership of the land referred to therein, and a
Remotigue in 1957. Petitioner does not dispute its but is obligated in equity to hold his legal title for the strong presumption exists that a Torrens title was
contents and is actually relying on it to prove his benefit of another.45 regularly issued and valid. A Torrens title is
participation in the partnership. Article 1797 of the Civil On proving the existence of a trust, this Court held incontrovertible against any informacion possessoria,
Code provides: that: of other title existing prior to the issuance thereof not
Art. 1797. The losses and profits shall be distributed in Respondent has presented only bare assertions that a annotated on the Torrens title. Moreover, persons
conformity with the agreement. If only the share of trust was created. Noting the need to prove the dealing with property covered by a Torrens certificate
each partner in the profits has been agreed upon, the existence of a trust, this Court has held thus: of title are not required to go beyond what appears on
its face.54
As we have settled that this action never really was for Espiritu, as follows: "AMENDED COMPLAINT these receipts plaintiff was entitled to minimum
partition of a co-ownership, to permit petitioners claim payments of P3,711.13 pursuant to Exhibit C; but
on these properties is to allow a collateral, indirect "Plaintiff, by his undersigned counsel, alleges "As First again defendant wantonly, fraudulently, oppressively,
attack on respondents admitted titles. In the words of Cause of Action and in evident bad faith paid plaintiff only the sum of
the Court of Appeals, "such evidence cannot "1. Plaintiff and defendants are residents of Malabon, P6,204.13 or P2,507.00 short of what plaintiff should
overpower the conclusiveness of these certificates of Rizal. have received during the period.
title, more so since plaintiffs [petitioners] claims "2. Defendants Lucina Biglangawa and Lucia Espiritu
amount to a collateral attack, which is prohibited under were or have been the owners of a parcel of land in "11. Upon gaining information of the breach of the
Section 48 of Presidential Decree No. 1529, the Marulas, Polo, Bulacan, more particularly described in contract by defendants about the end of March, 1953
Property Registration Decree."55 "Transfer Certificate of Title No. 5459 as follows: . . . and verifying the existence of such breach, plaintiff
SEC. 48. Certificate not subject to collateral attack. A "3. On January 14, 1950, defendant Lucina immediately demanded of defendants the difference
certificate of title shall not be subject to collateral Biglangawa, with the consent of her co-owner Lucia between the amounts due to him under the contract
attack. It cannot be altered, modified, or cancelled Espiritu, appointed plaintiff their exclusive agent to Exhibit C and those actually paid by them, but
except in a direct proceeding in accordance with law. develop the area described in paragraph 2 into defendants wantonly, fraudulently, and without cause
This Court has deemed an action or proceeding to be subdivision lots and to sell them to prospective refused to make the necessary settlement.
"an attack on a title when its objective is to nullify the homeowners; and as compensation for his services, x x x
title, thereby challenging the judgment pursuant to defendants promised to pay him a commission of 20% "13. The balance of plaintiffs commissions remaining
which the title was decreed."56 In Aguilar v. on the gross sales and a fee of 10% on the collections unpaid as of the filing of this complaint, excluding the
Alfaro,57 this Court further distinguished between a made by him payable from the first collections underpayments from November, 1951 to March, 1953,
direct and an indirect or collateral attack, as follows: received from the purchasers in respect to each lot is P39,534.62.
A collateral attack transpires when, in another action to sold. . . .
obtain a different relief and as an incident to the "As to Second Cause of Action
present action, an attack is made against the judgment "4. The power thus conferred by Lucina Biglangawa to "1. Plaintiff reproduces paragraphs 1 to 13 of the first
granting the title. This manner of attack is to be plaintiff was confirmed in a notarial document cause of action.
distinguished from a direct attack against a judgment executed on March 3, 1950 by her and her co- "2. For defendants gross and evident bad faith in
granting the title, through an action whose main defendants, who are husband and wife, with the added refusing plaintiffs valid, just, and demandable claim
objective is to annul, set aside, or enjoin the stipulation that they could not revoke the contract of against them, plaintiff was forced to prosecute the
enforcement of such judgment if not yet implemented, agency without plaintiffs consent. . . . present case against them, and became liable for
or to seek recovery if the property titled under the attorneys fees in the sum of P7,000.00.
judgment had been disposed of. x x x. "5. Advancing all the expenses incurred in the
Petitioners only piece of documentary evidence is the development and administration of the project, plaintiff "WHEREFORE, plaintiff prays for judgment
Acknowledgement of Participating Capital, which as caused the subdivision of said property into 203 lots
discussed above, failed to prove that the real and advertised them for sale under the name BBB "(a) Ordering defendants to pay plaintiff the sum of
properties he is claiming co-ownership of were MARULAS SUBDIVISION No. 3; and up to October, P2,507.00 which is defendants underpayments from
acquired out of the proceeds of the businesses 1951 plaintiff had disposed of more than half of the November, 1951 to March, 1953, with interest at the
covered by such document. Therefore, petitioners entire area at P10.00 and P12.00 per square meter. legal rate;
theory has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the "6. Although under the express terms of the contract of "(b) Declaring defendants to have lost the right to pay
Decision of the Court of Appeals in CA-G.R. CV No. January 14, 1950 (Exhibit A) the commissions of plaintiff in monthly installments and requiring them to
40887, dated July 30, 2002 is AFFIRMED. plaintiff for making those sales and his collection fees pay plaintiff at once the balance of his commissions
of 10% were to be paid to him from the first collections and fees in the amount of P89,543.62, with interest at
11. Binglawlaw vs COnstantino 109 Phil 168 1960 received from the purchasers in respect to each lot the legal rate from the filing of this complaint;
LUCINA BIGLANGAWA and LUCIA sold, Defendants, in contravention of that agreement,
ESPIRITU, Petitioners-Appellees, v. PASTOR. B. oppressively and in bad faith adopted the practice of "(c) Ordering defendants to pay plaintiff moral
CONSTANTINO, ET AL., Respondents. PASTOR B. paying the latters compensation out of 30% only of the damages in the sum of P40,000.00, exemplary
CONSTANTINO, Respondent-Appellant. gross monthly collections from the sales, such that, as damages in the sum of P30,000.00, and attorneys
of October 15, 1951 when a liquidation was made, fees in the sum of P7,000.00.
1. COMPLAINTS; PRAYER; PURPOSE OF ACTION there was still a balance on plaintiffs commissions in
INDICATED BY PRAYER. Although the prayer in a the amount of P43,899.20. "(d) Granting costs and such other reliefs as this court
complaint does not determine the nature of the action, may deem just and equitable in the premises."
it not being a material part of the cause of action, it 7. "Later, in October, 1951, defendants wantonly,
logically indicates the purpose of the action. oppressively, and in evident bad faith terminated the To this complaint, petitioners filed their answer on
agency contracts Exhibits A and B depriving plaintiff August 25, 1953.
2. ID.; NOTICE OF LIS PENDENS; COMPLAINT AS of his rights to commission fees of 20% on the sale of
BASIS FOR ANNOTATION OF NOTICE. The the remaining lots and 10% fee on the cash receipts of While said Civil Case No. 2138 was pending in said
amended complaint in the instant case, not being "an the business every month. court, respondent, on April 5, 1955, filed with the
action affecting the title or the right of possession of Office of the Register of Deeds of Bulacan, the
real property" (Sec. 24, Rule 7, Rules of Court), nor "8. Defendants nevertheless, expressly acknowledged following notice of lis pendens:jgc:
one "to recover possession of real estate, or to quiet their liability to plaintiff in the sum of P48,899.20 for
title thereto, or to remove clouds upon the title thereof, unpaid commissions as of October 16, 1951; and they "Please make of record the pendency of a complaint
or for partition or other proceeding of any kind in court promised to pay said indebtedness to plaintiff in involving, among other things, rights and interest and
affecting the title to real estate or the use or successive monthly installments beginning November, claims for services and damages on the following
occupation thereof or the buildings thereon" (Sec. 79, 1951, as follows: . . . described property, which has been converted into a
Land Registration Act), can not be the basis for subdivision as shown by the plan Psd-29964, situated
annotating a notice of lis pendens on the title of the "9. Plaintiff consented to the settlement of the balance in Marulas, Polo, Bulacan, to wit: (Technical
defendants. of his commission in monthly installments after the description of the real property mentioned in the
termination of the agency in consideration of complaint) which property is more particularly
DECISION defendants promises that they would compute and described in Transfer Certificate of Title No. 5459 of
The only issue, which is of law, involved in this appeal, faithfully pay the percentage of monthly installments the Register of Deeds of Bulacan. A copy of the
is the legality of the annotation of lis pendens on the basis of their monthly gross collections from the complaint and amended complaint, marked
predicated on the complaint of respondent-appellant operation of BBB MARULAS SUBDIVISION No. 3, as Appendices A and A-1, are attached hereto and made
Pastor B. Constantino. stipulated in Exhibit C, and shall follow that procedure integral part hereof."cralaw virtua1aw library
until their total indebtedness is fully settled.
On June 25, 1953, respondent Pastor B. Constantino On April 6, 1955, the Register of Deeds of Bulacan
filed with the Court of First Instance of Rizal an "10. From October 16, 1951 to March 31, 1953, requested petitioners to surrender their owners copy
amended complaint (docketed as Civil Case No. 2138) defendants made a total monthly gross collection of of Transfer Certificate of Title No. 5459 for annotation
against petitioners Lucina Biglangawa and Lucia around P52,849.63 from the business, and out of of said notice of lis pendens, but petitioners refused to
do so. However, on May 17, 1955, when petitioners participation, in the form of commission or fee, not a Services."5 Villareal was appointed general manager
registered the absolute deed of sale in favor of share. and Carmelito Jose, operations manager.
Carmelita L. Santos covering some of the lots of the Respondent Donaldo Efren C. Ramirez joined as a
subdivision, said official, without their knowledge and It is true that in paragraph 5 of the amended complaint partner in the business on September 5, 1984. His
consent, made the annotation of the lis pendens on (supra) appellant claims to have made advances for capital contribution of P250,000 was paid by his
petitioners aforementioned title, as well as on the title the expenses incurred in the development and parents, Respondents Cesar and Carmelita Ramirez.6
issued to Carmelita L. Santos. administration of the property. But again he never After Jesus Jose withdrew from the partnership in
considered these as contributions to the business as January 1987, his capital contribution of P250,000 was
Petitioners, therefore, on June 11, 1955, filed with the to make him a partner; otherwise, he would have so refunded to him in cash by agreement of the partners.7
Court of First Instance of Bulacan, a petition praying stated it in his complaint. In fact, after a liquidation of In the same month, without prior knowledge of
for the cancellation of said notice of lis pendens. To these advances and the commissions due to appellant respondents, petitioners closed down the restaurant,
this petition, respondent filed his answer on June 17, at the time of the termination of the agency, the whole allegedly because of increased rental. The restaurant
1955, to which, petitioners filed their reply on June 23, balance was considered as appellees indebtedness furniture and equipment were deposited in the
1955. On June 24, 1955, respondent filed a rejoinder which appellant consented to be settled in monthly respondents' house for storage.8
to said reply. installments (see paragraphs 6, 8, and 9 of the On March 1, 1987, respondent spouses wrote
amended complaint). petitioners, saying that they were no longer interested
Acting on said petition, the court issued an order on in continuing their partnership or in reopening the
July 19, 1955, which reads: While it is true again that the prayer in a complaint restaurant, and that they were accepting the latter's
does not determine the nature of the action, it not offer to return their capital contribution.9
"ORDER "Upon consideration of the petition filed by being a material part of the cause of action, still it On October 13, 1987, Carmelita Ramirez wrote
Lucina Biglangawa and Lucia Espiritu dated June 11, logically indicates, as it does in this case, the purpose another letter informing petitioners of the deterioration
1955 and the answer thereto, and it appearing from of the actor. The four paragraphs of the prayer seeks of the restaurant furniture and equipment stored in
the amended complaint of Pastor B. Constantino, the recovery of fixed amounts of underpayments and their house. She also reiterated the request for the
plaintiff in Civil Case No. 2138 of the Court of First commissions and fees; not liquidation or accounting or return of their one-third share in the equity of the
Instance of Rizal (respondent herein) that said action partition as now insisted upon by Appellant. partnership. The repeated oral and written requests
is purely and clearly a claim for money judgment which were, however, left unheeded.10
does not affect the title or the right of possession of Appellants amended complaint, not being "an action Before the Regional Trial Court (RTC) of Makati,
real property covered by Transfer Certificate of Title affecting the title or the right of possession of real Branch 59, respondents subsequently filed a
No. T-5459 and it being a settled rule in this property", 1 nor one "to recover possession of real Complaint11 dated November 10, 1987, for the
jurisdiction that a notice of lis pendens may be invoked estate, or to quiet title thereto, or to remove clouds collection of a sum of money from petitioners.
as a remedy in cases where the very lis mota of the upon the title thereof, or for partition or other In their Answer, petitioners contended that
pending litigation concerns directly the possession of, proceeding of any kind in court affecting the title to real respondents had expressed a desire to withdraw from
or title to a specific real property; estate or the use or occupation thereof or the buildings the partnership and had called for its dissolution under
thereon . . .", 2 the same can not be the basis for Articles 1830 and 1831 of the Civil Code; that
"Wherefore, as prayed for, the Register of Deeds of annotating a notice of lis pendens on the title of respondents had been paid, upon the turnover to them
Bulacan is hereby ordered to cancel Entry No. 28176 the Petitioners-Appellees. of furniture and equipment worth over P400,000; and
for lis pendens on Transfer Certificate of Title No. T- that the latter had no right to demand a return of their
5459 of the petitioners as well as the annotation of the Having reached the above conclusion, this Court finds equity because their share, together with the rest of
same on Transfer Certificate of Title No. T-014480 of it unnecessary to decide the incidental matters raised the capital of the partnership, had been spent as a
Carmelita L. Santos. by the parties during the pendency of this appeal. result of irreversible business losses.12
In their Reply, respondents alleged that they did not
"So ordered."cralaw virtua1aw library Wherefore, finding no error in the appealed order of know of any loan encumbrance on the restaurant.
the court a quo, the same is hereby affirmed, with According to them, if such allegation were true, then
Respondent, on August 8, 1955, filed a motion for costs against the respondent- appellant. So ordered. the loans incurred by petitioners should be regarded
reconsideration of the above order, but the same was as purely personal and, as such, not chargeable to the
denied by the court on September 30, 1955. Hence, Art 1768 partnership. The former further averred that they had
this appeal. LUZVIMINDA J. VILLAREAL, DIOGENES not received any regular report or accounting from the
VILLAREAL and CARMELITO JOSE, latter, who had solely managed the business.
Respondent-appellant claims that the lower court erred vs.DONALDO EFREN C. RAMIREZ and Spouses Respondents also alleged that they expected the
in holding that his pending action (Civil Case No. CESAR G. RAMIREZ JR. and CARMELITA C. equipment and the furniture stored in their house to be
2138) in the Court of First Instance of Rizal, is purely a RAMIREZ,respondents. removed by petitioners as soon as the latter found a
claim for money judgment which does not affect the PANGANIBAN, J.: better location for the restaurant.13
title or right of possession of petitioners real property, A share in a partnership can be returned only after the Respondents filed an Urgent Motion for Leave to Sell
covered by Transfer Certificate of Title No. T-5459. completion of the latter's dissolution, liquidation and or Otherwise Dispose of Restaurant Furniture and
Instead, he contends that the agreement whereby he winding up of the business. Equipment14 on July 8, 1988. The furniture and the
was to be paid a commission of 20% on the gross The Case equipment stored in their house were inventoried and
sales and a fee of 10% on the collections made by The Petition for Review on Certiorari before us appraised at P29,000.15 The display freezer was sold
him, converted him into a partner and gave him 1/5 challenges the March 23, 2000 Decision1 and the July for P5,000 and the proceeds were paid to them.16
participation in the property itself. Hence, he argues, 26, 2000 Resolution2 of the Court of Appeals3 (CA) in After trial, the RTC 17 ruled that the parties had
his suit is one for the settlement and adjustment of CA-GR CV No. 41026. The assailed Decision voluntarily entered into a partnership, which could be
partnership interest or a partition action or proceeding. disposed as follows: dissolved at any time. Petitioners clearly intended to
"WHEREFORE, foregoing premises considered, the dissolve it when they stopped operating the restaurant.
Appellants theory is neither supported by the Decision dated July 21, 1992 rendered by the Hence, the trial court, in its July 21, 1992 Decision,
allegations of his complaint, nor borne out by the Regional Trial Court, Branch 148, Makati City is held there liable as follows:18
purpose of his action. There is no word or expression hereby SET ASIDE and NULLIFIED and in lieu thereof "WHEREFORE, judgment is hereby rendered in favor
in the various paragraphs of his amended complaint a new decision is rendered ordering the [petitioners] of [respondents] and against the [petitioners] ordering
that suggests any idea of partnership. On the contrary, jointly and severally to pay and reimburse to the [petitioners] to pay jointly and severally the
appellant expressly averred that petitioners "appointed [respondents] the amount of P253,114.00. No following:
plaintiff (appellant) their exclusive agent to develop the pronouncement as to costs."4 (a) Actual damages in the amount of P250,000.00
area described in paragraph 2 into subdivision lots and Reconsideration was denied in the impugned (b) Attorney's fee in the amount of P30,000.00
to sell them to prospective homeowners; and as Resolution. (c) Costs of suit."
compensation for his services defendants (appellees) The Facts On July 25, 1984, Luzviminda J. Villareal, The CA Ruling
promised to pay him a commission of 20% on the Carmelito Jose and Jesus Jose formed a partnership The CA held that, although respondents had no right
gross sales and a fee of 10% on the collections made with a capital of P750,000 for the operation of a to demand the return of their capital contribution, the
by him . . ." (See paragraph 3 of amended complaint.) restaurant and catering business under the name partnership was nonetheless dissolved when
Categorically, appellant referred to himself as an "Aquarius Food House and Catering petitioners lost interest in continuing the restaurant
agent, not a partner; entitled to compensation, not business with them. Because petitioners never gave a
proper accounting of the partnership accounts for the partnership cannot be determined until all the custody to deteriorate to the point of being almost
liquidation purposes, and because no sufficient partnership assets will have been liquidated in other worthless. Supposedly, the latter should have
evidence was presented to show financial losses, the words, sold and converted to cash and all liquidated these sole tangible assets of the partnership
CA. computed their liability as follows: partnership creditors, if any, paid. The CA's and considered the proceeds as payment of their net
"Consequently, since what has been proven is only the computation of the amount to be refunded to capital. Hence, petitioners argue that the turnover of
outstanding obligation of the partnership in the amount respondents as their share was thus erroneous. the remaining partnership assets to respondents was
of P240,658.00, although contracted by the First, it seems that the appellate court was under the precisely the manner of liquidating the partnership and
partnership before [respondents'] have joined the misapprehension that the total capital contribution was fully settling the latter's share in the partnership.
partnership but in accordance with Article 1826 of the equivalent to the gross assets to be distributed to the We disagree. The delivery of the store furniture and
New Civil Code, they are liable which must have to be partners at the time of the dissolution of the equipment to private respondents was for the purpose
deducted from the remaining capitalization of the said partnership. We cannot sustain the underlying idea of storage. They were unaware that the restaurant
partnership which is in the amount of P1,000,000.00 that the capital contribution at the beginning of the would no longer be reopened by petitioners. Hence,
resulting in the amount of P759,342.00, and in order to partnership remains intact, unimpaired and available the former cannot be faulted for not disposing of the
get the share of [respondents], this amount of for distribution or return to the partners. Such idea is stored items to recover their capital investment.
P759,342.00 must be divided into three (3) shares or speculative, conjectural and totally without factual or Third Issue:Costs
in the amount of P253,114.00 for each share and legal support. Section 1, Rule 142, provides:
which is the only amount which [petitioner] will return Generally, in the pursuit of a partnership business, its "SECTION 1. Costs ordinarily follow results of suit.
to [respondents'] representing the contribution to the capital is either increased by profits earned or Unless otherwise provided in these rules, costs shall
partnership minus the outstanding debt thereof."19 decreased by losses sustained. It does not remain be allowed to the prevailing party as a matter of
Hence, this Petition.20 static and unaffected by the changing fortunes of the course, but the court shall have power, for special
Issues business. In the present case, the financial statements reasons, to adjudge that either party shall pay the
In their Memorandum,21 petitioners submit the presented before the trial court showed that the costs of an action, or that the same be divided, as may
following issues for our consideration: business had made meager profits.26However, notable be equitable. No costs shall be allowed against the
"9.1. Whether the Honorable Court of Appeals' therefrom is the omission of any provision for the Republic of the Philippines unless otherwise provided
decision ordering the distribution of the capital depreciation27 of the furniture and the equipment. The by law."
contribution, instead of the net capital after the amortization of the goodwill28 (initially valued at Although, as a rule, costs are adjudged against the
dissolution and liquidation of a partnership, thereby P500,000) is not reflected either. Properly taking these losing party, courts have discretion, "for special
treating the capital contribution like a loan, is in non-cash items into account will show that the reasons," to decree otherwise. When a lower court is
accordance with law and jurisprudence; partnership was actually sustaining substantial losses, reversed, the higher court normally does not award
"9.2. Whether the Honorable Court of Appeals' which consequently decreased the capital of the costs, because the losing party relied on the lower
decision ordering the petitioners to jointly and severally partnership. Both the trial and the appellate courts in court's judgment which is presumed to have been
pay and reimburse the amount of [P]253,114.00 is fact recognized the decrease of the partnership assets issued in good faith, even if found later on to be
supported by the evidence on record; and to almost nil, but the latter failed to recognize the erroneous. Unless shown to be patently capricious, the
"9.3. Whether the Honorable Court of Appeals was consequent corresponding decrease of the capital. award shall not be disturbed by a reviewing tribunal.
correct in making [n]o pronouncement as to costs."22 Second, the CA's finding that the partnership had an WHEREFORE, the Petition is GRANTED, and the
On closer scrutiny, the issues are as follows: (1) outstanding obligation in the amount of P240,658 was assailed Decision and Resolution SET ASIDE. This
whether petitioners are liable to respondents for the not supported by evidence. We sustain the contrary disposition is without prejudice to proper proceedings
latter's share in the partnership; (2) whether the CA's finding of the RTC, which had rejected the contention for the accounting, the liquidation and the distribution
computation of P253,114 as respondents' share is that the obligation belonged to the partnership for the of the remaining partnership assets, if any. No
correct; and (3) whether the CA was likewise correct in following reason: pronouncement as to costs.
not assessing costs. "x x x [E]vidence on record failed to show the exact SO ORDERED.
This Court's Ruling loan owed by the partnership to its creditors. The
The Petition has merit. balance sheet (Exh. '4') does not reveal the total loan. INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA
First Issue: Share in Partnership The Agreement (Exh. 'A') par. 6 shows an outstanding & CO., S. en C., appellee,
Both the trial and the appellate courts found that a obligation of P240,055.00 which the partnership owes vs.PACIFIC COMMERCIAL CO., ASIATIC
partnership had indeed existed, and that it was to different creditors, while the Certification issued by PETROLEUM CO., and INTERNATIONAL BANKING
dissolved on March 1, 1987. They found that the Mercator Finance (Exh. '8') shows that it was Sps. CORPORATION
dissolution took place when respondents informed Diogenes P. Villareal and Luzviminda J. Villareal, the The record of this proceeding having been transmitted
petitioners of the intention to discontinue it because of former being the nominal party defendant in the instant to this court by virtue of an appeal taken herein, a
the former's dissatisfaction with, and loss of trust in, case, who obtained a loan of P355,000.00 on Oct. motion was presented by the appellants praying this
the latter's management of the partnership affairs. 1983, when the original partnership was not yet court that this case be considered purely a moot
These findings were amply supported by the evidence formed." question now, for the reason that subsequent to the
on record. Respondents consequently demanded from Third, the CA failed to reduce the capitalization by decision appealed from, the partnership Campos
petitioners the return of their one-third equity in the P250,000, which was the amount paid by the Rueda & Co., voluntarily filed an application for a
partnership. partnership to Jesus Jose when he withdrew from the judicial decree adjudging itself insolvent, which is just
We hold that respondents have no right to demand partnership. what the herein petitioners and appellants tried to
from petitioners the return of their equity share. Except Because of the above-mentioned transactions, the obtain from the lower court in this proceeding.
as managers of the partnership, petitioners did not partnership capital was actually reduced. When The motion now before us must be, and is hereby,
personally hold its equity or assets. "The partnership petitioners and respondents ventured into business denied even under the facts stated by the appellants in
has a juridical personality separate and distinct from together, they should have prepared for the fact that their motion aforesaid. The question raised in this case
that of each of the partners."23 Since the capital was their investment would either grow or shrink. In the is not purely moot one; the fact that a man was
contributed to the partnership, not to petitioners, it is present case, the investment of respondents insolvent on a certain day does not justify an inference
the partnership that must refund the equity of the substantially dwindled. The original amount of that he was some time prior thereto.
retiring partners.24 P250,000 which they had invested could no longer be Proof that a man was insolvent on a certain day does
Second Issue: What Must Be Returned? returned to them, because one third of the partnership not justify an inference that he was on a day some
Since it is the partnership, as a separate and distinct properties at the time of dissolution did not amount to time prior thereto. Many contingencies, such as
entity, that must refund the shares of the partners, the that much. unwise investments, losing contracts, misfortune, or
amount to be refunded is necessarily limited to its total It is a long established doctrine that the law does not accident, might happen to reduce a person from a
resources. In other words, it can only pay out what it relieve parties from the effects of unwise, foolish or state of solvency within a short space of time. (Kimball
has in its coffers, which consists of all its assets. disastrous contracts they have entered into with all the vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
However, before the partners can be paid their shares, required formalities and with full awareness of what A decree of insolvency begins to operate on the date it
the creditors of the partnership must first be they were doing. Courts have no power to relieve them is issued. It is one thing to adjudge Campos Rueda &
compensated.25 After all the creditors have been paid, from obligations they have voluntarily assumed, simply Co. insolvent in December, 1921, as prayed for in this
whatever is left of the partnership assets becomes because their contracts turn out to be disastrous deals case, and another to declare it insolvent in July, 1922,
available for the payment of the partners' shares. or unwise investments.29 as stated in the motion.
Evidently, in the present case, the exact amount of Petitioners further argue that respondents acted Turning to the merits of this appeal, we find that this
refund equivalent to respondents' one-third share in negligently by permitting the partnership assets in their limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than partnerships cannot be adjudged bankrupt irrespective owner, and that the Lee Guan Box Factory was a
P1,000, payable in the Philippines, which were not of the solvency or insolvency of their members, subsidiary of the Modern Box Factory. There is
paid more than thirty days prior to the date of the filing provided the partnership has, as such, committed evidence that many goods purchased in the name of
by the petitioners of the application for involuntary some of the acts of insolvency provided in our law. the Lee Guan Box Factory were delivered to the
insolvency now before us. These facts were sufficient Under this view it is unnecessary to discuss the other Modern Box Factory by the employees of the plaintiff
established by the evidence. points raised by the parties, although in the particular and its assignors upon the express direction of Vicente
The trial court denied the petition on the ground that it case under consideration it can be added that the Tan. There is also evidence that the collectors of the
was not proven, nor alleged, that the members of the liability of the limited partners for the obligations and sellers were requested by Vicente Tan to collect
aforesaid firm were insolvent at the time the losses of the partnership is limited to the amounts paid and did collect from the Modern Box Factory the
application was filed; and that was said partners are or promised to be paid into the common fund except bills against the Lee Guan Box Factory. In the fact the
personally and solidarily liable for the consequence of when a limited partner should have included his name record shows many checks signed by Ngo Hay or Ngo
the transactions of the partnership, it cannot be or consented to its inclusion in the firm name (arts. 147 Tian Tek in payment of accounts of the Lee Guan Box
adjudged insolvent so long as the partners are not and 148, Code of Commerce). Factory. Furthermore, and this seems to be
alleged and proven to be insolvent. From this Therefore, it having been proven that the partnership conclusive-Ngo Hay, testifying for the defense,
judgment the petitioners appeal to this court, on the Campos Rueda & Co. failed for more than thirty days admitted that 'he' was the owner of the Lee Guan Box
ground that this finding of the lower court is erroneous. to pay its obligations to the petitioners the Pacific Factory in and before the year 1934, but that in
The fundamental question that presents itself for Commercial Co. the Asiatic Petroleum Co. and the January, 1935, 'he' sold it, by the contract of sale
decision is whether or not a limited partnership, such International Banking Corporation, the case comes Exhibit 7, to Vicente Tan, who had been his manager
as the appellee, which has failed to pay its obligation under paragraph 11 of section 20 of Act No. 1956, and of the business. Tan declared also that before
with three creditors for more than thirty days, may be consequently the petitioners have the right to a judicial January, 1935, the Lee Guan Box Factory pertained to
held to have committed an act of insolvency, and decree declaring the involuntary insolvency of said Ngo Hay and Ngo Tian Tek. The contract Exhibit 7
thereby be adjudged insolvent against its will. partnership. was found by the referee, to be untrue and simulated,
Unlike the common law, the Philippine statutes Wherefore, the judgment appealed from is reversed, for various convincing reasons that need no repetition
consider a limited partnership as a juridical entity for all and it is adjudged that the limited partnership Campos here. And the quoted statements serve effectively to
intents and purposes, which personality is recognized Rueda & Co. is and was on December 28, 1921, confirm the evidence for the plaintiff that it was Ngo
in all its acts and contracts (art. 116, Code of insolvent and liable for having failed for more than Hay's representations of ownership of, and
Commerce). This being so and the juridical personality thirty days to meet its obligations with the three responsibility for, Lee Guan Box Factory that induced
of a limited partnership being different from that of its petitioners herein, and it is ordered that this them to open credit for that concern. It must be stated
members, it must, on general principle, answer for, proceeding be remanded to the Court of First Instance that in this connection to answer appellant's fitting
and suffer, the consequence of its acts as such an of Manila with instruction to said court to issue the observation that the plaintiff and the assignors have
entity capable of being the subject of rights and proper decrees under section 24 of Act No. 1956, and considered Ngo Hay, the Modern Box Factory and
obligations. If, as in the instant case, the limited proceed therewith until its final disposition. Ngo Hay and Co. as one and the same, through the
partnership of Campos Rueda & Co. Failed to pay its It is so ordered without special finding as to costs. acts of the partners themselves, and that the proof as
obligations with three creditors for a period of more to Ngo Hay's statements regarding the ownership of
than thirty days, which failure constitutes, under our NGO TIAN TEK and NGO Lee Guan Box Factory must be taken in that view. Ngo
Insolvency Law, one of the acts of bankruptcy upon HAY, petitioner, vs.PHILIPPINE EDUCATION CO., Hay was wont to say 'he' owned the Modern Box
which an adjudication of involuntary insolvency can be INC., respondent. Factory, meaning that he was the principal owner, his
predicated, this partnership must suffer the The plaintiff, Philippine Education Co., Inc., instituted other partner being Ngo Tian Tek. Now, it needs no
consequences of such a failure, and must be adjudged in the Court of First Instance of Manila an action demonstration for appellant does not deny it that
insolvent. We are not unmindful of the fact that some against the defendants, Vicente Tan alias Chan Sy the obligations of the Lee Guan Box Factory must rest
courts of the United States have held that a and the partnership of Ngo Tian Tek and Ngo Hay, for upon its known owner. And that owner in Ngo Tian Tek
partnership may not be adjudged insolvent in an the recovery of some P16,070.14, unpaid cost of and Ngo Hay."
involuntary insolvency proceeding unless all of its merchandise purchased by Lee Guan Box Factory We must overrule petitioner's contention that the Court
members are insolvent, while others have maintained from the plaintiff and five other corporate entities of Appeals erred in holding that Lee Guan Box Factory
a contrary view. But it must be borne in mind that which, though not parties to the action, had previously was a subsidiary of the Modern Box Factory and in
under the American common law, partnerships have assigned their credits to the plaintiff, together with disregarding the fact that the contracts evidencing the
no juridical personality independent from that of its attorney's fees, interest and costs. /by agreement of debts in question were signed by Vicente
members; and if now they have such personality for the parties, the case was heard before a referee, Tan alias Chan Sy, without any indication that tended
the purpose of the insolvency law, it is only by virtue of Attorney Francisco Dalupan, who in due time to involve the Modern Box Factory or the petitioner. In
general law enacted by the Congress of the United submitted his report holding the defendants jointly and the first place, we are concluded by the finding of the
States on July 1, 1898, section 5, paragraph (h), of severally liable to the plaintiff for the sum of Court of Appeals regarding the ownership by the
which reads thus: P16,070.14 plus attorney's fees and interest at the petitioner of Lee Guan Box Factory. Secondly, the
In the event of one or more but not all of the members rates specified in the report. On March 6, 1939, the circumstances that Vicente Tan alias Chan Sy acted in
of a partnership being adjudged bankrupt, the Court of First Instance of Manila rendered judgment his own name cannot save the petitioner, in view of
partnership property shall not be administered in was affirmed by the Court of Appeals in its decision of said ownership, and because contracts entered into by
bankruptcy, unless by consent of the partner or January 31, 1941, now the subject of our review at the a factor of a commercial establishment known to
partners not adjudged bankrupt; but such partner or instance of the partnership Ngo Tian Tek and Ngo belong to a well known enterprise or association, shall
partners not adjudged bankrupt shall settle the Hay, petitioner herein. be understood as made for the account of the owner of
partnership business as expeditiously as its nature will "It appears that," quoting from the decision of the Court such enterprise or association, even when the factor
permit, and account for the interest of the partner or of Appeals whose findings of fact are conclusive, "as has not so stated at the time of executing the same,
partners adjudged bankrupt. far back as the year 1925, the Modern Box Factory provided that such contracts involve objects comprised
The general consideration that these partnership had was established at 603 Magdalena Street, Manila. It in the line and business of the establishment. (Article
no juridical personality and the limitations prescribed in was at first owned by Ngo Hay, who three years later 286, Code of Commerce.) The fact that Vicente Tan
subsection (h) above set forth gave rise to the conflict was joined by Ngo Tian Tek as a junior partner. The did not have any recorded power of attorney executed
noted in American decisions, as stated in the case modern Box Factory dealt in pare and similar by the petitioner will not operate to prejudice third
of In reSamuels (215 Fed., 845), which mentions the merchandise and purchased goods from the plaintiff persons, like the respondent Philippine Education Co.,
two apparently conflicting doctrines, citing one from In and its assignors in the names of the Modern Box Inc., and its assignors. (3 Echavarri, 133.)
re Bertenshaw (157 Fed., 363), and the other from Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Another defense set up by the petitioner is that prior to
Francis vs. McNeal (186 Fed., 481). Hay. Then about the year 1930, the Lee Guan Box the transactions which gave rise to this suit, Vicente
But there being in our insolvency law no such Factory was established a few meters from the Modern Tan had purchased Lee Guan Box Factory from Ngo
provision as that contained in section 5 of said Act of Box Factory, under the management of Vicente Tan. Hay under the contract, Exhibit 7; and the petitioner
Congress of July 1, 1898, nor any rule similar thereto, When that concern, through Vicente Tan, sought credit assails, under the second assignment of error, the
and the juridical personality of limited partnership with the plaintiff and its assignors, Ngo Hay, in conclusion of the Court of Appeals that said contract is
being recognized by our statutes from their formation conversations and interviews with their officers and simulated. This contention is purely factual and must
in all their acts and contracts the decision of American employees, represented that he was the principal also be overruled.
courts on this point can have no application in this owner of such factory, that the Lee Guan Box Factory The petitioner questions the right of the respondent
jurisdiction, nor we see any reason why these and the Modern Box Factory belonged to the same Philippine Education Co., Inc., to sue for the credits
assigned by the five entities with which Lee Guan Box which need not be discussed, in view of the finding of of the majority decision is misleading; because it
Factory originally contracted, it being argued that the the Court of Appeals that there is nothing "simulated in apparently lays down the ruling that an assignee
assignment, intended only for purposes of collection, the assignment" which according to the very opinion of not bona fide to whom a credit was assigned, not
did not make said respondent the real party in interest. the majority "precludes us from ruling that the absolutely, but for collection merely may sue in his
The petitioner has cited 5 Corpus Juris, section 144, respondent company is not a bona fide assignee;" own name (a debatable question which has not yet
page 958, which points out that "under statutes because such being the conclusion of fact of the Court been passed upon squarely by this Court [ Annotation;
authorizing only a bona fide assignee of choses in of Appeals, this Supreme Court can not modify or 64 L. R. A., 585]), but the premise on which the
action to sue thereon in his own name, an assignee for reverse that conclusion and find that respondent majority's conclusion or ruling is predicated in said
collection merely is not entitled to sue in his own Philippine Education Co. was not a bona portion of the Corpus Juris quoted in the opinion,
name." fide assignee, and the assignment was not absolute, which is a wrong premise laid down, not by the
The finding of the Court of Appeals that there is but made merely for collection in order that said petitioner, but by the writer himself of the majority
nothing "simulated in the assignment," precludes us respondent may sue in its own name. opinion.
from ruling that respondent company is not a bona But I dissent from the majority opinion when it further
fide assignee. Even assuming, however, that said says: Art 1769 PHILEX MININGv
assignment was only for collection, we are not CORPORATION, petitioner, vs. COMMISSIONER OF
prepared to say that, under section 114 of the Code of Even assuming, however, that said assignment was INTERNAL
Civil Procedure, in force at the time this action was only for collection, we are not prepared to say that,
instituted, ours is not one of those jurisdictions under section 114 of the Code of Civil Procedure, in This is a petition for review on certiorari of the June 30,
following the rule that "when a choose, capable of force at the time this action was instituted, ours is not 2000 Decision1 of the Court of Appeals in CA-G.R. SP
legal assignment, is assigned absolutely to one, but one of those jurisdictions following the rule that "when No. 49385, which affirmed the Decision2 of the Court
the assignment is made for purpose of collection, the a choose, capable of legal assignment, is assigned of Tax Appeals in C.T.A. Case No. 5200. Also assailed
legal title thereto vests in the assignee, and it is no absolutely to one, but the assignment is made for is the April 3, 2001 Resolution3 denying the motion for
concern of the debtor that the equitable title is in purpose of collection, the legal title thereto vests in the reconsideration.
another, and payment to the assignee discharges the assignee, and it is no concern of the debtor that the The facts of the case are as follows:
debtor." (5 C. J., section 144, p. 958.) No substantial equitable title is in another, and payment to the On April 16, 1971, petitioner Philex Mining Corporation
right of the petitioner could indeed be prejudiced by assignee discharges the debtor." (5 C. J., section 114, (Philex Mining), entered into an agreement4 with
such assignment, because section 114 of the Code of p. 958.) No substantial right of the petitioner could Baguio Gold Mining Company ("Baguio Gold") for the
Civil Procedure reserves to it "'any set-off or other indeed be prejudiced by such assignment, because former to manage and operate the latters mining
defense existing at the time of or before notice of the section 114 of the Code of Civil Procedure reserves to claim, known as the Sto. Nino mine, located in Atok
assignment.'" it "any set-off or other defense exiting at the time of or and Tublay, Benguet Province. The parties agreement
Petitioner's allegation that "fraud in the inception of the before notice of the assignment." was denominated as "Power of Attorney" and provided
debt is personal to the contracting parties and does The reason for my dissenting is that, after quoting the for the following terms:
not follow assignment," and that the contracts finding of the Court of Appeals and stating that said 4. Within three (3) years from date thereof, the
assigned to the respondent company "are immoral and conclusion precludes this Court "from ruling that the PRINCIPAL (Baguio Gold) shall make available to the
against public policy and therefore void," constitute respondent company is not a bona fide assignee," the MANAGERS (Philex Mining) up to ELEVEN MILLION
defenses on the merits, but do not affect the efficacy of majority should have stopped then and there. But PESOS (P11,000,000.00), in such amounts as from
the assignment. It is obvious that, apart from the fact having preferred to adduce an additional ratio time to time may be required by the MANAGERS
that the petitioner can not invoke fraud of its decidendi, and assume that the assignment was for within the said 3-year period, for use in the
authorship to evade liability, the appealed decision is collection only and not an absolute and bona fide one, MANAGEMENT of the STO. NINO MINE. The said
founded on an obligation arising, not from fraud, but in order to meet the latter's argument, because the ELEVEN MILLION PESOS (P11,000,000.00) shall be
from the very contracts under which merchandise had Court of Appeals' conclusion is that the assignment deemed, for internal audit purposes, as the owners
been purchased by Lee Guan Box Factory. was not simulated, that is, absolute and bona fide, the account in the Sto. Nino PROJECT. Any part of any
The fourth and fifth assignments of error relate to the majority should have quoted and discussed the income of the PRINCIPAL from the STO. NINO MINE,
refusal of the Court of Appeals to hold that the writ of second and third sentences of paragraph 144, page which is left with the Sto. Nino PROJECT, shall be
attachment is issued at the commencement of this 958, of the Corpus Juris, quoted and relied on by the added to such owners account.
action by the Court of First Instance is illegal, and to petitioner, which refers to an assignment that is not 5. Whenever the MANAGERS shall deem it necessary
award in favor of the petitioner damages for such absolutely and bona fide made. However the majority and convenient in connection with the MANAGEMENT
wrongful attachment. For us to sustain petitioner's opinion did not do so, and quotes and bases its of the STO. NINO MINE, they may transfer their own
contention will amount to an unauthorized reversal of conclusion to the contrary on the first sentence of said funds or property to the Sto. Nino PROJECT, in
the following conclusion of fact of the Court of paragraph, not relied on by the petitioner, and which accordance with the following arrangements:
Appeals: "The stereotyped manner in which deals with absolute and bona fide assignment, and to (a) The properties shall be appraised and, together
defendants obtained goods on credit from the six the provision of section 114 of the Code of Civil with the cash, shall be carried by the Sto. Nino
companies, Vicente Tan's sudden disappearance, the Procedure on set-off and defenses which defendant PROJECT as a special fund to be known as the
execution of the fake sale Exhibit 7 to throw the whole may set up to an action instituted by a bona fide MANAGERS account.
responsibility upon the absent or otherwise insolvent assignee. (b) The total of the MANAGERS account shall not
Tan, defendant's mercurial and unbelievable theories To clearly show the error, we transcribe below section exceed P11,000,000.00, except with prior approval of
as to the ownership of the Modern Box Factory and 144, page 958, of Corpus Juris quoted and underlined the PRINCIPAL; provided, however, that if the
Lee Guan Box Factory obviously adopted in a vain by the petitioner in his brief: compensation of the MANAGERS as herein provided
effort to meet or explain away the evidentiary force of cannot be paid in cash from the Sto. Nino PROJECT,
plaintiff's documentary evidence are much too 144. G. Assignments for Collection. When a chose, the amount not so paid in cash shall be added to the
significant to permit a declaration that the attachment capable of legal assignment, is assigned absolutely to MANAGERS account.
was not justified." one, but the assignment is made for purpose of (c) The cash and property shall not thereafter be
Regarding the suggestion in petitioner's memorandum collection, the legal title thereto vests in the assignee, withdrawn from the Sto. Nino PROJECT until
that this case should be dismissed because of the and it is no concern of the debtor that the equitable termination of this Agency.
death of Ngo Hay, it is sufficient to state that the title is in another, and payment to the assignee (d) The MANAGERS account shall not accrue interest.
petitioner Ngo Tian Tek and Ngo Hay is sued as a discharges the debtor. Under the statutes of most Since it is the desire of the PRINCIPAL to extend to
partnership possessing a personality distinct from any jurisdictions, the assignee may prosecute an action the MANAGERS the benefit of subsequent
of the partners. thereon in his own name as the real party in interest or appreciation of property, upon a projected termination
The appealed decision is affirmed, with costs against as a trustee of an express trust; but, under statutes of this Agency, the ratio which the MANAGERS
the petitioner. So ordered. authorizing only a bona fide assignee of choses in account has to the owners account will be determined,
Moran, C.J., Pablo, Perfecto, Hilado, Briones, action to sue thereon in his own name, an assignee for and the corresponding proportion of the entire assets
Hontiveros, and Tuason, JJ., concur. collection merely is not entitled to sue in his own of the STO. NINO MINE, excluding the claims, shall be
Separate Opinions name. An assignment merely for collection does not transferred to the MANAGERS, except that such
FERIA, J., concurring and dissenting: transfer the beneficial ownership to the assignee. transferred assets shall not include mine development,
I concur in the majority except that portion thereof It is not only convenient but necessary to point this roads, buildings, and similar property which will be
which deals with the question whether an assignee for error in the present concurring and dissenting opinion, valueless, or of slight value, to the MANAGERS. The
collection merely is entitled to sue in his own name, for the conclusion set forth in the above quoted portion MANAGERS can, on the other hand, require at their
option that property originally transferred by them to In its 1982 annual income tax return, petitioner payment of the installment and interests due.
the Sto. Nino PROJECT be re-transferred to them. deducted from its gross income the amount of Moreover, Citibank imposed and collected a "pre-
Until such assets are transferred to the MANAGERS, P112,136,000.00 as "loss on settlement of receivables termination penalty" for the pre-payment.
this Agency shall remain subsisting. from Baguio Gold against reserves and The Court of Appeals affirmed the decision of the
xxxx allowances."9 However, the Bureau of Internal CTA.12 Hence, upon denial of its motion for
12. The compensation of the MANAGER shall be fifty Revenue (BIR) disallowed the amount as deduction for reconsideration,13petitioner took this recourse under
per cent (50%) of the net profit of the Sto. Nino bad debt and assessed petitioner a deficiency income Rule 45 of the Rules of Court, alleging that:
PROJECT before income tax. It is understood that the tax of P62,811,161.39. I.
MANAGERS shall pay income tax on their Petitioner protested before the BIR arguing that the The Court of Appeals erred in construing that the
compensation, while the PRINCIPAL shall pay income deduction must be allowed since all requisites for a advances made by Philex in the management of the
tax on the net profit of the Sto. Nino PROJECT after bad debt deduction were satisfied, to wit: (a) there was Sto. Nino Mine pursuant to the Power of Attorney
deduction therefrom of the MANAGERS a valid and existing debt; (b) the debt was ascertained partook of the nature of an investment rather than a
compensation. to be worthless; and (c) it was charged off within the loan.
xxxx taxable year when it was determined to be worthless. II.
16. The PRINCIPAL has current pecuniary obligation Petitioner emphasized that the debt arose out of a The Court of Appeals erred in ruling that the 50%-50%
in favor of the MANAGERS and, in the future, may valid management contract it entered into with Baguio sharing in the net profits of the Sto. Nino Mine
incur other obligations in favor of the MANAGERS. Gold. The bad debt deduction represented advances indicates that Philex is a partner of Baguio Gold in the
This Power of Attorney has been executed as security made by petitioner which, pursuant to the development of the Sto. Nino Mine notwithstanding the
for the payment and satisfaction of all such obligations management contract, formed part of Baguio Golds clear absence of any intent on the part of Philex and
of the PRINCIPAL in favor of the MANAGERS and as "pecuniary obligations" to petitioner. It also included Baguio Gold to form a partnership.
a means to fulfill the same. Therefore, this Agency payments made by petitioner as guarantor of Baguio III.
shall be irrevocable while any obligation of the Golds long-term loans which legally entitled petitioner The Court of Appeals erred in relying only on the
PRINCIPAL in favor of the MANAGERS is outstanding, to be subrogated to the rights of the original creditor. Power of Attorney and in completely disregarding the
inclusive of the MANAGERS account. After all Petitioner also asserted that due to Baguio Golds Compromise Agreement and the Amended
obligations of the PRINCIPAL in favor of the irreversible losses, it became evident that it would not Compromise Agreement when it construed the nature
MANAGERS have been paid and satisfied in full, this be able to recover the advances and payments it had of the advances made by Philex.
Agency shall be revocable by the PRINCIPAL upon made in behalf of Baguio Gold. For a debt to be IV.
36-month notice to the MANAGERS. considered worthless, petitioner claimed that it was The Court of Appeals erred in refusing to delve upon
17. Notwithstanding any agreement or understanding neither required to institute a judicial action for the issue of the propriety of the bad debts write-off.14
between the PRINCIPAL and the MANAGERS to the collection against the debtor nor to sell or dispose of Petitioner insists that in determining the nature of its
contrary, the MANAGERS may withdraw from this collateral assets in satisfaction of the debt. It is enough business relationship with Baguio Gold, we should not
Agency by giving 6-month notice to the PRINCIPAL. that a taxpayer exerted diligent efforts to enforce only rely on the "Power of Attorney", but also on the
The MANAGERS shall not in any manner be held collection and exhausted all reasonable means to subsequent "Compromise with Dation in Payment" and
liable to the PRINCIPAL by reason alone of such collect. "Amended Compromise with Dation in Payment" that
withdrawal. Paragraph 5(d) hereof shall be operative in On October 28, 1994, the BIR denied petitioners the parties executed in 1982. These documents,
case of the MANAGERS withdrawal. protest for lack of legal and factual basis. It held that allegedly evinced the parties intent to treat the
x x x x5 the alleged debt was not ascertained to be worthless advances and payments as a loan and establish a
In the course of managing and operating the project, since Baguio Gold remained existing and had not filed creditor-debtor relationship between them.
Philex Mining made advances of cash and property in a petition for bankruptcy; and that the deduction did The petition lacks merit.
accordance with paragraph 5 of the agreement. not consist of a valid and subsisting debt considering The lower courts correctly held that the "Power of
However, the mine suffered continuing losses over the that, under the management contract, petitioner was to Attorney" is the instrument that is material in
years which resulted to petitioners withdrawal as be paid fifty percent (50%) of the projects net profit.10 determining the true nature of the business
manager of the mine on January 28, 1982 and in the Petitioner appealed before the Court of Tax Appeals relationship between petitioner and Baguio Gold.
eventual cessation of mine operations on February 20, (CTA) which rendered judgment, as follows: Before resort may be had to the two compromise
1982.6 WHEREFORE, in view of the foregoing, the instant agreements, the parties contractual intent must first
Thereafter, on September 27, 1982, the parties Petition for Review is hereby DENIED for lack of merit. be discovered from the expressed language of the
executed a "Compromise with Dation in The assessment in question, viz: FAS-1-82-88-003067 primary contract under which the parties business
Payment"7 wherein Baguio Gold admitted an for deficiency income tax in the amount of relations were founded. It should be noted that the
indebtedness to petitioner in the amount of P62,811,161.39 is hereby AFFIRMED. compromise agreements were mere collateral
P179,394,000.00 and agreed to pay the same in three ACCORDINGLY, petitioner Philex Mining Corporation documents executed by the parties pursuant to the
segments by first assigning Baguio Golds tangible is hereby ORDERED to PAY respondent termination of their business relationship created
assets to petitioner, transferring to the latter Baguio Commissioner of Internal Revenue the amount of under the "Power of Attorney". On the other hand, it is
Golds equitable title in its Philodrill assets and finally P62,811,161.39, plus, 20% delinquency interest due the latter which established the juridical relation of the
settling the remaining liability through properties that computed from February 10, 1995, which is the date parties and defined the parameters of their dealings
Baguio Gold may acquire in the future. after the 20-day grace period given by the respondent with one another.
On December 31, 1982, the parties executed an within which petitioner has to pay the deficiency The execution of the two compromise agreements can
"Amendment to Compromise with Dation in amount x x x up to actual date of payment. hardly be considered as a subsequent or
Payment"8 where the parties determined that Baguio SO ORDERED.11 contemporaneous act that is reflective of the parties
Golds indebtedness to petitioner actually amounted to The CTA rejected petitioners assertion that the true intent. The compromise agreements were
P259,137,245.00, which sum included liabilities of advances it made for the Sto. Nino mine were in the executed eleven years after the "Power of Attorney"
Baguio Gold to other creditors that petitioner had nature of a loan. It instead characterized the advances and merely laid out a plan or procedure by which
assumed as guarantor. These liabilities pertained to as petitioners investment in a partnership with Baguio petitioner could recover the advances and payments it
long-term loans amounting to US$11,000,000.00 Gold for the development and exploitation of the Sto. made under the "Power of Attorney". The parties
contracted by Baguio Gold from the Bank of America Nino mine. The CTA held that the "Power of Attorney" entered into the compromise agreements as a
NT & SA and Citibank N.A. This time, Baguio Gold executed by petitioner and Baguio Gold was actually a consequence of the dissolution of their business
undertook to pay petitioner in two segments by first partnership agreement. Since the advanced amount relationship. It did not define that relationship or
assigning its tangible assets for P127,838,051.00 and partook of the nature of an investment, it could not be indicate its real character.
then transferring its equitable title in its Philodrill assets deducted as a bad debt from petitioners gross An examination of the "Power of Attorney" reveals that
for P16,302,426.00. The parties then ascertained that income. a partnership or joint venture was indeed intended by
Baguio Gold had a remaining outstanding The CTA likewise held that the amount paid by the parties. Under a contract of partnership, two or
indebtedness to petitioner in the amount of petitioner for the long-term loan obligations of Baguio more persons bind themselves to contribute money,
P114,996,768.00. Gold could not be allowed as a bad debt deduction. At property, or industry to a common fund, with the
Subsequently, petitioner wrote off in its 1982 books of the time the payments were made, Baguio Gold was intention of dividing the profits among
account the remaining outstanding indebtedness of not in default since its loans were not yet due and themselves.15 While a corporation, like petitioner,
Baguio Gold by charging P112,136,000.00 to demandable. What petitioner did was to pre-pay the cannot generally enter into a contract of partnership
allowances and reserves that were set up in 1981 and loans as evidenced by the notice sent by Bank of unless authorized by law or its charter, it has been
P2,860,768.00 to the 1982 operations. America showing that it was merely demanding
held that it may enter into a joint venture which is akin had entered into a partnership with Baguio Gold; that In this connection, we find no contractual basis for the
to a particular partnership: the stipulation only showed that what the parties execution of the two compromise agreements in which
The legal concept of a joint venture is of common law entered into was actually a contract of agency coupled Baguio Gold recognized a debt in favor of petitioner,
origin. It has no precise legal definition, but it has been with an interest which is not revocable at will and not a which supposedly arose from the termination of their
generally understood to mean an organization formed partnership. business relations over the Sto. Nino mine. The
for some temporary purpose. x x x It is in fact hardly In an agency coupled with interest, it is "Power of Attorney" clearly provides that petitioner
distinguishable from the partnership, since their the agency that cannot be revoked or withdrawn by would only be entitled to the return of a proportionate
elements are similar community of interest in the the principal due to an interest of a third party that share of the mine assets to be computed at a ratio that
business, sharing of profits and losses, and a mutual depends upon it, or the mutual interest of both the managers account had to the owners account.
right of control. x x x The main distinction cited by most principal and agent.19 In this case, the non-revocation Except to provide a basis for claiming the advances as
opinions in common law jurisdictions is that the or non-withdrawal under paragraph 5(c) applies to a bad debt deduction, there is no reason for Baguio
partnership contemplates a general business with the advances made by petitioner who is supposedly Gold to hold itself liable to petitioner under the
some degree of continuity, while the joint venture is the agent and not the principal under the contract. compromise agreements, for any amount over and
formed for the execution of a single transaction, and is Thus, it cannot be inferred from the stipulation that the above the proportion agreed upon in the "Power of
thus of a temporary nature. x x x This observation is parties relation under the agreement is one of agency Attorney".
not entirely accurate in this jurisdiction, since under the coupled with an interest and not a partnership. Next, the tax court correctly observed that it was
Civil Code, a partnership may be particular or Neither can paragraph 16 of the agreement be taken unlikely for a business corporation to lend hundreds of
universal, and a particular partnership may have for its as an indication that the relationship of the parties was millions of pesos to another corporation with neither
object a specific undertaking. x x x It would seem one of agency and not a partnership. Although the said security, or collateral, nor a specific deed evidencing
therefore that under Philippine law, a joint venture is a provision states that "this Agency shall be irrevocable the terms and conditions of such loans. The parties
form of partnership and should be governed by the law while any obligation of the PRINCIPAL in favor of the also did not provide a specific maturity date for the
of partnerships. The Supreme Court has however MANAGERS is outstanding, inclusive of the advances to become due and demandable, and the
recognized a distinction between these two business MANAGERS account," it does not necessarily follow manner of payment was unclear. All these point to the
forms, and has held that although a corporation cannot that the parties entered into an agency contract inevitable conclusion that the advances were not loans
enter into a partnership contract, it may however coupled with an interest that cannot be withdrawn by but capital contributions to a partnership.
engage in a joint venture with others. x x x (Citations Baguio Gold. The strongest indication that petitioner was a partner
omitted) 16 It should be stressed that the main object of the in the Sto Nio mine is the fact that it would receive
Perusal of the agreement denominated as the "Power "Power of Attorney" was not to confer a power in favor 50% of the net profits as "compensation" under
of Attorney" indicates that the parties had intended to of petitioner to contract with third persons on behalf of paragraph 12 of the agreement. The entirety of the
create a partnership and establish a common fund for Baguio Gold but to create a business relationship parties contractual stipulations simply leads to no
the purpose. They also had a joint interest in the between petitioner and Baguio Gold, in which the other conclusion than that petitioners "compensation"
profits of the business as shown by a 50-50 sharing in former was to manage and operate the latters mine is actually its share in the income of the joint venture.
the income of the mine. through the parties mutual contribution of material Article 1769 (4) of the Civil Code explicitly provides
Under the "Power of Attorney", petitioner and Baguio resources and industry. The essence of an agency, that the "receipt by a person of a share in the profits of
Gold undertook to contribute money, property and even one that is coupled with interest, is the agents a business is prima facie evidence that he is a partner
industry to the common fund known as the Sto. Nio ability to represent his principal and bring about in the business." Petitioner asserts, however, that no
mine.17 In this regard, we note that there is a business relations between the latter and third such inference can be drawn against it since its share
substantive equivalence in the respective contributions persons.20 Where representation for and in behalf of in the profits of the Sto Nio project was in the nature
of the parties to the development and operation of the the principal is merely incidental or necessary for the of compensation or "wages of an employee", under the
mine. Pursuant to paragraphs 4 and 5 of the proper discharge of ones paramount undertaking exception provided in Article 1769 (4) (b).24
agreement, petitioner and Baguio Gold were to under a contract, the latter may not necessarily be a On this score, the tax court correctly noted that
contribute equally to the joint venture assets under contract of agency, but some other agreement petitioner was not an employee of Baguio Gold who
their respective accounts. Baguio Gold would depending on the ultimate undertaking of the parties.21 will be paid "wages" pursuant to an employer-
contribute P11M under its owners account plus any of In this case, the totality of the circumstances and the employee relationship. To begin with, petitioner was
its income that is left in the project, in addition to stipulations in the parties agreement indubitably lead the manager of the project and had put substantial
its actual mining claim. Meanwhile, petitioners to the conclusion that a partnership was formed sums into the venture in order to ensure its viability
contribution would consist of its expertise in the between petitioner and Baguio Gold. and profitability. By pegging its compensation to
management and operation of mines, as well as the First, it does not appear that Baguio Gold was profits, petitioner also stood not to be remunerated in
managers account which is comprised of P11M in unconditionally obligated to return the advances made case the mine had no income. It is hard to believe that
funds and property and by petitioner under the agreement. Paragraph 5 (d) petitioner would take the risk of not being paid at all for
petitioners "compensation" as manager that cannot thereof provides that upon termination of the parties its services, if it were truly just an ordinary employee.
be paid in cash. business relations, "the ratio which the MANAGERS Consequently, we find that petitioners "compensation"
However, petitioner asserts that it could not have account has to the owners account will be determined, under paragraph 12 of the agreement actually
entered into a partnership agreement with Baguio Gold and the corresponding proportion of the entire assets constitutes its share in the net profits of the
because it did not "bind" itself to contribute money or of the STO. NINO MINE, excluding the claims" shall be partnership. Indeed, petitioner would not be entitled to
property to the project; that under paragraph 5 of the transferred to petitioner.22 As pointed out by the Court an equal share in the income of the mine if it were just
agreement, it was only optional for petitioner to of Tax Appeals, petitioner was merely entitled to a an employee of Baguio Gold.25 It is not surprising that
transfer funds or property to the Sto. Nio project proportionate return of the mines assets upon petitioner was to receive a 50% share in the net
"(w)henever the MANAGERS shall deem it necessary dissolution of the parties business relations. There profits, considering that the "Power of Attorney" also
and convenient in connection with the MANAGEMENT was nothing in the agreement that would require provided for an almost equal contribution of the parties
of the STO. NIO MINE."18 Baguio Gold to make payments of the advances to to the St. Nino mine. The "compensation" agreed upon
The wording of the parties agreement as to petitioner as would be recognized as an item of only serves to reinforce the notion that the parties
petitioners contribution to the common fund does not obligation or "accounts payable" for Baguio Gold. relations were indeed of partners and not employer-
detract from the fact that petitioner transferred its Thus, the tax court correctly concluded that the employee.
funds and property to the project as specified in agreement provided for a distribution of assets of the All told, the lower courts did not err in treating
paragraph 5, thus rendering effective the other Sto. Nio mine upon termination, a provision that is petitioners advances as investments in a partnership
stipulations of the contract, particularly paragraph 5(c) more consistent with a partnership than a creditor- known as the Sto. Nino mine. The advances were not
which prohibits petitioner from withdrawing the debtor relationship. It should be pointed out that in a "debts" of Baguio Gold to petitioner inasmuch as the
advances until termination of the parties business contract of loan, a person who receives a loan or latter was under no unconditional obligation to return
relations. As can be seen, petitioner became bound by money or any fungible thing acquires ownership the same to the former under the "Power of Attorney".
its contributions once the transfers were made. The thereof and is bound to pay the creditor an equal As for the amounts that petitioner paid as guarantor to
contributions acquired an obligatory nature as soon as amount of the same kind and quality.23 In this case, Baguio Golds creditors, we find no reason to depart
petitioner had chosen to exercise its option under however, there was no stipulation for Baguio Gold to from the tax courts factual finding that Baguio Golds
paragraph 5. actually repay petitioner the cash and property that it debts were not yet due and demandable at the time
There is no merit to petitioners claim that the had advanced, but only the return of an amount that petitioner paid the same. Verily, petitioner pre-paid
prohibition in paragraph 5(c) against withdrawal of pegged at a ratio which the managers account had to Baguio Golds outstanding loans to its bank creditors
advances should not be taken as an indication that it the owners account.
and this conclusion is supported by the evidence on It ruled that on the basis of the principle enunciated but does not include duly registered general co-
record.26 in Evangelista 3 an unregistered partnership was in partnerships (companies colectivas).
In sum, petitioner cannot claim the advances as a bad fact formed by petitioners which like a corporation was Article 1767 of the Civil Code of the Philippines
debt deduction from its gross income. Deductions for subject to corporate income tax distinct from that provides:
income tax purposes partake of the nature of tax imposed on the partners. By the contract of partnership two or more persons
exemptions and are strictly construed against the In a separate dissenting opinion, Associate Judge bind themselves to contribute money, property, or
taxpayer, who must prove by convincing evidence that Constante Roaquin stated that considering the industry to a common fund, with the intention of
he is entitled to the deduction claimed.27 In this case, circumstances of this case, although there might in dividing the profits among themselves.
petitioner failed to substantiate its assertion that the fact be a co-ownership between the petitioners, there Pursuant to this article, the essential elements of a
advances were subsisting debts of Baguio Gold that was no adequate basis for the conclusion that they partnership are two, namely: (a) an agreement to
could be deducted from its gross income. thereby formed an unregistered partnership which contribute money, property or industry to a common
Consequently, it could not claim the advances as a made "hem liable for corporate income tax under the fund; and (b) intent to divide the profits among the
valid bad debt deduction. Tax Code. contracting parties. The first element is undoubtedly
WHEREFORE, the petition is DENIED. The decision of Hence, this petition wherein petitioners invoke as basis present in the case at bar, for, admittedly, petitioners
the Court of Appeals in CA-G.R. SP No. 49385 dated thereof the following alleged errors of the respondent have agreed to, and did, contribute money and
June 30, 2000, which affirmed the decision of the court: property to a common fund. Hence, the issue narrows
Court of Tax Appeals in C.T.A. Case No. 5200 A. IN HOLDING AS PRESUMPTIVELY CORRECT down to their intent in acting as they did. Upon
is AFFIRMED. Petitioner Philex Mining Corporation THE DETERMINATION OF THE RESPONDENT consideration of all the facts and circumstances
is ORDERED to PAY the deficiency tax on its 1982 COMMISSIONER, TO THE EFFECT THAT surrounding the case, we are fully satisfied that their
income in the amount of P62,811,161.31, with 20% PETITIONERS FORMED AN UNREGISTERED purpose was to engage in real estate transactions for
delinquency interest computed from February 10, PARTNERSHIP SUBJECT TO CORPORATE monetary gain and then divide the same among
1995, which is the due date given for the payment of INCOME TAX, AND THAT THE BURDEN OF themselves, because:
the deficiency income tax, up to the actual date of OFFERING EVIDENCE IN OPPOSITION THERETO 1. Said common fund was not something they found
payment RESTS UPON THE PETITIONERS. already in existence. It was not a property inherited by
B. IN MAKING A FINDING, SOLELY ON THE BASIS them pro indiviso. They created it purposely. What is
MARIANO P. PASCUAL and RENATO P. OF ISOLATED SALE TRANSACTIONS, THAT AN more they jointly borrowed a substantial portion
DRAGON, petitioners, vs.THE COMMISSIONER OF UNREGISTERED PARTNERSHIP EXISTED THUS thereof in order to establish said common fund.
INTERNAL REVENUE and COURT OF TAX IGNORING THE REQUIREMENTS LAID DOWN BY 2. They invested the same, not merely in one
APPEALS, respondents. LAW THAT WOULD WARRANT THE transaction, but in a series of transactions. On
PRESUMPTION/CONCLUSION THAT A February 2, 1943, they bought a lot for P100,000.00.
The distinction between co-ownership and an PARTNERSHIP EXISTS. On April 3, 1944, they purchased 21 lots for
unregistered partnership or joint venture for income tax C. IN FINDING THAT THE INSTANT CASE IS P18,000.00. This was soon followed, on April 23,
purposes is the issue in this petition. SIMILAR TO THE EVANGELISTA CASE AND 1944, by the acquisition of another real estate for
On June 22, 1965, petitioners bought two (2) parcels THEREFORE SHOULD BE DECIDED ALONGSIDE P108,825.00. Five (5) days later (April 28, 1944), they
of land from Santiago Bernardino, et al. and on May THE EVANGELISTA CASE. got a fourth lot for P237,234.14. The number of lots
28, 1966, they bought another three (3) parcels of land D. IN RULING THAT THE TAX AMNESTY DID NOT (24) acquired and transcations undertaken, as well as
from Juan Roque. The first two parcels of land were RELIEVE THE PETITIONERS FROM PAYMENT OF the brief interregnum between each, particularly the
sold by petitioners in 1968 toMarenir Development OTHER TAXES FOR THE PERIOD COVERED BY last three purchases, is strongly indicative of a pattern
Corporation, while the three parcels of land were sold SUCH AMNESTY. (pp. 12-13, Rollo.) or common design that was not limited to the
by petitioners to Erlinda Reyes and Maria Samson on The petition is meritorious. conservation and preservation of the aforementioned
March 19,1970. Petitioners realized a net profit in the The basis of the subject decision of the respondent common fund or even of the property acquired by
sale made in 1968 in the amount of P165,224.70, court is the ruling of this Court in Evangelista. 4 petitioners in February, 1943. In other words, one
while they realized a net profit of P60,000.00 in the In the said case, petitioners borrowed a sum of money cannot but perceive a character of habituality peculiar
sale made in 1970. The corresponding capital gains from their father which together with their own to business transactions engaged in for purposes of
taxes were paid by petitioners in 1973 and 1974 by personal funds they used in buying several real gain.
availing of the tax amnesties granted in the said years. properties. They appointed their brother to manage 3. The aforesaid lots were not devoted to residential
However, in a letter dated March 31, 1979 of then their properties with full power to lease, collect, rent, purposes or to other personal uses, of petitioners
Acting BIR Commissioner Efren I. Plana, petitioners issue receipts, etc. They had the real properties rented herein. The properties were leased separately to
were assessed and required to pay a total amount of or leased to various tenants for several years and they several persons, who, from 1945 to 1948 inclusive,
P107,101.70 as alleged deficiency corporate income gained net profits from the rental income. Thus, the paid the total sum of P70,068.30 by way of rentals.
taxes for the years 1968 and 1970. Collector of Internal Revenue demanded the payment Seemingly, the lots are still being so let, for petitioners
Petitioners protested the said assessment in a letter of of income tax on a corporation, among others, from do not even suggest that there has been any change
June 26, 1979 asserting that they had availed of tax them. in the utilization thereof.
amnesties way back in 1974. In resolving the issue, this Court held as follows: Since August, 1945, the properties have been under
In a reply of August 22, 1979, respondent The issue in this case is whether petitioners are the management of one person, namely, Simeon
Commissioner informed petitioners that in the years subject to the tax on corporations provided for in Evangelists, with full power to lease, to collect rents, to
1968 and 1970, petitioners as co-owners in the real section 24 of Commonwealth Act No. 466, otherwise issue receipts, to bring suits, to sign letters and
estate transactions formed an unregistered partnership known as the National Internal Revenue Code, as well contracts, and to indorse and deposit notes and
or joint venture taxable as a corporation under Section as to the residence tax for corporations and the real checks. Thus, the affairs relative to said properties
20(b) and its income was subject to the taxes estate dealers' fixed tax. With respect to the tax on have been handled as if the same belonged to a
prescribed under Section 24, both of the National corporations, the issue hinges on the meaning of the corporation or business enterprise operated for profit.
Internal Revenue Code 1 that the unregistered terms corporation and partnership as used in sections The foregoing conditions have existed for more than
partnership was subject to corporate income tax as 24 and 84 of said Code, the pertinent parts of which ten (10) years, or, to be exact, over fifteen (15) years,
distinguished from profits derived from the partnership read: since the first property was acquired, and over twelve
by them which is subject to individual income tax; and Sec. 24. Rate of the tax on corporations.There shall (12) years, since Simeon Evangelists became the
that the availment of tax amnesty under P.D. No. 23, be levied, assessed, collected, and paid annually upon manager.
as amended, by petitioners relieved petitioners of their the total net income received in the preceding taxable Petitioners have not testified or introduced any
individual income tax liabilities but did not relieve them year from all sources by every corporation organized evidence, either on their purpose in creating the set up
from the tax liability of the unregistered partnership. in, or existing under the laws of the Philippines, no already adverted to, or on the causes for its continued
Hence, the petitioners were required to pay the matter how created or organized but not including duly existence. They did not even try to offer an explanation
deficiency income tax assessed. registered general co-partnerships (companies therefor.
Petitioners filed a petition for review with the collectives), a tax upon such income equal to the sum Although, taken singly, they might not suffice to
respondent Court of Tax Appeals docketed as CTA of the following: ... establish the intent necessary to constitute a
Case No. 3045. In due course, the respondent court Sec. 84(b). The term "corporation" includes partnership, the collective effect of these
by a majority decision of March 30, 1987, 2 affirmed partnerships, no matter how created or organized, circumstances is such as to leave no room for doubt
the decision and action taken by respondent joint-stock companies, joint accounts (cuentas en on the existence of said intent in petitioners herein.
commissioner with costs against petitioners. participation), associations or insurance companies, Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, business itself which the proceeds derived. (Elements Presiding Judge, Regional Trial Court of Bacolod
and, hence, those cases are not in point. 5 of the Law of Partnership by Flord D. Mechem 2nd City, Branch 52, Sixth Judicial Region and
In the present case, there is no evidence that Ed., section 83, p. 74.) Spouses OLIVIA V. YANSON AND RICARDO B.
petitioners entered into an agreement to contribute A joint purchase of land, by two, does not constitute a YANSON
money, property or industry to a common fund, and co-partnership in respect thereto; nor does an Assailed and sought to be set aside by the petition
that they intended to divide the profits among agreement to share the profits and losses on the sale before us is the Resolution of the Court of Appeals
themselves. Respondent commissioner and/ or his of land create a partnership; the parties are only dated June 20, 1991 which dismissed the petition for
representative just assumed these conditions to be tenants in common. (Clark vs. Sideway, 142 U.S. annulment of judgment filed by the Spouses Lourdes
present on the basis of the fact that petitioners 682,12 Ct. 327, 35 L. Ed., 1157.) and Menardo Navarro, thusly:
purchased certain parcels of land and became co- Where plaintiff, his brother, and another agreed to
owners thereof. become owners of a single tract of realty, holding as
The instant petition for annulment of decision is
In Evangelists, there was a series of transactions tenants in common, and to divide the profits of
DISMISSED.
where petitioners purchased twenty-four (24) disposing of it, the brother and the other not being
1. Judgments may be annulled only on the ground of
lots showing that the purpose was not limited to the entitled to share in plaintiffs commission, no
extrinsic or collateral fraud, as distinguished from
conservation or preservation of the common fund or partnership existed as between the three parties,
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA
even the properties acquired by them. The character whatever their relation may have been as to third
160, 170). No such ground is alleged in the petition.
of habituality peculiar to business transactions parties. (Magee vs. Magee 123 N.E. 673, 233 Mass.
2. Even if the judgment rendered by the respondent
engaged in for the purpose of gain was present. 341.) Court were erroneous, it is not necessarily void
In the instant case, petitioners bought two (2) parcels In order to constitute a partnership inter sese there
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it
of land in 1965. They did not sell the same nor make must be: (a) An intent to form the same; (b) generally
cannot be annulled by the proceeding sought to be
any improvements thereon. In 1966, they bought participating in both profits and losses; (c) and such a
commenced by the petitioners.
another three (3) parcels of land from one seller. It was community of interest, as far as third persons are
3. The petitioners' remedy against the judgment
only 1968 when they sold the two (2) parcels of land concerned as enables each party to make contract,
enforcement of which is sought to be stopped should
after which they did not make any additional or new manage the business, and dispose of the whole
have been appeal.
purchase. The remaining three (3) parcels were sold property.-Municipal Paving Co. vs. Herring 150 P.
SO ORDERED. (pp. 24-25, Rollo.)
by them in 1970. The transactions were isolated. The 1067, 50 III 470.) The antecedent facts of the case are as follows: On
character of habituality peculiar to business The common ownership of property does not itself
July 23, 1976, herein private respondent Olivia V.
transactions for the purpose of gain was not present. create a partnership between the owners, though they
Yanson filed a complaint against petitioner Lourdes
In Evangelista, the properties were leased out to may use it for the purpose of making gains; and they
Navarro for "Delivery of Personal Properties With
tenants for several years. The business was under the may, without becoming partners, agree among Damages". The complaint incorporated an application
management of one of the partners. Such condition themselves as to the management, and use of such
for a writ of replevin. The complaint was later docketed
existed for over fifteen (15) years. None of the property and the application of the proceedsas Civil Case No. 716 (12562) of the then Court of
circumstances are present in the case at bar. The co- therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No.
First Instance of Bacolod (Branch 55) and was
ownership started only in 1965 and ended in 1970. App. 14.) 6 subsequently amended to include private respondent's
Thus, in the concurring opinion of Mr. Justice Angelo The sharing of returns does not in itself establish a
husband, Ricardo B. Yanson, as co-plaintiff, and
Bautista in Evangelista he said: partnership whether or not the persons sharing therein
petitioner's husband, as co-defendant.
I wish however to make the following observation have a joint or common right or interest in the property.
On July 27, 1976, then Executive Judge Oscar R.
Article 1769 of the new Civil Code lays down the rule There must be a clear intent to form a partnership, the
Victoriano (later to be promoted and to retire as
for determining when a transaction should be deemed existence of a juridical personality different from the
Presiding Justice of the Court of Appeals) approved
a partnership or a co-ownership. Said article individual partners, and the freedom of each party to
private respondents' application for a writ of replevin.
paragraphs 2 and 3, provides; transfer or assign the whole property. The Sheriff's Return of Service dated March 3, 1978
(2) Co-ownership or co-possession does not itself In the present case, there is clear evidence of co-
affirmed receipt by private respondents of all pieces of
establish a partnership, whether such co-owners or co- ownership between the petitioners. There is no
personal property sought to be recovered from
possessors do or do not share any profits made by the adequate basis to support the proposition that they
petitioners.
use of the property; thereby formed an unregistered partnership. The two
On April 30, 1990, Presiding Judge Bethel Katalbas-
(3) The sharing of gross returns does not of itself isolated transactions whereby they purchasedMoscardon rendered a decision, disposing as follows :
establish a partnership, whether or not the persons properties and sold the same a few years thereafter
Accordingly, in the light of the aforegoing findings, all
sharing them have a joint or common right or interest did not thereby make them partners. They shared in
chattels already recovered by plaintiff by virtue of the
in any property from which the returns are derived; the gross profits as co- owners and paid their capital
Writ of Replevin and as listed in the complaint are
From the above it appears that the fact that those who gains taxes on their net profits and availed of the tax
hereby sustained to belong to plaintiff being the owner
agree to form a co- ownership share or do not share amnesty thereby. Under the circumstances, they
of these properties; the motor vehicle, particularly that
any profits made by the use of the property held in cannot be considered to have formed an unregistered
Ford Fiera Jeep registered in and which had remain in
common does not convert their venture into a partnership which is thereby liable for corporate
the possession of the defendant is likewise declared to
partnership. Or the sharing of the gross returns does income tax, as the respondent commissioner belong to her, however, said defendant is hereby
not of itself establish a partnership whether or not the proposes. ordered to reimburse plaintiff the sum of P6,500.00
persons sharing therein have a joint or common right And even assuming for the sake of argument that such
representing the amount advanced to pay part of the
or interest in the property. This only means that, aside unregistered partnership appears to have been
price therefor; and said defendant is likewise hereby
from the circumstance of profit, the presence of other formed, since there is no such existing unregistered
ordered to return to plaintiff such other equipment[s] as
elements constituting partnership is necessary, such partnership with a distinct personality nor with assets
were brought by the latter to and during the operation
as the clear intent to form a partnership, the existence that can be held liable for said deficiency corporate
of their business as were listed in the complaint and
of a juridical personality different from that of the income tax, then petitioners can be held individually
not recovered as yet by virtue of the previous Writ of
individual partners, and the freedom to transfer or liable as partners for this unpaid obligation of the
Replevin. (p. 12, Rollo.) Petitioner received a copy of
assign any interest in the property by one with the partnership p. 7 However, as petitioners have availed
the decision on January 10, 1991 (almost 9 months
consent of the others (Padilla, Civil Code of the of the benefits of tax amnesty as individual taxpayers
after its rendition) and filed on January 16, 1991 a
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636) in these transactions, they are thereby relieved of any
"Motion for Extension of Time To File a Motion for
It is evident that an isolated transaction whereby two further tax liability arising therefrom. Reconsideration". This was granted on January 18,
or more persons contribute funds to buy certain real WHEREFROM, the petition is hereby GRANTED and
1991. Private respondents filed their
estate for profit in the absence of other circumstances the decision of the respondent Court of Tax Appeals of
opposition, citing the ruling in the case of Habaluyas
showing a contrary intention cannot be considered a March 30, 1987 is hereby REVERSED and SET Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])
partnership. ASIDE and another decision is hereby rendered
proscribing the filing of any motion for extension of
Persons who contribute property or funds for a relieving petitioners of the corporate income tax liability
time to file a motion for a new trial or reconsideration.
common enterprise and agree to share the gross in this case, without pronouncement as to costs.
The trial judge vacated the order dated January 18,
returns of that enterprise in proportion to their 1991 and declared the decision of April 30, 1990 as
contribution, but who severally retain the title to their G.R. No. 101847 May 27, 1993 final and executory. (Petitioners' motion for
respective contribution, are not thereby rendered LOURDES NAVARRO AND MENARDO reconsideration was subsequently filed on February 1,
partners. They have no common stock or capital, and NAVARRO, petitioners, vs.COURT OF APPEALS, 1991 or 22 days after the receipt of the decision). On
no community of interest as principal proprietors in the JUDGE BETHEL KATALBAS-MOSCARDON, February 4, 1991, the trial court issued a writ of
execution (Annex "5", p. 79, Rollo). The Sheriff's Office of the Securities and Exchange Commission. true (Exhs. M-1 to M-3, p. 180, Records). In this
Return of Service (Annex "6", p. 82, Rollo) declared Failure to comply with these requirements shall only connection and taking into account the earlier
that the writ was "duly served and satisfied". A receipt affect liability of the partners to third persons. agreement that only profits were to be shared equally,
for the amount of P6,500.00 issued by Mrs. Lourdes the plaintiff must be reimbursed of this cost if only to
Yanson, co-petitioner in this case, was likewise In consideration of the above, it is undeniable that both allow the defendant continuous possession of the
submitted by the Sheriff (Annex "7", p. 83, Rollo). On the plaintiff and the defendant-wife made admission to vehicle in question. It is a fundamental moral, moral
June 26, 1991, petitioners filed with respondent court a have entered into an agreement of operating this Allied and civil injunction that no one shall enrich himself at
petition for annulment of the trial court's decision, Air Freight Agency of which the plaintiff personally the expense of another. (pp. 71-75, Rollo.) Withal, the
claiming that the trial judge erred in declaring the non- constituted with the Manila Office in a sense that the appellate court acted properly in dismissing the
existence of a partnership, contrary to the evidence on plaintiff did supply the necessary equipments and petition for annulment of judgment, the issue raised
record. The appellate court, as aforesaid, outrightly money while her brother Atty. Rodolfo Villaflores was therein having been directly litigated in, and passed
dismissed the petition due to absence of extrinsic or the Manager and the defendant the Cashier. It was upon by, the trial court.
collateral fraud, observing further that an appeal was also admitted that part of this agreement was an equal WHEREFORE, the petition is DISMISSED. The
the proper remedy. sharing of whatever proceeds realized. Consequently, Resolution of the Court of Appeals dated June 20,
In the petition before us, petitioners claim that the trial the plaintiff brought into this transaction certain 1991 is AFFIRMED in all respects.
judge ignored evidence that would show that the chattels in compliance with her obligation. The same No special pronouncement is made as to costs.
parties "clearly intended to form, and (in fact) actually has been done by the herein brother and the herein
formed a verbal partnership engaged in the business defendant who started to work in the business. A 4. Obillos vs CIR 139 SCRA 436 1985
of Air Freight Service Agency in Bacolod"; and that the cursory examination of the evidences presented no JOSE P. OBILLOS, JR., SARAH P. OBILLOS,
decision sustaining the writ of replevin is void since the proof that a partnership, whether oral or written had ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
properties belonging to the partnership do not actually been constituted at the inception of this transaction. brothers andsisters, petitioners vs.COMMISSIONER
belong to any of the parties until the final disposition True it is that even up to the filing of this complaint OF INTERNAL REVENUE and COURT OF TAX
and winding up of the partnership" (p. 15, Rollo). those movables brought by the plaintiff for the use in APPEALS,
These issues, however, were extensively discussed by the operation of the business remain registered in her
the trial judge in her 16-page, single-spaced decision. name. While there may have been co-ownership or co- This case is about the income tax liability of four
We agree with respondents that the decision in this possession of some items and/or any sharing of brothers and sisters who sold two parcels of land
case has become final. In fact a writ of execution had proceeds by way of advances received by both plaintiff which they had acquired from their father.
been issued and was promptly satisfied by the and the defendant, these are not indicative and On March 2, 1973 Jose Obillos, Sr. completed
payment of P6,500.00 to private respondents. supportive of the existence of any partnership between payment to Ortigas & Co., Ltd. on two lots with areas
Having lost their right to appeal, petitioners resorted to them. Article 1769 of the New Civil Code is explicit. of 1,124 and 963 square meters located at Greenhills,
annulment proceedings to justify a belated judicial Even the books and records retrieved by the San Juan, Rizal. The next day he transferred his rights
review of their case. This was, however, correctly Commissioner appointed by the Court did not show to his four children, the petitioners, to enable them to
thrown out by the Court of Appeals because proof of the existence of a partnership as build their residences. The company sold the two lots
petitioners failed to cite extrinsic or collateral fraud to conceptualized by law. Such that if assuming that to petitioners for P178,708.12 on March 13 (Exh. A
warrant the setting aside of the trial court's decision. there were profits realized in 1975 after the two-year and B, p. 44, Rollo). Presumably, the Torrens titles
We respect the appellate court's finding in this regard. deficits were compensated, this could only be subject issued to them would show that they were co-owners
Petitioners have come to us in a petition for review. to an equal sharing consonant to the agreement to of the two lots.
However, the petition is focused solely on factual equally divide any profit realized. However, this Court In 1974, or after having held the two lots for more than
issues which can no longer be entertained. Petitioners' cannot overlook the fact that the Audit Report of the a year, the petitioners resold them to the Walled City
arguments are all directed against the decision of the appointed Commissioner was not highly reliable in the Securities Corporation and Olga Cruz Canda for the
regional trial court; not a word is said in regard to the sense that it was more of his personal estimate of total sum of P313,050 (Exh. C and D). They derived
appellate's court disposition of their petition for what is available on hand. Besides, the alleged profits from the sale a total profit of P134,341.88 or P33,584
annulment of judgment. Verily, petitioners keeps on was a difference found after valuating the assets and for each of them. They treated the profit as a capital
pressing that the idea of a partnership exists on not arising from the real operation of the business. In gain and paid an income tax on one-half thereof or of
account of the so-called admissions in judicio. But the accounting procedures, strictly, this could not be profit P16,792.
factual premises of the trial court were more than but a net worth. In April, 1980, or one day before the expiration of the
enough to suppress and negate petitioners five-year prescriptive period, the Commissioner of
submissions along this line: In view of the above factual findings of the Court it Internal Revenue required the four petitioners to
To be resolved by this Court factually involved in the follows inevitably therefore that there being no pay corporate income tax on the total profit of
issue of whether there was a partnership that existed partnership that existed, any dissolution, liquidation or P134,336 in addition to individual income tax on their
between the parties based on their verbal contention; winding up is beside the point. The plaintiff himself had shares thereof He assessed P37,018 as corporate
whether the properties that were commonly used in summarily ceased from her contract of agency and it is income tax, P18,509 as 50% fraud surcharge and
the operation of Allied Air Freight belonged to the a personal prerogative to desist. On the other hand, P15,547.56 as 42% accumulated interest, or a total
alleged partnership business; and the status of the the assumption by the defendant in negotiating for of P71,074.56.
parties in this transaction of alleged partnership. On herself the continuance of the Agency with the Not only that. He considered the share of the profits of
the other hand, the legal issues revolves on the principal in Manila is comparable to plaintiff's. Any each petitioner in the sum of P33,584 as a " taxable in
dissolution and winding up in case a partnership so account of plaintiff with the principal as alleged, bore full (not a mere capital gain of which is taxable) and
existed as well as the issue of ownership over the no evidence as no collection was ever demanded of required them to pay deficiency income taxes
properties subject matter of recovery. from her. The alleged P20,000.00 assumption aggregating P56,707.20 including the 50% fraud
As a premise, Article 1767 of the New Civil Code specifically, as would have been testified to by the surcharge and the accumulated interest.
defines the contract of partnership to quote: defendant's husband remain a mere allegation. Thus, the petitioners are being held liable for
Art. 1767. By the contract of partnership two or more As to the properties sought to be recovered, the Court deficiency income taxes and penalties totalling
persons bind themselves to contribute money, sustains the possession by plaintiff of all equipments P127,781.76 on their profit of P134,336, in addition to
property, or industry to a common fund, with the and chattels recovered by virtue of the Writ of the tax on capital gains already paid by them.
intention of dividing the proceeds among themselves. Replevin. Considering the other vehicle which The Commissioner acted on the theory that the four
xxx xxx xxx appeared registered in the name of the defendant, and petitioners had formed an unregistered partnership or
Corollary to this definition is the provision in to which even she admitted that part of the purchase joint venture within the meaning of sections 24(a) and
determining whether a partnership exist as so provided price came from the business claimed mutually 84(b) of the Tax Code (Collector of Internal Revenue
under Article 1769, to wit: operated, although the Court have not as much vs. Batangas Trans. Co., 102 Phil. 822).
xxx xxx xxx considered all entries in the Audit Report as totally The petitioners contested the assessments. Two
Furthermore, the Code provides under Article 1771 reliable to be sustained insofar as the operation of the Judges of the Tax Court sustained the same. Judge
and 1772 that while a partnership may be constituted business is concerned, nevertheless, with this Roaquin dissented. Hence, the instant appeal.
in any form, a public instrument is necessary where admission of the defendant and the fact that as borne We hold that it is error to consider the petitioners as
immovables or any rights is constituted. Likewise, if out in said Report there has been disbursed and paid having formed a partnership under article 1767 of the
the partnership involves a capitalization of P3,000.00 for in this vehicle out of the business funds in the total Civil Code simply because they allegedly contributed
or more in money or property, the same must appear sum of P6,500.00, it is only fitting and proper that P178,708.12 to buy the two lots, resold the same and
in a public instrument which must be recorded in the validity of these disbursements must be sustained as divided the profit among themselves.
To regard the petitioners as having formed a taxable It is likewise different from Reyes vs. Commissioner of (See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-
unregistered partnership would result in oppressive Internal Revenue, 24 SCRA 198, where father and son 104) From said investments and properties petitioners
taxation and confirm the dictum that the power to tax purchased a lot and building, entrusted the derived such incomes as profits from installment sales
involves the power to destroy. That eventuality should administration of the building to an administrator and of subdivided lots, profits from sales of stocks,
be obviated. divided equally the net income, and from Evangelista dividends, rentals and interests (see p. 3 of Exhibit 3;
As testified by Jose Obillos, Jr., they had no such vs. Collector of Internal Revenue, 102 Phil. 140, where p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes
intention. They were co-owners pure and simple. To the three Evangelista sisters bought four pieces of real are recorded in the books of account kept by Lorenzo
consider them as partners would obliterate the property which they leased to various tenants and T. Oa where the corresponding shares of the
distinction between a co-ownership and a partnership. derived rentals therefrom. Clearly, the petitioners in petitioners in the net income for the year are also
The petitioners were not engaged in any joint venture these two cases had formed an unregistered known. Every year, petitioners returned for income tax
by reason of that isolated transaction. partnership. purposes their shares in the net income derived from
Their original purpose was to divide the lots for In the instant case, what the Commissioner should said properties and securities and/or from transactions
residential purposes. If later on they found it not have investigated was whether the father donated the involving them (Exhibit 3, supra; t.s.n., pp. 25-26).
feasible to build their residences on the lots because two lots to the petitioners and whether he paid the However, petitioners did not actually receive their
of the high cost of construction, then they had no donor's tax (See Art. 1448, Civil Code). We are not shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
choice but to resell the same to dissolve the co- prejudging this matter. It might have already 100). The income was always left in the hands of
ownership. The division of the profit was merely prescribed. Lorenzo T. Oa who, as heretofore pointed out,
incidental to the dissolution of the co-ownership which WHEREFORE, the judgment of the Tax Court is invested them in real properties and securities. (See
was in the nature of things a temporary state. It had to reversed and set aside. The assessments are Exhibit 3, t.s.n., pp. 50, 102-104)
be terminated sooner or later. Castan Tobeas says: cancelled. No costs.
On the basis of the foregoing facts, respondent
Article 1769(3) of the Civil Code provides that "the 5. Ona vs CIR 45 SCRA 74 1972 (Commissioner of Internal Revenue) decided that
sharing of gross returns does not of itself establish a LORENZO T. OA and HEIRS OF JULIA BUALES, petitioners formed an unregistered partnership and
partnership, whether or not the persons sharing them namely: RODOLFO B. OA, MARIANO B. OA, therefore, subject to the corporate income tax,
have a joint or common right or interest in any property LUZ B. OA, VIRGINIA B. OA and LORENZO B. pursuant to Section 24, in relation to Section 84(b), of
from which the returns are derived". There must be an OA, JR., vs. THE COMMISSIONER OF INTERNAL the Tax Code. Accordingly, he assessed against the
unmistakable intention to form a partnership or joint REVENUE, petitioners the amounts of P8,092.00 and P13,899.00
venture.* Such intent was present in Gatchalian vs. as corporate income taxes for 1955 and 1956,
Collector of Internal Revenue, 67 Phil. 666, where 15 Petition for review of the decision of the Court of Tax respectively. (See Exhibit 5, amended by Exhibit 17,
persons contributed small amounts to purchase a two- Appeals in CTA Case No. 617, similarly entitled as pp. 50 and 86, BIR rec.). Petitioners protested against
peso sweepstakes ticket with the agreement that they above, holding that petitioners have constituted an the assessment and asked for reconsideration of the
would divide the prize The ticket won the third prize of unregistered partnership and are, therefore, subject to ruling of respondent that they have formed an
P50,000. The 15 persons were held liable for income the payment of the deficiency corporate income taxes unregistered partnership. Finding no merit in
tax as an unregistered partnership. assessed against them by respondent Commissioner petitioners' request, respondent denied it (See Exhibit
The instant case is distinguishable from the cases of Internal Revenue for the years 1955 and 1956 in the 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
where the parties engaged in joint ventures for profit. total sum of P21,891.00, plus 5% surcharge and 1% Respondent, June 12, 1961).
Thus, in Oa vs. monthly interest from December 15, 1958, subject to
** This view is supported by the following rulings of the provisions of Section 51 (e) (2) of the Internal The original assessment was as follows:
respondent Commissioner: Revenue Code, as amended by Section 8 of Republic 1955 Net income as per investigation..... P40,209.89
Act No. 2343 and the costs of the suit,1 as well as the
Co-owership distinguished from partnership.We find resolution of said court denying petitioners' motion for Income tax due thereon ................... 8,042.00
that the case at bar is fundamentally similar to the De reconsideration of said decision. 25% surcharge .......................... 2,010.50
Leon case. Thus, like the De Leon heirs, the Longa The facts are stated in the decision of the Tax Court as Compromise for non-filing ............. 50.00
heirs inherited the 'hacienda' in question pro follows: Julia Buales died on March 23, 1944, leaving Total ..................................... P10,102.50
indiviso from their deceased parents; they did not as heirs her surviving spouse, Lorenzo T. Oa and her 1956
contribute or invest additional ' capital to increase or five children. In 1948, Civil Case No. 4519 was Net income as per investigation ... P69,245.23
expand the inherited properties; they merely continued instituted in the Court of First Instance of Manila for the Income tax due thereon ............. 13,849.00
dedicating the property to the use to which it had been settlement of her estate. Later, Lorenzo T. Oa the 25% surcharge .......................... 3,462.25
put by their forebears; they individually reported in surviving spouse was appointed administrator of the Compromise for non-filing .............. 50.00
their tax returns their corresponding shares in the estate of said deceased (Exhibit 3, pp. 34-41, BIR Total .............................................. P17,361.25
income and expenses of the 'hacienda', and they rec.). On April 14, 1949, the administrator submitted (See Exhibit 13, page 50, BIR records)
continued for many years the status of co-ownership in the project of partition, which was approved by the Upon further consideration of the case, the 25%
order, as conceded by respondent, 'to preserve its (the Court on May 16, 1949 (See Exhibit K). Because three surcharge was eliminated in line with the ruling of the
'hacienda') value and to continue the existing of the heirs, namely Luz, Virginia and Lorenzo, Jr., all Supreme Court in Collector v. Batangas
contractual relations with the Central Azucarera de surnamed Oa, were still minors when the project of Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
Bais for milling purposes. Longa vs. Aranas, CTA partition was approved, Lorenzo T. Oa, their father that the questioned assessment refers solely to the
Case No. 653, July 31, 1963). and administrator of the estate, filed a petition in Civil income tax proper for the years 1955 and 1956 and
Case No. 9637 of the Court of First Instance of Manila the "Compromise for non filing," the latter item
All co-ownerships are not deemed unregistered for appointment as guardian of said minors. On obviously referring to the compromise in lieu of the
pratnership.Co-Ownership who own properties November 14, 1949, the Court appointed him guardian criminal liability for failure of petitioners to file the
which produce income should not automatically be of the persons and property of the aforenamed minors corporate income tax returns for said years. (See Exh.
considered partners of an unregistered partnership,or (See p. 3, BIR rec.). The project of partition (Exhibit K; 17, page 86, BIR records). (Pp. 1-3, Annex C to
a corporation, within the purview of the income tax law. see also pp. 77-70, BIR rec.) shows that the heirs Petition)
To hold otherwise, would be to subject the income have undivided one-half (1/2) interest in ten parcels of Petitioners have assigned the following as alleged
of all co-ownerships of inherited properties to the tax land with a total assessed value of P87,860.00, six errors of the Tax Court:
on corporations, inasmuch as if a property does not houses with a total assessed value of P17,590.00 and I.
produce an income at all, it is not subject to any kind of an undetermined amount to be collected from the War THE COURT OF TAX APPEALS ERRED IN
income tax, whether the income tax on individuals or Damage Commission. Later, they received from said HOLDING THAT THE PETITIONERS FORMED AN
the income tax on corporation. (De Leon vs. CI R, CTA Commission the amount of P50,000.00, more or less. UNREGISTERED PARTNERSHIP;
Case No. 738, September 11, 1961, cited in Araas, This amount was not divided among them but was II.
1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77- used in the rehabilitation of properties owned by them THE COURT OF TAX APPEALS ERRED IN NOT
78). Commissioner of Internal Revenue, L-19342, May in common (t.s.n., p. 46). Of the ten parcels of land HOLDING THAT THE PETITIONERS WERE CO-
25, 1972, 45 SCRA 74, where after an extrajudicial aforementioned, two were acquired after the death of OWNERS OF THE PROPERTIES INHERITED AND
settlement the co-heirs used the inheritance or the the decedent with money borrowed from the Philippine (THE) PROFITS DERIVED FROM TRANSACTIONS
incomes derived therefrom as a common fund to Trust Company in the amount of P72,173.00 (t.s.n., p. THEREFROM (sic);
produce profits for themselves, it was held that they 24; Exhibit 3, pp. 31-34 BIR rec.). III.
were taxable as an unregistered partnership.
THE COURT OF TAX APPEALS ERRED IN The Tax Court found that instead of actually properties and/or the incomes derived therefrom are
HOLDING THAT PETITIONERS WERE LIABLE FOR distributing the estate of the deceased among used as a common fund with intent to produce profits
CORPORATE INCOME TAXES FOR 1955 AND 1956 themselves pursuant to the project of partition for the heirs in proportion to their respective shares in
AS AN UNREGISTERED PARTNERSHIP; approved in 1949, "the properties remained under the the inheritance as determined in a project partition
IV. management of Lorenzo T. Oa who used said either duly executed in an extrajudicial settlement or
ON THE ASSUMPTION THAT THE PETITIONERS properties in business by leasing or selling them and approved by the court in the corresponding testate or
CONSTITUTED AN UNREGISTERED investing the income derived therefrom and the intestate proceeding. The reason for this is simple.
PARTNERSHIP, THE COURT OF TAX APPEALS proceed from the sales thereof in real properties and From the moment of such partition, the heirs are
ERRED IN NOT HOLDING THAT THE PETITIONERS securities," as a result of which said properties and entitled already to their respective definite shares of
WERE AN UNREGISTERED PARTNERSHIP TO THE investments steadily increased yearly from P87,860.00 the estate and the incomes thereof, for each of them to
EXTENT ONLY THAT THEY INVESTED THE in "land account" and P17,590.00 in "building account" manage and dispose of as exclusively his own without
PROFITS FROM THE PROPERTIES OWNED IN in 1949 to P175,028.68 in "investment account," the intervention of the other heirs, and, accordingly he
COMMON AND THE LOANS RECEIVED USING THE P135.714.68 in "land account" and P169,262.52 in becomes liable individually for all taxes in connection
INHERITED PROPERTIES AS COLLATERALS; "building account" in 1956. And all these became therewith. If after such partition, he allows his share to
V. possible because, admittedly, petitioners never be held in common with his co-heirs under a single
ON THE ASSUMPTION THAT THERE WAS AN actually received any share of the income or profits management to be used with the intent of making
UNREGISTERED PARTNERSHIP, THE COURT OF from Lorenzo T. Oa and instead, they allowed him to profit thereby in proportion to his share, there can be
TAX APPEALS ERRED IN NOT DEDUCTING THE continue using said shares as part of the common fund no doubt that, even if no document or instrument were
VARIOUS AMOUNTS PAID BY THE PETITIONERS for their ventures, even as they paid the corresponding executed for the purpose, for tax purposes, at least, an
AS INDIVIDUAL INCOME TAX ON THEIR income taxes on the basis of their respective shares of unregistered partnership is formed. This is exactly
RESPECTIVE SHARES OF THE PROFITS the profits of their common business as reported by what happened to petitioners in this case.
ACCRUING FROM THE PROPERTIES OWNED IN the said Lorenzo T. Oa. In this connection, petitioners' reliance on Article 1769,
COMMON, FROM THE DEFICIENCY TAX OF THE It is thus incontrovertible that petitioners did not, paragraph (3), of the Civil Code, providing that: "The
UNREGISTERED PARTNERSHIP. contrary to their contention, merely limit themselves to sharing of gross returns does not of itself establish a
In other words, petitioners pose for our resolution the holding the properties inherited by them. Indeed, it is partnership, whether or not the persons sharing them
following questions: (1) Under the facts found by the admitted that during the material years herein have a joint or common right or interest in any property
Court of Tax Appeals, should petitioners be involved, some of the said properties were sold at from which the returns are derived," and, for that
considered as co-owners of the properties inherited by considerable profit, and that with said profit, petitioners matter, on any other provision of said code on
them from the deceased Julia Buales and the profits engaged, thru Lorenzo T. Oa, in the purchase and partnerships is unavailing. In Evangelista, supra, this
derived from transactions involving the same, or, must sale of corporate securities. It is likewise admitted that Court clearly differentiated the concept of partnerships
they be deemed to have formed an unregistered all the profits from these ventures were divided among under the Civil Code from that of unregistered
partnership subject to tax under Sections 24 and 84(b) petitioners proportionately in accordance with their partnerships which are considered as "corporations"
of the National Internal Revenue Code? (2) Assuming respective shares in the inheritance. In these under Sections 24 and 84(b) of the National Internal
they have formed an unregistered partnership, should circumstances, it is Our considered view that from the Revenue Code. Mr. Justice Roberto Concepcion, now
this not be only in the sense that they invested as a moment petitioners allowed not only the incomes from Chief Justice, elucidated on this point thus:
common fund the profits earned by the properties their respective shares of the inheritance but even the
owned by them in common and the loans granted to inherited properties themselves to be used by Lorenzo To begin with, the tax in question is one imposed upon
them upon the security of the said properties, with the T. Oa as a common fund in undertaking several "corporations", which, strictly speaking, are distinct and
result that as far as their respective shares in the transactions or in business, with the intention of different from "partnerships". When our Internal
inheritance are concerned, the total income thereof deriving profit to be shared by them proportionally, Revenue Code includes "partnerships" among the
should be considered as that of co-owners and not of such act was tantamonut to actually contributing such entities subject to the tax on "corporations", said Code
the unregistered partnership? And (3) assuming again incomes to a common fund and, in effect, they thereby must allude, therefore, to organizations which are not
that they are taxable as an unregistered partnership, formed an unregistered partnership within the purview necessarily "partnerships", in the technical sense of
should not the various amounts already paid by them of the above-mentioned provisions of the Tax Code. the term. Thus, for instance, section 24 of said
for the same years 1955 and 1956 as individual It is but logical that in cases of inheritance, there Code exempts from the aforementioned tax "duly
income taxes on their respective shares of the profits should be a period when the heirs can be considered registered general partnerships," which constitute
accruing from the properties they owned in common as co-owners rather than unregistered co-partners precisely one of the most typical forms of partnerships
be deducted from the deficiency corporate taxes, within the contemplation of our corporate tax laws in this jurisdiction. Likewise, as defined in section 84(b)
herein involved, assessed against such unregistered aforementioned. Before the partition and distribution of of said Code, "the term corporation includes
partnership by the respondent Commissioner? the estate of the deceased, all the income thereof partnerships, no matter how created or organized."
Pondering on these questions, the first thing that has does belong commonly to all the heirs, obviously, This qualifying expression clearly indicates that a joint
struck the Court is that whereas petitioners' without them becoming thereby unregistered co- venture need not be undertaken in any of the standard
predecessor in interest died way back on March 23, partners, but it does not necessarily follow that such forms, or in confirmity with the usual requirements of
1944 and the project of partition of her estate was status as co-owners continues until the inheritance is the law on partnerships, in order that one could be
judicially approved as early as May 16, 1949, and actually and physically distributed among the heirs, for deemed constituted for purposes of the tax on
presumably petitioners have been holding their it is easily conceivable that after knowing their corporation. Again, pursuant to said section 84(b),the
respective shares in their inheritance since those respective shares in the partition, they might decide to term "corporation" includes, among others, "joint
dates admittedly under the administration or continue holding said shares under the common accounts,(cuentas en participacion)" and
management of the head of the family, the widower management of the administrator or executor or of "associations", none of which has a legal personality of
and father Lorenzo T. Oa, the assessment in anyone chosen by them and engage in business on its own, independent of that of its members.
question refers to the later years 1955 and 1956. We that basis. Withal, if this were to be allowed, it would Accordingly, the lawmaker could not have regarded
believe this point to be important because, apparently, be the easiest thing for heirs in any inheritance to that personality as a condition essential to the
at the start, or in the years 1944 to 1954, the circumvent and render meaningless Sections 24 and existence of the partnerships therein referred to. In
respondent Commissioner of Internal Revenue did 84(b) of the National Internal Revenue Code. fact, as above stated, "duly registered general co-
treat petitioners as co-owners, not liable to corporate It is true that in Evangelista vs. Collector, 102 Phil. partnerships" which are possessed of the
tax, and it was only from 1955 that he considered them 140, it was stated, among the reasons for holding the aforementioned personality have been expressly
as having formed an unregistered partnership. At appellants therein to be unregistered co-partners for excluded by law (sections 24 and 84[b]) from the
least, there is nothing in the record indicating that an tax purposes, that their common fund "was not connotation of the term "corporation." ....
earlier assessment had already been made. Such something they found already in existence" and that "it xxx xxx xxx
being the case, and We see no reason how it could be was not a property inherited by them pro indiviso," but Similarly, the American Law
otherwise, it is easily understandable why petitioners' it is certainly far fetched to argue therefrom, as provides its own concept of a partnership. Underthe
position that they are co-owners and not unregistered petitioners are doing here, that ergo, in all instances term "partnership" it includes not only a partnership as
co-partners, for the purposes of the impugned where an inheritance is not actually divided, there can known in common law but, as well, a syndicate, group,
assessment, cannot be upheld. Truth to tell, petitioners be no unregistered co-partnership. As already pool, joint venture, or other unincorporated
should find comfort in the fact that they were not indicated, for tax purposes, the co-ownership of organization which carries on any business, financial
similarly assessed earlier by the Bureau of Internal inherited properties is automatically converted into an operation, or venture, and which is not, within the
Revenue. unregistered partnership the moment the said common meaning of the Code, a trust, estate, or a corporation.
... . (7A Merten's Law of Federal Incoe Taxation, p. the amounts of income tax paid by each petitioner on
3. Saturnina Silva .08
789; emphasis ours.) his share of partnership profits. This is not correct;
The term "partnership" includes a syndicate, rather, itshould be the other way around. The 4. Guillermo Tapia .13
group,pool, joint venture or other unincorporated partnership profits distributable to the partners
organization, through or by means of which any (petitioners herein) should be reduced by the amounts 5. Jesus Legaspi .15
business, financial operat on, or venture is carried on. of income tax assessed against the partnership.
... . (8 Merten's Law of Federal Income Taxation, p. Consequently, each of the petitioners in his individual 6. Jose Silva .07
562 Note 63; emphasis ours.) capacity overpaid his income tax for the years in
For purposes of the tax on corporations, our National question, but the income tax due from the partnership 7. Tomasa Mercado. .08
Internal Revenue Code includes these partnerships has been correctly assessed. Since the individual
with the exception only of duly registered general income tax liabilities of petitioners are not in issue in 8. Julio Gatchalian .13
copartnerships within the purview of the term this proceeding, it is not proper for the Court to pass
"corporation." It is, therefore, clear to our mind that upon the same. Petitioners insist that it was error for 9. Emiliana Santiago .13
petitioners herein constitute a partnership, insofar as the Tax Court to so rule that whatever excess they
said Code is concerned, and are subject to the income might have paid as individual income tax cannot be 10. Maria C. Legaspi .16
tax for corporations. credited as part payment of the taxes herein in
We reiterated this view, thru Mr. Justice Fernando, question. It is argued that to sanction the view of the 11. Francisco Cabral .13
in Reyes vs. Commissioner of Internal Revenue, G. R. Tax Court is to oblige petitioners to pay double income
Nos. L-24020-21, July 29, 1968, 24 SCRA 198, tax on the same income, and, worse, considering the 12. Gonzalo Javier .14
wherein the Court ruled against a theory of co- time that has lapsed since they paid their individual
ownership pursued by appellants therein. income taxes, they may already be barred by 13. Maria Santiago .17
As regards the second question rai prescription from recovering their overpayments in a
sed by petitioners about the segregation, for the separate action. We do not agree. As We see it, the 14. Buenaventura Guzman .13
purposes of the corporate taxes in question, of their case of petitioners as regards the point under
15. Mariano Santos .14
inherited properties from those acquired by them discussion is simply that of a taxpayer who has paid
subsequently, We consider as justified the following the wrong tax, assuming that the failure to pay the
ratiocination of the Tax Court in denying their motion corporate taxes in question was not deliberate. Of
Total 2.00
for reconsideration: In connection with the second course, such taxpayer has the right to be reimbursed
ground, it is alleged that, if there was an unregistered what he has erroneously paid, but the law is very clear 3. That immediately thereafter but prior to December
partnership, the holding should be limited to the that the claim and action for such reimbursement are 15, 1934, plaintiffs purchased, in the ordinary course
business engaged in apart from the properties subject to the bar of prescription. And since the period of business, from one of the duly authorized agents of
inherited by petitioners. In other words, the taxable for the recovery of the excess income taxes in the the National Charity Sweepstakes Office one ticket
income of the partnership should be limited to the case of herein petitioners has already lapsed, it would bearing No. 178637 for the sum of two pesos (P2) and
income derived from the acquisition and sale of real not seem right to virtually disregard prescription merely that the said ticket was registered in the name of Jose
properties and corporate securities and should not upon the ground that the reason for the delay is Gatchalian and Company;
include the income derived from the inherited precisely because the taxpayers failed to make the
properties. It is admitted that the inherited properties proper return and payment of the corporate taxes 4. That as a result of the drawing of the sweepstakes
and the income derived therefrom were used in the legally due from them. In principle, it is but proper not on December 15, 1934, the above-mentioned ticket
business of buying and selling other real properties to allow any relaxation of the tax laws in favor of bearing No. 178637 won one of the third prizes in the
and corporate securities. Accordingly, the partnership persons who are not exactly above suspicion in their amount of P50,000 and that the corresponding check
income must include not only the income derived from conduct vis-a-vis their tax obligation to the State. covering the above-mentioned prize of P50,000 was
the purchase and sale of other properties but also the IN VIEW OF ALL THE FOREGOING, the judgment of drawn by the National Charity Sweepstakes Office in
income of the inherited properties. the Court of Tax Appeals appealed from is affirm with favor of Jose Gatchalian & Company against the
Besides, as already observed earlier, the income costs against petitioners. Philippine National Bank, which check was cashed
derived from inherited properties may be considered during the latter part of December, 1934 by Jose
as individual income of the respective heirs only so 6. Gatchalian vs CIR 67 Phil 666 1939 Gatchalian & Company;
long as the inheritance or estate is not distributed or, JOSE GATCHALIAN, ET AL., plaintiffs- 5. That on December 29, 1934, Jose Gatchalian was
at least, partitioned, but the moment their respective appellants, vs.THE COLLECTOR OF INTERNAL required by income tax examiner Alfredo David to file
known shares are used as part of the common assets REVENUE, defendant-appellee. the corresponding income tax return covering the prize
of the heirs to be used in making profits, it is but won by Jose Gatchalian & Company and that on
proper that the income of such shares should be The plaintiff brought this action to recover from the December 29, 1934, the said return was signed by
considered as the part of the taxable income of an defendant Collector of Internal Revenue the sum of Jose Gatchalian, a copy of which return is enclosed as
unregistered partnership. This, We hold, is the clear P1,863.44, with legal interest thereon, which they paid Exhibit A and made a part hereof;
intent of the law. under protest by way of income tax. They appealed 6. That on January 8, 1935, the defendant made an
Likewise, the third question of petitioners appears to from the decision rendered in the case on October 23, assessment against Jose Gatchalian & Company
have been adequately resolved by the Tax Court in the 1936 by the Court of First Instance of the City of requesting the payment of the sum of P1,499.94 to the
aforementioned resolution denying petitioners' motion Manila, which dismissed the action with the costs deputy provincial treasurer of Pulilan, Bulacan, giving
for reconsideration of the decision of said court. against them. to said Jose Gatchalian & Company until January 20,
Pertinently, the court ruled this wise: The case was submitted for decision upon the 1935 within which to pay the said amount of
In support of the third ground, counsel for petitioners following stipulation of facts: P1,499.94, a copy of which letter marked Exhibit B is
alleges: enclosed and made a part hereof;
Even if we were to yield to the decision of this Come now the parties to the above-mentioned case, 7. That on January 20, 1935, the plaintiffs, through
Honoable Court that the herein petitioners have through their respective undersigned attorneys, and their attorney, sent to defendant a reply, a copy of
formed an unregistered partnership and, there ore, hereby agree to respectfully submit to this Honorable which marked Exhibit C is attached and made a part
have to be taxed as such, it might be recalled that the Court the case upon the following statement of facts: hereof, requesting exemption from payment of the
petitioners in their individual income tax returns 1. That plaintiff are all residents of the municipality of income tax to which reply there were enclosed fifteen
reported their shares of the profits of the unregistered Pulilan, Bulacan, and that defendant is the Collector of (15) separate individual income tax returns filed
partn rship. We think it only fair and equitable that the Internal Revenue of the Philippines; separately by each one of the plaintiffs, copies of
various amounts paid by the individual petiti ners as 2. That prior to December 15, 1934 plaintiffs, in order which returns are attached and marked Exhibit D-1 to
income tax on their respective shares of the to enable them to purchase one sweepstakes ticket D-15, respectively, in order of their names listed in the
unregistered partnership should be deducted from the valued at two pesos (P2), subscribed and paid therefor caption of this case and made parts hereof; a
deficiency income tax found by this Honorable Court the amounts as follows: statement of sale signed by Jose Gatchalian showing
against the unreg stered partnership. (page 7, Mem the amount put up by each of the plaintiffs to cover up
1. Jose Gatchalian P0.18
randum for the Petitioner in Support of Their Motion for the attached and marked as Exhibit E and made a part
Reconsideration, Oct. 28, 1961.) hereof; and a copy of the affidavit signed by Jose
2. Gregoria Cristobal. .18
In other words, it is the position of petitioners that the Gatchalian dated December 29, 1934 is attached and
taxable income of the partnership must be reduced by marked Exhibit F and made part thereof;
There is no doubt that if the plaintiffs merely formed a
That the defendant in his letter dated January 28, 17. The parties hereto reserve the right to present community of property the latter is exempt from the
1935, a copy of which marked Exhibit G is enclosed, other and additional evidence if necessary. payment of income tax under the law. But according to
denied plaintiffs' request of January 20, 1935, for Exhibit E referred to in the stipulation is of the following the stipulation facts the plaintiffs organized a
exemption from the payment of tax and reiterated his tenor: partnership of a civil nature because each of them put
demand for the payment of the sum of P1,499.94 as To whom it may concern: up money to buy a sweepstakes ticket for the sole
income tax and gave plaintiffs until February 10, 1935 I, Jose Gatchalian, a resident of Pulilan, Bulacan, purpose of dividing equally the prize which they may
within which to pay the said tax; married, of age, hereby certify, that on the 11th day of win, as they did in fact in the amount of P50,000
9. That in view of the failure of the plaintiffs to pay the August, 1934, I sold parts of my shares on ticket No. (article 1665, Civil Code). The partnership was not only
amount of tax demanded by the defendant, 178637 to the persons and for the amount indicated formed, but upon the organization thereof and the
notwithstanding subsequent demand made by below and the part of may share remaining is also winning of the prize, Jose Gatchalian personally
defendant upon the plaintiffs through their attorney on shown to wit: ticket; and that, therefore, the persons appeared in the office of the Philippines Charity
March 23, 1935, a copy of which marked Exhibit H is named above are entitled to the parts of whatever Sweepstakes, in his capacity as co-partner, as such
enclosed, defendant on May 13, 1935 issued a prize that might be won by said ticket. collection the prize, the office issued the check for
warrant of distraint and levy against the property of the P50,000 in favor of Jose Gatchalian and company,
plaintiffs, a copy of which warrant marked Exhibit I is Pulilan, Bulacan, P.I. and the said partner, in the same capacity, collected
enclosed and made a part hereof; (Sgd.) JOSE GATCHALIAN the said check. All these circumstances repel the idea
10. That to avoid embarrassment arising from the And a summary of Exhibits D-1 to D-15 is inserted in that the plaintiffs organized and formed a community
embargo of the property of the plaintiffs, the said the bill of exceptions as follows: of property only.
plaintiffs on June 15, 1935, through Gregoria Cristobal, RECAPITULATIONS OF 15 INDIVIDUAL INCOME Having organized and constituted a partnership of a
Maria C. Legaspi and Jesus Legaspi, paid under TAX RETURNS FOR 1934 ALL DATED JANUARY 19, civil nature, the said entity is the one bound to pay the
protest the sum of P601.51 as part of the tax and 1935 SUBMITTED TO THE COLLECTOR OF income tax which the defendant collected under the
penalties to the municipal treasurer of Pulilan, INTERNAL REVENUE. aforesaid section 10 (a) of Act No. 2833, as amended
Bulacan, as evidenced by official receipt No. 7454879 by section 2 of Act No. 3761. There is no merit in
which is attached and marked Exhibit J and made a The legal questions raised in plaintiffs-appellants' five plaintiff's contention that the tax should be prorated
part hereof, and requested defendant that plaintiffs be assigned errors may properly be reduced to the two among them and paid individually, resulting in their
allowed to pay under protest the balance of the tax following: (1) Whether the plaintiffs formed a exemption from the tax.
and penalties by monthly installments; partnership, or merely a community of property without In view of the foregoing, the appealed decision is
11. That plaintiff's request to pay the balance of the tax a personality of its own; in the first case it is admitted affirmed, with the costs of this instance to the plaintiffs
and penalties was granted by defendant subject to the that the partnership thus formed is liable for the appellants. So ordered.
condition that plaintiffs file the usual bond secured by payment of income tax, whereas if there was merely a
two solvent persons to guarantee prompt payment of community of property, they are exempt from such 7. Sardane vs CA 167 SCRA 524 1988
each installments as it becomes due; payment; and (2) whether they should pay the tax NOBIO SARDANE, , vs.THE COURT OF APPEALS
12. That on July 16, 1935, plaintiff filed a bond, a copy collectively or whether the latter should be prorated and ROMEO J. ACOJEDO,
of which marked Exhibit K is enclosed and made a among them and paid individually.
part hereof, to guarantee the payment of the balance The Collector of Internal Revenue collected the tax The extensive discussion and exhaustive disquisition
of the alleged tax liability by monthly installments at under section 10 of Act No. 2833, as last amended by in the decision 1 of the respondent Court 2 should
the rate of P118.70 a month, the first payment under section 2 of Act No. 3761, reading as follows: have written finis to this case without further recourse
protest to be effected on or before July 31, 1935; to Us. The assignment of errors and arguments raised
13. That on July 16, 1935 the said plaintiffs formally SEC. 10. (a) There shall be levied, assessed, in the respondent Court by herein private respondent,
protested against the payment of the sum of P602.51, collected, and paid annually upon the total net income as the petitioner therein, having been correctly and
a copy of which protest is attached and marked Exhibit received in the preceding calendar year from all justifiedly sustained by said court without any
L, but that defendant in his letter dated August 1, 1935 sources by every corporation, joint-stock company, reversible error in its conclusions, the present petition
overruled the protest and denied the request for refund partnership, joint account (cuenta en participacion), must fail.
of the plaintiffs; association or insurance company, organized in the The assailed decision details the facts and
14. That, in view of the failure of the plaintiffs to pay Philippine Islands, no matter how created or proceedings which spawned the present controversy
the monthly installments in accordance with the terms organized, but not including duly registered general as follows:
and conditions of bond filed by them, the defendant in copartnership (compaias colectivas), a tax of three
his letter dated July 23, 1935, copy of which is per centum upon such income; and a like tax shall be Petitioner brought an action in the City Court of
attached and marked Exhibit M, ordered the municipal levied, assessed, collected, and paid annually upon Dipolog for collection of a sum of P5,217.25 based on
treasurer of Pulilan, Bulacan to execute within five the total net income received in the preceding calendar promissory notes executed by the herein private
days the warrant of distraint and levy issued against year from all sources within the Philippine Islands by respondent Nobio Sardane in favor of the herein
the plaintiffs on May 13, 1935; every corporation, joint-stock company, partnership, petitioner. Petitioner bases his right to collect on
15. That in order to avoid annoyance and joint account (cuenta en participacion), association, or Exhibits B, C, D, E, F, and G executed on different
embarrassment arising from the levy of their property, insurance company organized, authorized, or existing dates and signed by private respondent Nobio
the plaintiffs on August 28, 1936, through Jose under the laws of any foreign country, including Sardane. Exhibit B is a printed promissory note
Gatchalian, Guillermo Tapia, Maria Santiago and interest on bonds, notes, or other interest-bearing involving Pl,117.25 and dated May 13, 1972. Exhibit C
Emiliano Santiago, paid under protest to the municipal obligations of residents, corporate or is likewise a printed promissory note and denotes on
treasurer of Pulilan, Bulacan the sum of P1,260.93 otherwise: Provided, however, That nothing in this its face that the sum loaned was Pl,400.00. Exhibit D
representing the unpaid balance of the income tax and section shall be construed as permitting the taxation of is also a printed promissory note dated May 31, 1977
penalties demanded by defendant as evidenced by the income derived from dividends or net profits on involving an amount of P100.00. Exhibit E is what is
income tax receipt No. 35811 which is attached and which the normal tax has been paid. commonly known to the layman as 'vale' which reads:
marked Exhibit N and made a part hereof; and that on The gain derived or loss sustained from the sale or 'Good for: two hundred pesos (Sgd) Nobio Sardane'.
September 3, 1936, the plaintiffs formally protested to other disposition by a corporation, joint-stock Exhibit F is stated in the following tenor: 'Received
the defendant against the payment of said amount and company, partnership, joint account (cuenta en from Mr. Romeo Acojedo the sum Pesos: Two
requested the refund thereof, copy of which is participacion), association, or insurance company, or Thousand Two Hundred (P2,200.00) ONLY, to be paid
attached and marked Exhibit O and made part hereof; property, real, personal, or mixed, shall be ascertained on or before December 25, 1975. (Sgd) Nobio
but that on September 4, 1936, the defendant in accordance with subsections (c) and (d) of section Sardane.' Exhibit G and H are both vales' involving the
overruled the protest and denied the refund thereof; two of Act Numbered Two thousand eight hundred and same amount of one hundred pesos, and dated
copy of which is attached and marked Exhibit P and thirty-three, as amended by Act Numbered Twenty- August 25, 1972 and September 12, 1972
made a part hereof; and nine hundred and twenty-six. respectively.
16. That plaintiffs demanded upon defendant the The foregoing tax rate shall apply to the net income
refund of the total sum of one thousand eight hundred received by every taxable corporation, joint-stock It has been established in the trial court that on many
and sixty three pesos and forty-four centavos company, partnership, joint account (cuenta en occasions, the petitioner demanded the payment of
(P1,863.44) paid under protest by them but that participacion), association, or insurance company in the total amount of P5,217.25. The failure of the
defendant refused and still refuses to refund the said the calendar year nineteen hundred and twenty and in private respondent to pay the said amount prompted
amount notwithstanding the plaintiffs' demands. each year thereafter. the petitioner to seek the services of lawyer who made
a letter (Exhibit 1) formally demanding the return of the agreement other than the contents of the writing The same rule was reiterated in Bastida vs. Menzi &
sum loaned. Because of the failure of the private except in the following cases: Co., Inc., et al. 6 which involved the same factual and
respondent to heed the demands extrajudicially made (a) Where a mistake or imperfection of the writing or its legal milieu.
by the petitioner, the latter was constrained to bring an failure to express the the true intent and agreement of
action for collection of sum of money. the parties, or the validity of the agreement is put in There are other considerations noted by respondent
issue by the pleadings; Court which negate herein petitioner's pretension that
During the scheduled day for trial, private respondent (b) When there is an intrinsic ambiguity in the writing. he was a partner and not a mere employee indebted to
failed to appear and to file an answer. On motion by As correctly pointed out by the respondent Court the the present private respondent. Thus, in an action for
the petitioner, the City Court of Dipolog issued an exceptions to the rule do not apply in this case as damages filed by herein private respondent against
order dated May 18, 1976 declaring the private there is no ambiguity in the writings in question, thus: the North Zamboanga Timber Co., Inc. arising from the
respondent in default and allowed the petitioner to In the case at bar, Exhibits B, C, and D are printed operations of the business, herein petitioner did not
present his evidence ex-parte. Based on petitioner's promissory notes containing a promise to pay a sum ask to be joined as a party plaintiff. Also, although he
evidence, the City Court of Dipolog rendered judgment certain in money, payable on demand and the promise contends that herein private respondent is the
by default in favor of the petitioner. to bear the costs of litigation in the event of the private treasurer of the alleged partnership, yet it is the latter
respondent's failure to pay the amount loaned when who is demanding an accounting. The advertence of
Private respondent filed a motion to lift the order of demanded extrajudicially. Likewise, the vales denote the Court of First Instance to the fact that the casco
default which was granted by the City Court in an that the private respondent is obliged to return the sum bears the name of herein petitioner disregards the
order dated May 24, 1976, taking into consideration loaned to him by the petitioner. On their face, nothing finding of the respondent Court that it was just a
that the answer was filed within two hours after the appears to be vague or ambigous, for the terms of the concession since it was he who obtained the engine
hearing of the evidence presented ex-parte by the promissory notes clearly show that it was incumbent used in the Sardaco from the Department of Local
petitioner. upon the private respondent to pay the amount Government and Community Development. Further,
involved in the promissory notes if and when the the use by the parties of the pronoun "our" in referring
After the trial on the merits, the City Court of Dipolog petitioner demands the same. It was clearly the intent to "our basnig, our catch", "our deposit", or "our
rendered its decision on September 14, 1976, the of the parties to enter into a contract of loan for how boseros" was merely indicative of the camaraderie and
dispositive portion of which reads: could an educated man like the private respondent be not evidentiary of a partnership, between them.
IN VIEW OF THE FOREGOING, judgment is hereby deceived to sign a promissory note yet intending to The foregoing factual findings, which belie the further
rendered in favor of the plaintiff and against the make such a writing to be mere receipts of the claim that the aforesaid promissory notes do not
defendant as follows: petitioner's supposed contribution to the alleged express the true intent and agreement of the parties,
(a) Ordering the defendant to pay unto the plaintiff the partnership existing between the parties? are binding on Us since there is no showing that they
sum of Five Thousand Two Hundred Seventeen Pesos It has been established in the trial court that, the fall within the exceptions to the rule limiting the scope
and Twenty-five centavos (P5,217.25) plus legal private respondent has been engaged in business for of appellate review herein to questions of law.
interest to commence from April 23, 1976 when this quite a long period of time--as owner of the Sardane On the second issue, the pertinent rule on actionable
case was filed in court; and Trucking Service, entering into contracts with the documents in Rule 8, for ready reference, reads:
(b) Ordering the defendant to pay the plaintiff the sum government for the construction of wharfs and seawall;
of P200.00 as attorney's fee and to pay the cost of this and a member of the City Council of Dapitan (TSN, Sec. 8. How to contest genuineness of such
proceeding. 3 July 20, 1976, pp. 57-58 indeed puzzles us how the documents.When an action or defense is founded
Therein defendant Sardane appealed to the Court of private respondent could have been misled into upon a written instrument, copied in or attached to the
First Instance of Zamboanga del Norte which reversed signing a document containing terms which he did not corresponding pleading as provided in the preceding
the decision of the lower court by dismissing the mean them to be. ... section, the genuineness and due execution of the
complaint and ordered the plaintiff-appellee Acojedo to The private respondent admitted during the cross- instrument shall be deemed admitted unless the
pay said defendant-appellant P500.00 each for actual examination made by petitioner's counsel that he was adverse party, under oath, specifically denies them,
damages, moral damages, exemplary damages and the one who was responsible for the printing of and sets forth what he claims to be the facts; but this
attorney's fees, as well as the costs of suit. Plaintiff- Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How provision does not apply when the adverse party does
appellee then sought the review of said decision by could he purportedly rely on such a flimsy pretext that not appear to be a party to the instrument or when
petition to the respondent Court. the promissory notes were receipts of the petitioner's compliance with an order for the inspection of the
The assignment of errors in said petition for review can contribution? 4 original instrument is refused.
be capsulized into two decisive issues, firstly, whether
the oral testimony for the therein private respondent The Court of Appeals held, and We agree, that even if The record shows that herein petitioner did not deny
Sardane that a partnership existed between him and evidence aliunde other than the promissory notes may under oath in his answer the authenticity and due
therein petitioner Acojedo are admissible to vary the be admitted to alter the meaning conveyed thereby, execution of the promissory notes which had been
meaning of the abovementioned promissory notes; still the evidence is insufficient to prove that a duly pleaded and attached to the complaint, thereby
and, secondly, whether because of the failure of partnership existed between the private parties hereto. admitting their genuineness and due execution. Even
therein petitioner to cross-examine therein private As manager of the basnig Sarcado naturally some in the trial court, he did not at all question the fact that
respondent on his sur-rebuttal testimony, there was a degree of control over the operations and maintenance he signed said promissory notes and that the same
waiver of the presumption accorded in favor of said thereof had to be exercised by herein petitioner. The were genuine. Instead, he presented parol evidence to
petitioner by Section 8, Rule 8 of the Rules of Court. fact that he had received 50% of the net profits does vary the import of the promissory notes by alleging that
On the first issue, the then Court of First Instance held not conclusively establish that he was a partner of the they were mere receipts of his contribution to the
that "the pleadings of the parties herein put in issue private respondent herein. Article 1769(4) of the Civil alleged partnership.
the imperfection or ambiguity of the documents in Code is explicit that while the receipt by a person of a
question", hence "the appellant can avail of the parol share of the profits of a business is prima His arguments on this score reflect a misapprehension
evidence rule to prove his side of the case, that is, the facie evidence that he is a partner in the business, no of the rule on parol evidence as distinguished from the
said amount taken by him from appellee is or was not such inference shall be drawn if such profits were rule on actionable documents. As the respondent
his personal debt to appellee, but expenses of the received in payment as wages of an employee. Court correctly explained to herein petitioner, what he
partnership between him and appellee." Furthermore, herein petitioner had no voice in the presented in the trial Court was testimonial evidence
Consequently, said trial court concluded that the management of the affairs of the basnig. Under similar that the promissory notes were receipts of his
promissory notes involved were merely receipts for the facts, this Court in the early case of Fortis vs. supposed contributions to the alleged partnership
contributions to said partnership and, therefore, upheld Gutierrez Hermanos, 5 in denying the claim of the which testimony, in the light of Section 7, Rule 130,
the claim that there was ambiguity in the promissory plaintiff therein that he was a partner in the business of could not be admitted to vary or alter the explicit
notes, hence parol evidence was allowable to vary or the defendant, declared: meaning conveyed by said promissory notes. On the
contradict the terms of the represented loan contract. other hand, the presumed genuineness and due
The parol evidence rule in Rule 130 provides: This contention cannot be sustained. It was a mere execution of said promissory notes were not affected,
Sec. 7. Evidence of written agreements.When the contract of employment. The plaintiff had no voice nor pursuant to the provisions of Section 8, Rule 8, since
terms of an agreement have been reduced to writing, it vote in the management of the affairs of the company. such aspects were not at all questioned but, on the
is to be considered as containing all such terms, and, The fact that the compensation received by him was to contrary, were admitted by herein petitioner.
therefore, there can be, between the parties and their be determined with reference to the profits made by Petitioner's invocation of the doctrines in Yu Chuck, et
successors in interest, no evidence of the terms of the the defendant in their business did not in any sense al. vs. Kong Li Po, 7 which was reiterated in Central
make him a partner therein. ... Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does
not sustain his thesis that the herein private made for the purpose of fixing the basis upon which
respondent had "waived the mantle of protection given 8. Fortis vs Gutierrez Hermanos 6 Phil 188 his compensation should be determined.
him by Rule 8, Sec. 8". It is true that such implied JOHN FORTIS, plaintiff-appellee, vs. GUTIERREZ (4) It was no necessary that the contract between the
admission of genuineness and due execution may be HERMANOS, defendants- plaintiff and the defendants should be made in writing.
waived by a party but only if he acts in a manner Plaintiff, an employee of defendants during the years (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818,
indicative of either an express or tacit waiver thereof. 1900, 1901, and 1902, brought this action to recover a October 8, 1903.)
Petitioner, however, either overlooked or ignored the balance due him as salary for the year 1902. He (5) It appearred that Miguel Alonzo Gutierrez, with
fact that, as held in Yu Chuck, and the same is true in alleged that he was entitled, as salary, to 5 per cent of whom the plaintiff had made the contract, had died
other cases of Identical factual settings, such a finding the net profits of the business of the defendants for prior to the trial of the action, and the defendants claim
of waiver is proper where a case has been tried in said year. The complaint also contained a cause of that by reasons of the provisions of section 383,
complete disregard of the rule and the plaintiff having action for the sum of 600 pesos, money expended by paragraph 7, of the Code of Civil Procedure, plaintiff
pleaded a document by copy, presents oral evidence plaintiff for the defendants during the year 1903. The could not be a witness at the trial. That paragraph
to prove the due execution of the document and no court below, in its judgment, found that the contract provides that parties to an action against an executor
objections are made to the defendant's evidence in had been made as claimed by the plaintiff; that 5 per or aministrator upon a claim or demand against the
refutation. This situation does not obtain in the present cent of the net profits of the business for the year 1902 estate of a deceased person can not testify as to any
case hence said doctrine is obviously inapplicable. amounted to 26,378.68 pesos, Mexican currency; that matter of fact occurring before the death of such
Neither did the failure of herein private respondent to the plaintiff had received on account of such salary deceased person. This action was not brought against
cross-examine herein petitioner on the latter's sur- 12,811.75 pesos, Mexican currency, and ordered the administrator of Miguel Alonzo, nor was it brought
rebuttal testimony constitute a waiver of the aforesaid judgment against the defendants for the sum upon a claim against his estate. It was brought against
implied admission. As found by the respondent Court, 13,566.93 pesos, Mexican currency, with interest a partnership which was in existence at the time of the
said sur-rebuttal testimony consisted solely of the thereon from December 31, 1904. The court also trial of the action, and which was juridical person. The
denial of the testimony of herein private respondent ordered judgment against the defendants for the 600 fact that Miguel Alonzo had been a partner in this
and no new or additional matter was introduced in that pesos mentioned in the complaint, and intereat company, and that his interest therein might be
sur-rebuttal testimony to exonerate herein petitioner thereon. The total judgment rendered against the affected by the result of this suit, is not sufficient to
from his obligations under the aforesaid promissory defendants in favor of the plaintiff, reduced to bring the case within the provisions of the section
notes. Philippine currency, amounted to P13,025.40. The above cited.
On the foregoing premises and considerations, the defendants moved for a new trial, which was denied, (6) The plaintiff was allowed to testify against the
respondent Court correctly reversed and set aside the and they have brought the case here by bill of objection and exception of the defendants, that he had
appealed decision of the Court of First Instance of exceptions. been paid as salary for the year 1900 a part of the
Zamboanga del Norte and affirmed in full the decision (1) The evidence is sufifcient to support the finding of profits of the business. This evidence was competent
of the City Court of Dipolog City in Civil Case No. A- the court below to the effect that the plaintiff worked for for the purpose of corroborating the testimony of the
1838, dated September 14, 1976. the defendants during the year 1902 under a contract plaintiff as to the existence of the contract set out in
Belatedly, in his motion for reconsideration of said by which he was to receive as compensation 5 per the complaint.
decision of the respondent Court, herein petitioner, as cent of the net profits of the business. The contract (7) The plaintiff was allowed to testify as to the
the private respondent therein, raised a third was made on the part of the defendants by Miguel contents of a certain letter written by Miguel Glutierrez,
unresolved issue that the petition for review therein Alonzo Gutierrez. By the provisions of the articles of one of the partners in the defendant company, to
should have been dismissed for lack of jurisdiction partnership he was made one of the managers of the Miguel Alonzo Gutierrez, another partner, which letter
since the lower Court's decision did not affirm in full company, with full power to transact all of the business was read to plaintiff by Miguel Alonzo. It is not
the judgment of the City Court of Dipolog, and which thereof. As such manager he had authority to make a necessary to inquire whether the court committed an
he claimed was a sine qua non for such a petition contract of employment with the plaintiff. error in admitting this evidence. The case already
under the law then in force. He raises the same point (2) Before answering in the court below, the made by the plaintiff was in itself sufficient to prove the
in his present appeal and We will waive the procedural defendants presented a motion that the complaint be contract without reference to this letter. The error, if
technicalities in order to put this issue at rest. made more definite and certain. This motion was any there were, was not prejudicial, and is not ground
Parenthetically, in that same motion for denied. To the order denying it the defendants for revesal. (Sec. 503, Code of Civil Procedure.)
reconsideration he had sought affirmative relief from excepted, and they have assigned as error such ruling (8) For the purpose of proving what the profits of the
the respondent Court praying that it sustain the of the court below. There is nothing in the record to defendants were for the year 1902, the plaintiff
decision of the trial Court, thereby invoking and show that the defendants were in any way prejudiced presented in evidence the ledger of defendants, which
submitting to its jurisdiction which he would now assail. by this ruling of the court below. If it were error it was contained an entry made on the 31st of December,
Furthermore, the objection that he raises is actually error without prejudice, and not ground for reversal. 1902, as follows:
not one of jurisdiction but of procedure. 9 (Sec. 503, Code of Civil Procedure.) Perdidas y Ganancias........ a Varios Ps. 527,573.66
At any rate, it will be noted that petitioner anchors his (3) It is claimed by the appellants that the contract Utilidades liquidas obtenidas durante el ano y que
said objection on the provisions of Section 29, alleged in the complaint made the plaintiff a copartner abonamos conforme a la proporcion que hemos
Republic Act 296 as amended by Republic Act 5433 of the defendants in the business which they were establecido segun el convenio de sociedad.
effective September 9, 1968. Subsequently, the carrying on. This contention can not bo sustained. It The defendant presented as a witness on, the subject
procedure for appeal to the Court of Appeals from was a mere contract of employnent. The plaintiff had of profits Miguel Gutierrez, one of the defendants, who
decisions of the then courts of first instance in the no voice nor vote in the management of the affairs of testiffied, among other things, that there were no
exercise of their appellate jurisdiction over cases the company. The fact that the compensation received profits during the year 1902, but, on the contrary, that
originating from the municipal courts was provided for by him was to be determined with reference to the the company suffered considerable loss during that
by Republic Act 6031, amending Section 45 of the profits made by the defendants in their business did year. We do not think the evidence of this witnees
Judiciary Act effective August 4, 1969. The not in any sense make by a partner therein. The sufficiently definite and certain to overcome the
requirement for affirmance in full of the inferior court's articles of partnership between the defendants positive evidence furnished by the books of the
decision was not adopted or reproduced in Republic provided that the profits should be divided among the defendants themselves.
Act 6031. Also, since Republic Act 6031 failed to partners named in a certain proportion. The contract (9) In reference to the cause of action relating to the
provide for the procedure or mode of appeal in the made between the plaintiff and the then manager of 600 pesos, it appears that the plaintiff left the employ
cases therein contemplated, the Court of Appeals en the defendant partnership did not in any way vary or of the defendants on the 19th of Macrh, 1903; that at
banc provided thereof in its Resolution of August 12, modify this provision of the articles of partnership. The their request he went to Hongkong, and was there for
1971, by requiring a petition for review but which also profits of the business could not be determined until all about two months looking after the business of the
did not require for its availability that the judgment of of the expenses had been paid. A part of the expenses defendants in the matter of the repair of a certain
the court of first instance had affirmed in full that of the to be paid for the year 1902 was the salary of the steamship. The appellants in their brief say that the
lower court. Said mode of appeal and the procedural plaintiff. That salary had to be deducted before the net plaintiff is entitled to no compensation for his services
requirements thereof governed the appeal taken in this profits of the business, which were to be divided thus rendered, because by the provisions of article
case from the aforesaid Court of First Instance to the among the partners, could be ascertained. It was 1711 of the Civil Code, in the absence of an
Court of Appeals in 1977. 10 Herein petitioner's plaint undoubtedly necessary in order to determine what the agreement to the contrary, the contract of agency is
on this issue is, therefore, devoid of merit. salary of the plaintiff was, to determine what the profits supposed to be gratuitous. That article i not applicable
WHEREFORE, the judgment of the respondent Court of the business were, after paying all of the expenses to this case, because the amount of 600 pesos not
of Appeals is AFFIRMED, with costs against herein except his, but that determination was not the final claimed as compensation for services but as a
petitioner. determination of the net profits of the business. It was reimbursment for money expended by the plaintiff in
the business of the defendants. The article of the code it is impossible to ascertain, even after the examination tambien de Manila, como Segunda Parte, bajo las
that is applicable is article 1728. of the books of the business, due to the defendants' siguientes
The judgment of the court below is affirmed, with the refusal to furnish all the books and data required for CONDICIONES
costs, of this instance against the appellants. After the the purpose, and the constant obstacles they have 1. El objeto de este contrato es la explotacion del
expiration of twenty days from the date of this decision placed in the way of the examination of the books of negocio de Abonos o Fertilizantes Preparados, para
let final judgment be entered herein, and ten days account and vouchers; diversas aplicaciones agricolas;
thereafter let the case be remanded to the lower court VI 2. La duracion de este contrato sera de cinco aos, a
for execution. So ordered. That when the plaintiff received the information contrar desde la fecha de su firma;
mentioned in the preceding paragraph, he demanded 3. La Primera Parte se compromete a facilitar la
FRANCISCO BASTIDA, plaintiff-appellee, that the defendants permit him to examine the books ayuda financiera necesaria para el negocio;
vs. MENZI & Co., INC., J.M. MENZI and P.C. and vouchers of the business, which were in their 4. La Segunda Parte se compromete a poner su
SCHLOBOHM, defendants. possession, in order to ascertain the truth of the entero tiempo y toda su experiencia a la disposicion
MENZI & CO., appellant. alleged false entries in the books and balance sheets del negocio;
This is an appeal by Menzi & Co., Inc., one of the submitted for his approval, but the defendants refused, 5. La Segunda Parte no podra, directa o
defendants, from a decision of the Court of First and did not consent to the examination until after the indirectamente, dedicarse por si sola ni en sociedad
Instance of Manila. The case was tried on the original complaint was filed in this case; but up to this con otras personas, o de manera alguna que no sea
amended complaint dated May 26, 1928 and time they have refused to furnish all the books, data, con la Primera Parte, al negecio de Abonos, simples o
defendants' amended answer thereto of September 1, and vouchers necessary for a complete and accurate preparados, o de materia alguna que se aplique
1928. For the sake of clearness, we shall incorporate examination of all the partnership's accounts; and comunmente a la fertilizacion de suelos y plantas,
herein the principal allegations of the parties. VII durante la vigencia de este contrato, a menos que
FIRST CAUSE OF ACTION That as a result of the partial examination of the books obtenga autorizacion expresa de la Primera Parte para
Plaintiff alleged: of account of the business, the plaintiff has, through ello;
I his accountants, discovered that the defendants, 6. La Primera Parte no podra dedicarse, por si sola ni
That the defendant J.M. Menzi, together with his wife conspiring and confederating together, presented to en sociedad o combinacion con otras personas o
and daughter, owns ninety-nine per cent (99%) of the the plaintiff during the period covered by the entidades, ni de otro modo que en sociedad con la
capital stock of the defendant Menzi & Co., Inc., that partnership contract false and incorrect accounts, Segunda Parte, al negocio de Abonos o Fertilizantes
the plaintiff has been informed and therefore believes (a) For having included therein undue interest; preparados, ya sean ellos importados, ya preparados
that the defendant J.M. Menzi, his wife and daughter, (b) For having entered, as a charge to fertilizers, en las Islas Fllipinas; tampoco podra dedicarse a la
together with the defendant P.C. Schlobohm and one salaries and wages which should have been paid and venta o negocio de materias o productos que tengan
Juan Seiboth, constitute the board of directors of the were in fact paid by the defendant Menzi & Co., Inc.; aplicacion como fertilizantes, o que se usen en la
defendant, Menzi & Co., Inc.; (c) For having collected from the partnership the composicion de fertilizantes o abonos, si ellos son
II income tax which should have been paid for its own productos de suelo de la manufactura filipinos,
That on April 27, 1922, the defendant Menzi & Co., account by Menzi & Co., Inc.; pudiendo sin embargo vender o negociar en materim
Inc. through its president and general manager, J.M. (d) For having collected, to the damage and prejudice fertilizantes simples importados de los Estados Unidos
Menzi, under the authority of the board of directors, of the plaintiff, commissions on the purchase of o del Extranjero;
entered into a contract with the plaintiff to engage in materials for the manufacture of fertilizers; 7. La Primera Parte se obliga a ceder y a hacer
the business of exploiting prepared fertilizers, as (e) For having appropriated, to the damage and efectivo a la Segunda Parte el 35 por ciento (treinta y
evidenced by the contract marked Exhibit A, attached prejudice of the plaintiff, the profits obtained from the cinco por ciento) de las utilidades netas del negocio de
to the original complaint as a part thereof, and likewise sale of fertilizers belonging to the partnership and abonos, liquidables el 30 de junio de cada ao;
made a part of the amended complaint, as if it were bought with its own funds; and 8. La Primera Parte facilitara la Segunda,
here copied verbatim; (f) For having appropriated to themselves all rebates mensualmente, la cantidad de P300 (trescientos
III for freight insurance, taxes, etc., upon materials for pesos), a cuenta de su parte de beneficios.
That in pursuance of said contract, plaintiff and fertilizer bought abroad, no entries of said rebates 9. Durante el ao 1923 la Parte concedera a la
defendant Menzi & Co., Inc., began to manufacture having been made on the books to the credit of the Segunda permiso para que este se ausente de
prepared fertilizers, the former superintending the work partnership. Filipinas por un periodo de tiempo que no exceda de
of actual preparation, and the latter, through Upon the strength of the facts set out in this first cause un ao, sin menoscabo para derechos de la Segunda
defendants J.M. Menzi and P. C. Schlobohm, of action, the plaintiff prays the court: Parte con arreglo a este contrato.
managing the business and opening an account 1. To prohibit the defendants, each and every one of En testimonio de lo cual firmamos el presente en la
entitled "FERTILIZERS" on the books of the defendant them, from destroying and concealing the books and Ciudad de Manila, I. F., a veintisiete de abril de 1922.
Menzi & Co., Inc., where all the accounts of the papers of the partnership constituted between the MENZI & CO., INC.
partnership business were supposed to be kept; the defendant Menzi & Co., Inc., and the plaintiff; Por (Fdo.) J. MENZI
plaintiff had no participation in the making of these 2. To summon each and every defendant to appear General Manager
entries, which were wholly in the defendants' charge, and give a true account of all facts relating to the Primera Parte
under whose orders every entry was made; partnership between the plaintiff and the defendant (Fdo.) F. BASTIDA
IV That according to paragraph 7 of the contract Menzi & Co., Inc., and of each and every act and Segunda Parte
Exhibit A, the defendant Menzi & Co., Inc., was transaction connected with the business of said MENZI & CO., INC.
obliged to render annual balance sheets to be plaintiff partnership from the beginning to April 27, 1927, and a (Fdo.) MAX KAEGI
upon the 30th day of June of each year; that the true statement of all merchandise of whatever Acting Secretary
plaintiff had no intervention in the preparation of these description, purchased for said partnership, and of all Defendants denied all the allegations of the amended
yearly balances, nor was he permitted to have any the expenditures and sale of every kind, together with complaint, except the formal allegations as to the
access to the books of account; and when the balance the true amount thereof, besides the sums received by parties, and as a special defense to the first cause of
sheets were shown him, he, believing in good faith that the partnership from every source together with their action alleged:
they contained the true statement of the partnership exact nature, and a true and complete account of the 1. That the defendant corporation, Menzi & Co., Inc.,
business, and relying upon the good faith of the vouchers for all sums paid by the partnership, and of has been engaged in the general merchandise
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. the salaries paid to its employees; business in the Philippine Islands since its
Schlobohm, accepted and signed them, the last 3. To declare null and void the yearly balances organization in October, 1921, including the
balance sheet having been rendered in the year 1926; submitted by the defendants to the plaintiff from 1922 importation and sale of all kinds of goods, wares, and
V That by reason of the foregoing facts and especially to 1926, both inclusive; merchandise, and especially simple fertilizer and
those set forth in the preceding paragraph, the plaintiff 4. To order the defendants to give a true statement of fertilizer ingredients, and as a part of that business, it
was kept in ignorance of the defendants' acts relating all receipts and disbursements of the partnership has been engaged since its organization in the
to the management of the partnership funds, and the during the period of its existence, besides granting the manufacture and sale of prepared fertilizers for
keeping of accounts, until he was informed and so plaintiff any other remedy that the court may deem just agricultural purposes, and has used for that purpose
believes and alleges, that the defendants had and equitable. trade-marks belonging to it;
conspired to conceal from him the true status of the EXHIBIT A 2. That on or about November, 1921, the defendant,
business, and to his damage and prejudice made false CONTRATO Menzi & CO., Inc., made and entered into an
entries in the books of account and in the yearly que se celebra entre los Sres. Menzi y Compaia, de employment agreement with the plaintiff, who
balance sheets, the exact nature and amount of which Manila, como Primera Parte, y D. Francisco Bastada, represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the portion of the net profits of its said business for those the partnership constituted between the plaintiff and
ingredients in the manufacture of prepared fertilizers in years pertaining to him for his services under said the defendant Menzi & Co., Inc., never kept its own
its fertilizer department and to obtain orders for such agreement; that at no time during the course of said cash book, but that its funds were maliciously included
prepared fertilizers subject to its approval, for a fertilizer business and the liquidation thereof has the in the private funds of the defendant entity, neither was
compensation of 50 per cent of the net profits which it plaintiff been in any way denied access to the books there a separate BANK ACCOUNT of the partnership,
might derive from the sale of the fertilizers prepared by and records pertaining thereto, but on the contrary, such account being included in the defendant's bank
him, and that said Francisco Bastida worked under said books and records have been subject to his account.
said agreement until April 27, 1922, and received the inspection and examination at any time during III. That from the examination of the partnership books
compensation agreed upon for his services; that on business hours, and even since the commencement of as aforesaid, the plaintiff estimates that the partnership
the said 27th of April, 1922, the said Menzi & Co., Inc., this action, the plaintiff and his accountants, Messrs. between himself and the defendant Menzi & Co., Inc.,
and the said Francisco Bastida made and entered into Haskins & Sells, of Manila, have been going over and has been defrauded by the defendants by way of
the written agreement, which is marked Exhibit A, and examining said books and records for months and the interest in an amount of approximately P184,432.51, of
made a part of the amended complaint in this case, defendant, Menzi & Co. Inc., through its officers, have which 35 per cent, or P64,551.38, belongs to the
whereby they mutually agreed that the employment of turned over to said plaintiff and his accountant the plaintiff exclusively.
the said Francisco Bastida by the said Menzi & Co., books and records of said business and even Wherefore, the plaintiff prays the court to render
Inc., in the capacity stated, should be for a definite furnished them suitable accommodations in its own judgment ordering the defendants jointly and severally
period of five years from that date and under the other office to examine the same; to pay him the sum of P64,551.38, or any amount
terms and conditions stated therein, but with the 4. That prior to the termination of the said agreement, which may finally appear to be due and owing from the
understanding and agreement that the said Francisco Exhibit A, the defendant, Menzi & Co., Inc., duly defendants to the plaintiff upon this ground, with legal
Bastida should receive as compensation for his said notified the plaintiff that it would not under any interest from the filing of the original complaint until
services only 35 per cent of the net profits derived conditions renew his said agreement or continue his payment.
from the sale of the fertilizers prepared by him during said employment with it after its expiration, and after Defendants alleged:
the period of the contract instead of 50 per cent of the termination of said agreement of April 27, 1927, 1. That they repeat and make a part of this special
such profits, as provided in his former agreement; that the said Menzi & Co., Inc., had the certified public defense paragraphs 1, 2, 3 and 4, of the special
the said Francisco Bastida was found to be accountants, White, Page & Co., audit the accounts of defense to the first cause of action in this amended
incompetent to do anything in relation to its said the business of its said fertilizer department for the answer;
fertilizer business with the exception of over-seeing the four months of 1927 covered by plaintiff's agreement 2. That under the contract of employment, Exhibit A, of
mixing of the ingredients in the manufacture of the and prepare a manufacturing and profit and loss the amended complaint, the defendant, Menzi & Co.,
same, and on or about the month of December, 1922, account and balance sheet of said business showing Inc., only undertook and agreed to facilitate financial
the defendant, Menzi & Inc., in order to make said the status of said business at the termination of said aid in carrying on the said fertilizer business, as it had
business successful, was obliged to and actually did agreement, a copy of which was shown to and been doing before the plaintiff was employed under
assume the full management and direction of said explained to the plaintiff; that at that time there were the said agreement; that the said defendant, Menzi &
business; accounts receivable to be collected for business Co., Inc., in the course of the said business of its
3. That the accounts of the business of the said covered by said agreement of over P100,000, and fertilizer department, opened letters of credit through
fertilizer department of Menzi & Co., Inc., were duly there was guano, ashes, fine tobacco and other the banks of Manila, accepted and paid drafts drawn
kept in the regular books of its general business, in the fertilizer ingredients on hand of over P75,000, which upon it under said letters of credit, and obtained loans
ordinary course thereof, up to June 30, 1923, and that had to be disposed of by Menzi & Co., Inc., or valued and advances of moneys for the purchase of materials
after that time and during the remainder of the period by the parties, before the net profits of said business to be used in mixing and manufacturing its fertilizers
of said agreement, for the purpose of convenience in for the period of the agreement could be determined; and in paying the expenses of said business; that such
determining the amount of compensation due to the that Menzi & Co., Inc., offered to take the face value of drafts and loans naturally provided for interest at the
plaintiff under his agreement, separate books of said accounts and the cost value of the other banking rate from the dates thereof until paid, as is the
account for its said fertilizer business were duly, kept properties for the purpose of determining the profits of case in all, such business enterprises, and that such
in the name of 'Menzi & Co., Inc., Fertilizer', and used said business for that period, and to pay to the plaintiff payments of interest as were actually made on such
exclusively for that purpose and it was mutually agreed at that time his proportion of such profits on that basis, drafts, loans and advances during the period of the
between the said Francisco Bastida and the said which the plaintiff refused to accept, and being said employment agreement constituted legitimate
Menzi & Co., Inc., that the yearly balances for the disgruntled because the said Menzi & Co., Inc., would expenses of said business under said agreement.
determination of the net profits of said business due to not continue him in its service, the said plaintiff THIRD CAUSE OF ACTION
the said plaintiff as compensation for his services commenced this action, including therein not only As third cause of action, plaintiff alleged:
under said agreement would be made as of December Menzi & Co. Inc., but also it managers J.M. Menzi and I. That he hereby reproduces paragraphs I, II, III, IV,
31st, instead of June 30th, of each year, during the P.C. Schlobohm, wherein he knowingly make various and V of the first cause of action.
period of said agreement; that the accounts of the false and malicious allegations against the defendants; II. That under the terms of the contract Exhibit A,
business of its said fertilizer department, as recorded that since that time the said Menzi & Co., Inc., has neither the defendants J.M. Menzi and P.C.
in its said books, and the vouchers and records been collecting the accounts receivable and disposing Schlobohm, nor the defendant Menzi & Co., Inc., had
supporting the same, for each year of said business of the stocks on hand, and there is still on hand old a right to collect for itself or themselves any amount
have been duly audited by Messrs. White, Page & Co., stock of approximately P25,000, which it has been whatsoever by way of salary for services rendered to
certified public accountants, of Manila, who, shortly unable to dispose of up to this time; that as soon as the partnership between the plaintiff and the
after the close of business at the end of each year up possible a final liquidation and amounting of the net defendant, inasmuch as such services were
to and including the year 1926, have prepared profits of the business covered by said agreement for compensated with the 65% of the net profits of the
therefrom a manufacturing and profit and loss account the last four months thereof will be made and the business constituting their share.
and balance sheet, showing the status of said share thereof appertaining to the plaintiff will be paid to III. That the plaintiff has, on his on account and with
business and the share of the net profits pertaining to him; that the plaintiff has been informed from time to his own money, paid all the employees he has placed
the plaintiff as his compensation under said time as to the status of the disposition of such in the service of the partnership, having expended for
agreement; that after the said manufacturing and profit properties, and he and his auditors have fully their account, during the period of the contract, over
and the loss account and balance sheet for each year examined the books and records of said business in P88,000, without ever having made any claim upon
of the business of its said fertilizer department up to relation thereto. the defendants for this sum because it was included in
and including the year 1926, had been prepared by the SECOND CAUSE OF ACTION the compensation of 35 per cent which he was to
said auditors and certified by them, they were shown As a second cause of action plaintiff alleged: receive in accordance with the contract Exhibit A.
to and examined by the plaintiff, and duly accepted, I. That the plaintiff hereby reproduces paragraphs I, II, IV. That the defendants J.M. Menzi and P.C.
and approved by him, with full knowledge of their III, IV, and V of the first cause of action. Schlobohm, not satisfied with collecting undue and
contents, and as evidence of such approval, he signed II. That the examination made by the plaintiff's auditors excessive salaries for themselves, have made the
his name on each of them, as shown on the copies of of some of the books of the partnership that were partnership, or the fertilizer business, pay the salaries
said manufacturing and profit and loss account and furnished by the defendants disclosed the fact that of a number of the employees of the defendant Menzi
balance sheet for each year up to and including the said defendants had charged to "purchases" of the & Co., Inc.
year 1926, which are attached to the record of this business, undue interest, the amount of which the V. That under this item of undue salaries the
case, and which are hereby referred to and made a plaintiff is unable to determine, as he has never had at defendants have appropriated P43,920 of the
part of this amended answer, and in accordance his disposal the books and vouchers necessary for partnership funds, of which 35 per cent, or P15,372
therewith, the said plaintiff has actually received the that purpose, and especially, owning to the fact that belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render the agreement, Exhibit A, of the income of its whole Hamburg, as the agent of the said Menzi & Co., Inc.,
judgment ordering the defendants to pay jointly and business, including its fertilizer department; that the upon which the said Menzi & Co., Inc., received a 5
severally to the plaintiff the amount of P15,372, with proportional share of such income taxes found to be per cent commission, amounting in all to P2,222.32 for
legal interest from the date of the filing of the original due on the business of the fertilizer department was the propaganda work which it did for said firm in the
complaint until the date of payment. charged as a proper and legitimate expense of that Philippine Islands; that said commissioners were not in
Defendants alleged: department, in the same manner as was done in the any sense discounts on the purchase price of said
1. That they repeat and make a part of this special other departments of its business; that inasmuch as potash, and have no relation to the fertilizer business
defense paragraphs 1, 2, 3 and 4 of the special the agreement with the plaintiff was an employment of which the plaintiff was to receive a share of the net
defense the first cause of action in this amended agreement, he was required to make his own return profits for his services, and consequently were not
answer; under the Income Tax Law and to pay his own income credited to that department;
2. That the defendant, Menzi & Co., Inc., through its taxes, instead of having them paid at the source, as 3. That in going over the books of Menzi Co., Inc., it
manager, exclusively managed and conducted its said might be done under the law, so that he would be has been found that there are only two items of
fertilizer business, in which the plaintiff was to receive entitled to the personal exemptions allowed by the law; commissions, which were received from the United
35 percent of the net profits as compensation for this that the income taxes paid by the said Menzi & Co., Supply Co., of San Francisco, in the total of sum
services, as hereinbefore alleged, from on or about Inc., pertaining to the business, were duly entered on $66.51, which through oversight, were not credited on
January 1, 1923, when its other departments had the books of that department, and included in the the books of the fertilizer department of Menzi & Co.,
special experienced Europeans in charge thereof, who auditors' reports hereinbefore referred to, which Inc., but due allowance has now been given to the
received not only salaries but also a percentage of the reports were examined, accepted and approved by the department for such item.
net profits of such departments; that its said fertilizer plaintiff, with full knowledge of their contents, and he is SIXTH CAUSE OF ACTION
business, after its manager took charge of it, became now estopped from saying that such taxes are not a As sixth cause of action, plaintiff alleged:
very successful, and owing to the large volume of legitimate expense of said business. I. That hereby reproduces paragraphs I, II, III, IV and
business transacted, said business required great deal FIFTH CAUSE OF ACTION V, of the first cause of action.
of time and attention, and actually consumed at least As fifth cause of action, plaintiff alleged: II. That the defendant Menzi Co., Inc., in collusion with
one-half of the time of the manager and certain I. That hereby reproduces paragraphs I, II, III, IV, and and through the defendants J.M. Menzi and P.C.
employees of Menzi & Co., Inc., in carrying it on; that V of the first cause of action. Schlobohm and their assistants, has tampered with the
the said Menzi & Co., furnished office space, II. That the plaintiff has discovered that the defendants books of the business making fictitious transfers in
stationery and other incidentals, for said business, and Menzi & Co., Inc., had been receiving, during the favor of the defendant Menzi & Co., Inc., of
had its employees perform the duties of cashiers, period of the contract Exhibit A, from foreign firms merchandise belonging to the partnership, purchased
accountants, clerks, messengers, etc., for the same, selling fertilizing material, a secret commission with the latter's money, and deposited in its
and for that reason the said Menzi & Co., Inc., charged equivalent to 5 per cent of the total value of the warehouses, and then sold by Menzi & Co., Inc., to
each year, from and after 1922, as expenses of said purchases of fertilizing material made by the third persons, thereby appropriating to itself the profits
business, which pertained to the fertilizer department, partnership constituted between the plaintiff and the obtained from such resale.
as certain amount as salaries and wages to cover the defendant Menzi Co., Inc., and that said 5 per cent III. That it is impossible to ascertain the amount of the
proportional part of the overhead expenses of Menzi & commission was not entered by the defendants in the fraud suffered by the plaintiff in this respect as the real
Co., Inc.; that the same method is followed in each of books of the business, to the credit and benefit of the amount obtained from such sales can only be
the several departments of the business of Menzi & partnership constituted between the plaintiff and the ascertained from the examination of the private books
Co., Inc., that each and every year from and after defendant, but to the credit of the defendant Menzi of the defendant entity, which the latter has refused to
1922, a just proportion of said overhead expenses Co., Inc., which appropriated it to itself. permit notwithstanding the demand made for the
were charged to said fertilizer departments and III. That the exact amount, or even the approximate purpose by the auditors and the lawyers of the plaintiff,
entered on the books thereof, with the knowledge and amount of the fraud thus suffered by the plaintiff and no basis of computation can be established, even
consent of the plaintiff, and included in the auditors' cannot be determined, because the entries referring to approximately, to ascertain the extent of the fraud
reports, which were examined, accepted and approved these items do not appear in the partnership books, sustained by the plaintiff in this respect, by merely
by him, and he is now estopped from saying that such although the plaintiff believes and alleges that they do examining the partnership books.
expenses were not legitimate and just expenses of appear in the private books of the defendant Menzi & Wherefore, the plaintiff prays the court to order the
said business. Co., Inc., which the latter has refused to furnish, defendants J.M. Menzi and P.C. Schlobohm, to make
FOURTH CAUSE OF ACTION notwithstanding the demands made therefore by the a sworn statement as to all the profits received from
As fourth cause of action, the plaintiff alleged: auditors and the lawyers of the plaintiff. the sale to third persons of the fertilizers pertaining to
I. That he hereby reproduces paragraph I, II, III, IV, IV. That taking as basis the amount of the purchases the partnership, and the profits they have
and V of the first cause of action. of some fertilizing material made by the partnership appropriated, ordering them jointly and severally to
II. That the defendant Menzi & Co., Inc., through the during the first four years of the contract Exhibit A, the pay 35 per cent of the net amount, with legal interest
defendant J. M.Menzi and P. C. Schlobohm, has paid, plaintiff estimates that this 5 per cent commission from the filing of the original complaint until the
with the funds of the partnership between the collected by the defendant Menzi Co., Inc., to the payment thereof.
defendant entity and the plaintiff, the income tax due damage and prejudice of the plaintiff, amounts to Defendant alleged:
from said defendant entity for the fertilizer business, P127,375.77 of which 35 per cent belongs exclusively 1. That they repeat and make a part of this special
thereby defrauding the partnership in the amount of to the plaintiff. defense paragraphs 1, 2, 3 and 4, of the special
P10,361.72 of which 35 per cent belongs exclusively Wherefore, the plaintiff prays the court to order the defense to the first cause of action in this amended
to the plaintiff, amounting to P3,626.60. defendants to pay jointly and severally to the plaintiff answer:
III. That the plaintiff has, during the period of the the amount of P44,581.52, or the exact amount owed 2. That under the express terms of the employment
contract, paid with his own money the income tax upon this ground, after both parties have adduced their agreement, Exhibit A, the defendant, Menzi & Co.,
corresponding to his share which consists in 35 per evidence upon the point. Inc., had the right to import into the Philippine Islands
cent of the profits of the fertilizer business, expending Defendants alleged: in the course of its fertilizer business and sell fro its
about P5,000 without ever having made any claim for 1. That they repeat and make a part of this special exclusive account and benefit simple fertilizer
reimbursement against the partnership, inasmuch as it defense paragraph 1, 2, 3 and 4, of the special ingredients; that the only materials imported by it and
has always been understood among the partners that defense to the first cause of action in this amended sold during the period of said agreement were simple
each of them would pay his own income tax. answer; fertilizer ingredients, which had nothing whatever to do
Wherefore, the plaintiff prays the court to order the 2. That the defendant, Menzi & Co., Inc., did have with the business of mixed fertilizers, of which the
defendants jointly and severally to pay the plaintiff the during the period of said agreement, Exhibit A, and plaintiff was to receive a share of the net profits as a
sum of P3,362.60, with legal interest from the date of has now what is called a "Propaganda Agency part of his compensation.
the filing of the original complaint until its payment. Agreement" which the Deutsches Kalesyndikat, SEVENTH CAUSE OF ACTION
Defendants alleged: G.M.B., of Berlin, which is a manufacturer of potash, As seventh cause of action, plaintiff alleged:
1. That they repeat and make a part of this special by virtue of which said Menzi & Co., Inc., was to I. That he hereby reproduces paragraphs I, II, III, IV,
defense paragraphs 1, 2, 3 and 4, of the special receive for its propaganda work in advertising and and V of the first cause of action.
defense to the first cause of action in this amended bringing about sales of its potash a commission of 5 II. That during the existence of the contract Exhibit A,
answer; per cent on all orders of potash received by it from the the defendant Menzi & Co., Inc., for the account of the
2. That under the Income Tax Law Menzi & Co., Inc., Philippine Islands; that during the period of said partnership constituted between itself and the plaintiff,
was obliged to and did make return to the Government agreement, Exhibit A, orders were sent to said and with the latter's money, purchased from a several
of the Philippine Islands each year during the period of concern for potash, through C. Andre & Co., of
foreign firms various simple fertilizing material for the value of the trade marks, for which reason such Schlobohm to declare under oath and explain to the
use of the partnership. proposed balance did not represent the true status of court in detail the sums obtained from the sale of the
III. That in the paid invoices for such purchases there the business of the partnership on April 30, 1927. remaining merchandise, after the expiration of the
are charged, besides the cost price of the V. That the proposed balance submitted to the plaintiff partnership contract.
merchandise, other amounts for freight, insurance, with reference to the partnership operations during the VII. That after the contract Exhibit A had expired, the
duty, etc., some of which were not entirely thus spent last four months of its existence, was likewise defendant continued to use for its own benefit the
and were later credited by the selling firms to the incorrect, inasmuch as it did not include the profit good-will and trade marks belonging to the
defendant Menzi & Co., Inc. realized or to be realized from the contract entered into partnership, as well as its
IV. That said defendant Menzi & Co., Inc., through and with the Compaia General de Tabacos de Filipinas, ransportation equipment and other machinery, thereby
in collusion with the defendants J.M. Menzi and P.C. notwithstanding the fact that this contract was indicating its intention to retain such
Schlobohm upon receipt of the credit notes remitted by negotiated during the existence of the partnership, and good-will, trade marks, transportation
the selling firms of fertilizing material, for rebates upon while the defendant Menzi & Co., Inc., was the equipment and machinery, for the manufacture of
freight, insurance, duty, etc., charged in the invoice but manager thereof. fertilizers, by virtue of which the defendant is bound to
not all expended, did not enter them upon the books to VI. That the defendant entity now contends that the pay the plaintiff 35 per cent of the value of said
the credit of the partnership constituted between the contract entered into with the Compaia General de property.
defendant and the plaintiff, but entered or had them Tabacos de Filipinas belongs to it exclusively, and VIII. That the true value of the transportation
entered to the credit on Menzi & Co., Inc., thereby refuses to give the plaintiff his share consisting in 35 equipment and machinery employed in the preparation
defrauding the plaintiff of 35 per cent of the value of per cent of the profits produced thereby. of the fertilizers amounts
such reductions. Wherefore, the plaintiff prays the honorable court to of P20,000, 35 per cent of which amount to P7,000.
V. That the total amount, or even the approximate order the defendants to render a true and detailed IX. That the plaintiff has repeatedly demanded that the
amount of this fraud cannot be ascertained without an account of the business during the last four months of defendant entity render a true and detailed account of
examination of the private books of Menzi & Co., Inc., the existence of the partnership, i. e., from January 1, the state of the liquidation of the partnership business,
which the latter has refused to permit notwithstanding 1927 to April 27, 1927, and to sentence them likewise but said
the demand to this effect made upon them by the to pay the plaintiff 35 per cent of the net profits. defendants has ignored such demands, so that
auditors and the lawyers of the plaintiff. Defendants alleged: the plaintiff does not, and this date, know whether the
Wherefore, the plaintiff prays the court to order the 1. That they repeat and make a part of this special liquidation of the business has been finished, or what
defendants J.M. Menzi and P.C. Schlobohm, to make defense paragraphs 1, 2, 3 and 4, of the special the status of it is at present.
a sworn statement as to the total amount of such defense to the first cause of action in this amended Wherefore, the plaintiff prays the Honorable Court:
rebates, and to sentence the defendants to pay the answer; 1. To order the defendants J.M. Menzi and P.C.
plaintiff jointly and severally 35 per cent of the net 2. That the said order for 3,000 tons of mixed fertilizer, Schlobohm to render a true and detailed account of
amount. Defendants alleged: received by Menzi & Co., Inc., from the Compaia the status of business in liquidation, that is, from April
1. That they repeat and make a part of this special General de Tabacos Filipinas on April 21, 1927, was 28, 1927, until it is finished, ordering all the defendants
defense paragraphs 1, 2, 3 and 4, of the special taken by it in the to pay the plaintiff jointly and severally 35 per cent of
defense to the first cause of action in this amended regular course of its fertilizer business, and was the net amount.
answer: to be manufactured and delivered in December, 1927, 2. To order the defendants to pay the plaintiff jointly
2. That during the period of said employment and up to April, 1928; that the employment agreement and severally the amount of P350,000, which is 35 per
agreement, Exhibit A, the defendant, Menzi & Co., of the plaintiff expired by its own terms on April 27, cent of the value of the goodwill and the trade marks of
Inc., received from its agent, C. Andre & Co., of 1927, and he has not been in any way in the service of the fertilizer business;
Hamburg, certain credits pertaining to the fertilizer the defendant, Menzi & Co., Inc., since that time, and 3. To order the defendants to pay the plaintiff jointly
business in the profits of which the plaintiff was he cannot possibly have any interest in the fertilizers and severally the amount of P7,000 which is 35 per
interested, by way of refunds of German Export Taxes, manufactured and delivered by the said Menzi & Co., cent of the value of the transportation equipment and
in the total sum of P1,402.54; that all of department as Inc., after the expiration of his contract for any service machinery of the business; and
received, but it has just recently been discovered that rendered to it. 4. To order the defendants to pay the costs of this trial,
through error an additional sum of P216.22 was NINTH CAUSE OF ACTION and further, to grant any other remedy that this
credited to said department, which does not pertain to As ninth cause of action, plaintiff alleged: Honorable Court may deem just and equitable.
said business in the profits of which the plaintiff is I. That he hereby reproduces paragraphs I, II, III, IV, Defendants alleged:
interested. and V of the first cause of action. 1. That they repeat and make a part of this special
EIGHT CAUSE OF ACTION II. That during the period of the contract Exhibit A, the defense paragraphs 1, 2, 3 and 4, of the special
A eighth cause of action, plaintiff alleged: partnership constituted thereby registered in the defense to the first cause of action in this amended
I. That he hereby reproduces paragraphs I, II, III, IV Bureau of Commerce and answer;
and V of the first cause of action. Industry the trade marks "CORONA NO. 1", 2. That the good-will, if any, of said fertilizer business
II. That on or about April 21, 1927, that is, before the CORONA NO. 2", "ARADO", and "HOZ", the plaintiff of the defendant, Menzi & Co., Inc., pertains
expiration of the contract Exhibit A of the complaint, and the defendant having by their efforts succeeded in exclusively to it, and the plaintiff can have no interest
the defendant Menzi & Co., Inc., acting as manager of making them favorably known in the market. therein of any nature under his said employment
the fertilizer business constituted between said III. That the plaintiff and the defendant, laboring jointly, agreement; that the trade-marks mentioned by the
defendant and the plaintiff, entered into a contract with have succeeded in making the fertilizing plaintiff in his amended complaint, as a part of such
the Compaia General de Tabacos de Filipinas for the business a prosperous concern to such an extent that good-will, belonged to and have been used by the said
sale of said entity of three thousand tons of fertilizers the profits obtained from the business during the five Menzi & Co., Inc., in its fertilizer business from and
of the trade mark "Corona No. 1", at the rate of P111 years it has existed, amount to approximately since its organization, and the plaintiff can have no
per ton, f. o. b. Bais, Oriental Negros, to be delivered, P1,000,000, Philippine currency. rights to or interest therein under his said employment
as they were delivered, according to information IV. That the value of the good will and the trade marks agreement; that the transportation equipment pertains
received by the plaintiff, during the months of of a business of this nature amounts to at least to the fertilizer department of Menzi & Co., Inc., and
November and December, 1927, and January, P1,000,000, of which sum 35 per cent belongs to the whenever it has been used by the said Menzi & Co.,
February, March, and April, 1928. plaintiff, or, P350,000. Inc., in its own business, due and reasonable
III. That both the contract mentioned above and the V. That at the time of the expiration of the contract compensation for its use has been allowed to said
benefits derived therefrom, which the plaintiff Exhibit A, the defendant entity, notwithstanding and in business; that the machinery pertaining to the said
estimates at P90,000, Philippine currency, belongs to spite of the plaintiff's fertilizer business was destroyed by fire in October,
the fertilizer business constituted between the plaintiff insistent opposition, has assumed the charge of 1926, and the value thereof in the sum of P20,000 was
and the defendant, of which 35 per cent, or P31,500, liquidating the fertilizing business, without having collected from the Insurance Company, and the
belongs to said plaintiff. rendered a monthly account of the state of the plaintiff has been given credit for 35 per cent of that
IV. That notwithstanding the expiration of the liquidation, as required by law, thereby causing the amount; that the present machinery used by Menzi &
partnership contract Exhibit A, on April 27, 1927, the plaintiff damages. Co., Inc., was constructed by it, and the costs thereof
defendants have not rendered a true accounting of the VI. That the damages sustained by the plaintiff, was not charged to the fertilizer department, and the
profits obtained by the business during the last four as well as the amount of his share in the remaining plaintiff has no right to have it taken into consideration
months thereof, as the purposed balance submitted to property of the plaintiff, and may only e truly and in arriving at the net profits due to him under his said
the plaintiff was incorrect with regard to the inventory correctly ascertained by compelling the defendants J. employment agreement.
of merchandise, transportation equipment, and the M. Menzi and P. C.
The dispositive part of the decision of the trial court is performed by them as a contract of employment in charge of a manager, who received a fixed salary and
as follows: relation to the fertilizer business of the defendant, and a percentage of the profits. The corporation had to
Wherefore, let judgment be entered: thatthe accounts of said business were kept by the borrow money or obtain credits from time to time and
(a) Holding that the contract entered into by the defendant, Menzi & Co., Inc., on that theory with to pay interest thereon. The amount paid for interest
parties, evidenced by Exhibit A, as a contract of theknowledge and consent of the plaintiff, and that at was charged against the department concerned, and
general regular commercial partnership, wherein the end of each year for five years a balance sheet the interest charges were taken into account in
Menzi & Co., Inc., was the capitalist, and the plaintiff, and profit and loss statement of saidbusiness were determining the net profits of each department. The
the industrial partner; prepared from the books of account of said business practice of the corporation was to debit or credit each
(b) Holding the plaintiff, by the mere fact of having on the same theory and submitted to the plaintiff, and department with interest at the bank rate on its daily
signed and approved the balance sheets, Exhibits C to that each year said balance sheet and profit and balance. The fertilizer business of Menzi & Co., Inc.,
C-8, is not estopped from questioning the statements lossstatement were examined, approved and signed was carried on in accordance with this practice under
of the accounts therein contained; by said contract in accordance therewith with the "Sundries Department" until July, 1923, and after
(c) Ordering Menzi & Co., Inc., upon the second fullknowledge of the manner in which said business that as a separate department.
ground of action, to pay the plaintiff the sum of P was conducted and the charges for interest and In November, 1921, the plaintiff, who had had some
60,385.67 with legal interest from the date of the filing income taxes made against the same andthat by experience in mixing and selling fertilizer, went to see
of the original complaint until paid; reason of such facts, the plaintiff is now estopped from Toehl, the manager of the sundries department of
(d) Dismissing the third cause of action; raising any question as to the nature of said contract Menzi & Co., Inc., and told him that he had a written
(e) Ordering Menzi & Co., Inc., upon the fourth cause or the propriety of such charges. contract with the Philippine Sugar Centrals Agency for
of action, to pay the plaintiff the sum of P3,821.41, with V. The trial court erred in finding and holding that the 1,250 tons of mixed fertilizers, and that he could obtain
legal interest from the date of the filing of the original plaintiff, Francisco Bastida, is entitled to 35 per cent of other contracts, including one from the Calamba Sugar
until paid; the net profits in the sum of P18,795.38 received by Estates for 450 tons, but the he did not have the
(f ) Dismissing the fifth cause of action; the defendant, Menzi & Co., Inc., from its contract with money to buy the ingredients to fill the order and carry
(g) Dismissing the sixth cause of action; the Compaia General de Tabacos de Filipinas, or the on the on the business. He offered to assign to Menzi
(h) Dismissing the seventh cause of action; sum of P6.578.38, with legal interest thereon from & Co., Inc., his contract with the Philippine Sugar
(i) Ordering the defendant Menzi & Co., Inc., upon the January 1, 1929, the date upon which the liquidation of Centrals Agency and to supervise the mixing of the
eighth cause of action, to pay the plaintiff the sum of said business was terminated. fertilizer and to obtain other orders for fifty per cent of
P6,578.38 with legal interest from January 1, 1929, the VI. The trial court erred in finding and holding that the the net profits that Menzi & Co., might derive
date of the liquidation of the fertilizer business, until value of the good-will of the fertilizer business in therefrom. J.M. Menzi, the general manager of Menzi
paid; question was P562,312, and that the plaintiff, & Co., accepted plaintiff's offer. Plaintiff assigned to
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of Francisco Bastida, was entitled to 35 per cent of such Menzi & Co., Inc., his contract with the Sugar Centrals
action to pay the plaintiff the sum of P196,709.20 with valuation, or the sum of P196,709.20, with legal Agency, and the defendant corporation proceeded to
legal interest from the date of the filing of the original interest thereon from the date of filing his complaint. fill the order. Plaintiff supervised the mixing of the
complaint until paid; 2281598 fertilizer.
(k) Ordering the said defendant corporation, in view of VII. The trial court erred in rendering judgment in favor On January 10, 1922 the defendant corporation at
the plaintiff's share of the profits of the business of the plaintiff and against defendant, Menzi & Co., plaintiff's request gave him the following letter, Exhibit
accruing from January 1, 1927 to December 31, 1928, Inc., (a) on the second cause of action, for the sum of B:
to pay the plaintiff 35 per cent of the net balance P60,385.67, with legal interest thereon from the date MANILA, 10 de enero de 1922 Sr. FRANCISCO
shown in Exhibits 51 and 51-A, after deducting the of filing the complaint; (b) on the fourth cause of BASTIDA Manila MUY SR. NUESTRO: Interin
item of P2,410 for income tax, and any other sum action, for the sum of P3,821.41, with legal interest formalizamos el contrato que, en principio, tenemos
charged for interest under the entry "Purchases"; thereon from the date of filing the complaint; (c) on the convenido para la explotacion del negocio de abono y
(l) Ordering the defendant corporation, in connection eight cause of action, for the sum of P6,578.38, with fertilizantes, por la presente venimos en confirmar su
with the final liquidation set in Exhibit 52 and 52-A, to legal interest thereon from January 1, 1929; and (d) on derecho de 50 por ciento de las untilidades que se
pay the plaintiff the sum of P17,463.54 with legal the ninth cause of action, for the sum of P196,709.20, deriven del contrato obtenido por Vd. de la Philippine
interest from January 1, 1929, until fully paid; with legal interest thereon from the date of filing the Sugar Centrals (por 1250 tonel.) y del contrato con la
(m) Dismissing the case with reference to the other original complaint; and (e) for the costs of the action, Calamba Sugar Estates, asi como de cuantos
defendants, J. M. Menzi and P. C. Schlobohm; and and in not approving the final liquidation of said contratos se cierren con definitiva de nuestro contrato
(n) Menzi & Co., Inc., shall pay the costs of the trial. business, Exhibits 51 and 51-A and 52 and 52-A, as mutuo, lo que formalizacion definitiva de nuestro
The appellant makes the following assignment of error: true and correct, and entering judgment against said contrato mutuo, lo que hacemos para garantia y
I. The trial court erred in finding and holding that the defendant only for the amounts admitted therein as seguridad de Vd.
contract Exhibit A constitutes a regular collective due the plaintiff with legal interest, with the costs MENZI & CO., Por (Fdo.) W. TOEHL
commercial copartnership between the defendant against the plaintiff. Menzi & Co., Inc., continued to carry on its fertilizer
corporation, Menzi & Co., Inc., and the plaintiff, VIII. The trial court erred in overruling the defendants' business under this arrangement with the plaintiff. It
FranciscoBastida, and not a contract of employment. motion for a new trial. ordered ingredients from the United States and other
II. The trial court erred in finding and holding that the It appears from the evidence that the defendants countries, and the interest on the drafts for the
defendant, Menzi & Co., Inc., had wrongfully charged corporation was organized in 1921 for purpose of purchase of these materials was changed to the
to the fertilizer business in question the sum of importing and selling general merchandise, including business as a part of the cost of the materials. The
P10,918.33 as income taxes partners' balances, fertilizers and fertilizer ingredients. It appears through mixed fertilizers were sold by Menzi & Co., Inc.,
foreign drafts, local drafts, and on other credit John Bordman and the Menzi-Bordman Co. the good- between January 19 and April 1, 1922 under its
balances in the sum of P172,530.49, and that 35 per will, trade-marks, business, and other assets of the old "CORONA" brand. Menzi & Co., Inc., had only one
cent thereof, or the sum of P60,358.67, with legal German firm of Behn, Meyer & Co., Ltd., including its bank account for its whole business. The fertilizer
interest thereon from the date of filing his complaint, fertilizer business with its stocks and trade-marks. business had no separate capital. A fertilizer account
corresponds to the plaintiff. Behn, Meyer & Co., Ltd., had owned and carried on was opened in the general ledger, and interest at the
III. The trial court erred finding and holding that the this fertilizer business from 1910 until that firm was rate charged by the Bank of the Philippine Islands was
defendant, Menzi & Co., Inc., had wrongfully charged taken over the Alien Property Custodian in 1917. debited or credited to that account on the daily
to the fertilizer business in question the sum of Among the trade-marks thus acquired by the appellant balances of the fertilizer business. This was in
P10,918.33 as income taxes for the years 1923, 1924, were those known as the "ARADO", "HOZ", and accordance with appellant's established practice, to
1925 and 1926, and that the plaintiff is entitled to 35 "CORONA". They were registered in the Bureau of which the plaintiff assented.
per cent thereof, or the sum of P3,821.41, with legal Commerce and Industry in the name of Menzi & Co. On or about April 24, 1922 the net profits of the
interest thereon from the date of filing his complaint, The trade marks "ARADO" and "HOZ" had been used business carried on under the oral agreement were
and in disallowing the item of P2,410 charged as by Behn, Meyer & Co., Ltd., in the sale of its mixed determined by Menzi & Co., Inc., after deducting
income tax in the liquidation in Exhibits 51 and 51 A for fertilizers, and the trade mark "CORONA" had been interest charges, proportional part of warehouse rent
the period from January 1 to April 27, 1927. used in its other business. The "HOZ" trade-mark was and salaries and wages, and the other expenses of
IV. The trial court erred in refusing to find and hold used by John Bordman and the Menzi-Bordman Co. in said business, and the plaintiff was paid some twenty
under the evidence in this case that the contract, the continuation of the fertilizer business that had thousand pesos in full satisfaction of his share of the
Exhibit A was daring the whole period thereof belonged to Behn, Meyer & Co., Ltd. profits.
considered by the parties and The business of Menzi & Co., Inc., was divided into Pursuant to the aforementioned verbal agreement,
several different departments, each of which was in confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract for the sale of the remaining property at public auction, used in providing that defendant corporation not
with the plaintiff, marked Exhibit A, which is the basis but apparently the court did not act on the petition. engage in the business of prepared fertilizers except in
of the present action. The old stocks were taken over by Menzi & Co., Inc., association with the plaintiff (en sociedad con). The
The fertilizer business was carried on by Menzi & Co., and the final liquidation of the fertilizer business was fact is that en sociedad con as there used merely
Inc., after the execution of Exhibit A in practically the completed in December, 1928 and a final balance means en reunion con or in association with, and does
same manner as it was prior thereto. The intervention sheet and a profit and loss statement were submitted not carry the meaning of "in partnership with".
of the plaintiff was limited to supervising the mixing of to the plaintiff during the trial. During the liquidation the The trial judge found that the defendant corporation
the fertilizers in Menzi & Co.'s, Inc., bodegas. books of Menzi & Co., Inc., for the whole period of the had not always regarded the contract in question as an
The trade-marks used in the sale of the fertilizer were contract in question were reaudited by White, Page & employment agreement, because in its answer to the
registered in the Bureau of Commerce & Industry in Co.., certain errors of bookkeeping were discovered by original complaint it stated that before the expiration of
the name of Menzi & Co., Inc., and the fees were paid them. After making the corrections they found the Exhibit A it notified the plaintiff that it would not
by that company. They were not changed to the balance due the plaintiff to be P21,633.20. continue associated with him in said business. The
fertilizer business, in which the plaintiff was interested. Plaintiff employed a certified public accountant, trial judge concluded that the phrase "associated with",
Only the fees for registering the formulas in the Bureau Vernon Thompson, to examine the books and used by the defendant corporation, indicated that it
of Science were charged to the fertilizer business, and vouchers of Menzi & Co. Thompson assumed the regarded the contract, Exhibit A, as an agreement of
the total amount thereof was credited to this business plaintiff and Menzi & Co., Inc., to be partners, and that copartnership.
in the final liquidation on April 27, 1927. Menzi & Co., Inc., was obliged to furnish free of charge In the first place, the complaint and answer having
On May 3, 1924 the plaintiff made a contract with all the capital the partnership should need. He been superseded by the amended complaint and the
Menzi & Co., Inc., to furnish it all the stems and scraps naturally reached very different conclusions from those answer thereto, and the answer to the original
to tobacco that it might need for its fertilizer business of the auditors of Menzi Co., Inc. complaint not having been presented in evidence as
either in the Philippine Islands or for export to other We come now to a consideration of appellant's an exhibit, the trial court was not authorized to take it
countries. This contract is rendered to in the record as assignment of error. After considering the evidence into account. "Where amended pleadings have been
the "Vastago Contract". Menzi & Co., Inc., advanced and the arguments of counsel, we are unanimously of filed, allegations in the original pleadings are held
the plaintiff, paying the salaries of his employees, and the opinion that under the facts of this case the admissible, but in such case the original pleadings can
other expenses in performing his contract. relationship established between Menzi & Co. and by have no effect, unless formally offered in evidence."
White, Page & Co., certified public accountants, the plaintiff was to receive 35 per cent of the net profits (Jones on Evidence, sec. 273; Lucido vs. Calupitan,
audited the books of Menzi & Co., Inc., every month, of the fertilizer business of Menzi & Co., Inc., in 27 Phil., 148.)
and at the end of each year they prepared a balance compensation for his services of supervising the In the second place, although the word "associated"
sheet and a profit and loss statement of the fertilizer mixing of the fertilizers. Neither the provisions of the may be related etymologically to the Spanish word
business. These statements were delivered to the contract nor the conduct of the parties prior or "socio", meaning partner, it does not in its common
plaintiff for examination, and after he had had an subsequent to its execution justified the finding that it acceptation imply any partnership relation.
opportunity of verifying them he approved them was a contract of copartnership. Exhibit A, as appears The 7th, 8th, and 9th paragraphs of Exhibit A, whereby
without objection and returned them to Menzi & Co., from the statement of facts, was in effect a the defendant corporation obligated itself to pay to the
Inc. continuation of the verbal agreement between the plaintiff 35 per cent of the net profits of the fertilizer
Plaintiff collected from Menzi Co., Inc., as his share or parties, whereby the plaintiff worked for the defendant business, to advance to him P300 a month on account
35 per cent of the net profits of the fertilizer business corporation for one-half of the net profits derived by of his share of the profits, and to grant him permission
the following amounts: the corporation from certain fertilizer contracts. Plaintiff during 1923 to absent himself from the Philippines for
was paid his share of the profits from those not more than one year are utterly incompatible with
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
transactions after Menzi & Co., Inc., had deducted the the claim that it was the intention of the parties to form
same items of expense which he now protests. Plaintiff a copartnership. Various other reasons for holding that
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
never made any objection to defendant's manner of the parties were not partners are advanced in
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56 keeping the accounts or to the charges. The business appellant's brief. We do not deem it necessary to
was continued in the same manner under the written discuss them here. We merely wish to add that in the
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03 agreement, Exhibit A, and for four years the plaintiff Vastago contract, Exhibit A, the plaintiff clearly
never made any objection. On the contrary he recognized Menzi & Co., Inc., as the owners of the
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98 approved and signed every year the balance sheet fertilizer business in question.
and the profit and loss statement. It was only when As to the various items of the expense rejected by the
plaintiff's contract was about to expire and the trial judge, they were in our opinion proper charges
Total . . . . . . . . . . . . . . . . . . . . P196,483.92 defendant corporation had notified him that it would and erroneously disallowed, and this would true even if
not renew it that the plaintiff began to make objections. the parties had been partners. Although Menzi & Co.,
To this amount must be added plaintiff's share of the The trial court relied on article 116 of the Code of Inc., agreed to furnish the necessary financial aid for
net profits from January 1 to April 27, 1927, amounting Commerce, which provides that articles of association the fertilizer business, it did not obligate itself to
to P34,766.87, making a total of P231,250.79. by which two or more persons obligate themselves to contribute any fixed sum as capital or to defray at its
Prior to the expiration of the contract, Exhibit A, the place in a common fund any property, industry, or any own expense the cost of securing the necessary
manager of Menzi & Co. Inc., notified the plaintiff that of these things, in order to obtain profit, shall be credit. Some of the contentions of the plaintiff and his
the contract for his services would not be renewed. commercial, no matter what its class may be, provided expert witness Thompson are so obviously without
When plaintiff's contract expired on April 27, 1927, the it has been established in accordance with the merit as not to merit serious consideration. For
fertilizer department of Menzi & Co., Inc., had on hand provisions of this Code; but in the case at bar there instance, they objected to the interest charges on draft
materials and ingredients and two Ford trucks of the was no common fund, that is, a fund belonging to the for materials purchased abroad. Their contention is
book value of approximately P75,000, and accounts parties as joint owners or partners. The business that the corporation should have furnished the money
receivable amounting to P103,000. There were claims belonged to Menzi & Co., Inc. The plaintiff was to purchase these materials for cash, overlooking the
outstanding and bills to pay. Before the net profits working for Menzi & Co., Inc. Instead of receiving a fact that the interest was added to the cost price, and
could be finally determined, it was necessary to fixed salary or a fixed salary and a small percentage of that the plaintiff was not prejudiced by the practice
dispose of the materials and equipment, collect the the net profits, he was to receive 35 per cent of the net complained of. It was also urged, and this seems to us
outstanding accounts for Menzi & Co., Inc., prepared a profits as compensation for his services. Menzi & Co., the height of absurdity, that the defendant corporation
balance sheet and a profit and loss statement for the Inc., was to advanced him P300 a month on account should have furnished free of charge such financial
period from January 1 to April 27, 1927 as a basis of of his participation in the profits. It will be noted that no assistance as would have made it unnecessary to
settlement, but the plaintiff refused to accept it, and provision was made for reimbursing Menzi & Co., Inc., discount customers' notes, thereby enabling the
filed the present action. in case there should be no net profits at the end of the business to reap the interest. In other words, the
Menzi & Co., Inc., then proceeded to liquidate fertilizer year. It is now well settled that the old rule that sharing defendant corporation should have enabled the
business in question. In October, 1927 it proposed to profits as profits made one a partner is overthrown. fertilizer department to do business on a credit instead
the plaintiff that the old and damaged stocks on hand (Mechem, second edition, p. 89.) of a cash basis.
having a book value of P40,000, which the defendant It is nowhere stated in Exhibit A that the parties were The charges now complained of, as we have already
corporation had been unable to dispose of, be sold at establishing a partnership or intended to become stated, are the same as those made under the verbal
public or private sale, or divided between the parties. partners. Great stress in laid by the trial judge and agreement, upon the termination of which the parties
The plaintiff refused to agree to this. The defendant plaintiff's attorneys on the fact that in the sixth made a settlement; the charges in question were
corporation then applied to the trial court for an order paragraph of Exhibit A the phrase "en sociedad con" is acquiesced in by the plaintiff for years, and it is now
too late for him to contest them. The decision of this had been used by Behn, Meyer & Co. in its business On May 18, 1995, Elfledo died, leaving respondent as
court in the case of Kriedt vs. E.C. McCullough & Co. for other goods and one of them for fertilizer. They his sole surviving heir. Petitioners claimed that
(37 Phil., 474), is in point. A portion of the syllabus of belonged to Menzi & Co., Inc., and were registered in respondent took over the administration of the
that case reads as follows: its name; only the expense of registering the formulas aforementioned properties, which belonged to the
CONTRACTS; INTERPRETATION; in the Bureau of Science was charged to the business estate of Jose, without their consent and approval.
CONTEMPORANEOUS ACTS OF PARTIES. Acts in which the plaintiff was interested. These trade- Claiming that they are co-owners of the properties,
done by the marks remained the exclusive property of Menzi & Co., petitioners required respondent to submit an
parties to a contract in the course of its performance and the plaintiff had no interest therein on the accounting of all income, profits and rentals received
are admissible in evidence upon the question of its expiration of his contract. from the estate of Elfledo, and to surrender the
meaning, as being their own contemporaneous The balance due the plaintiff, as appears from Exhibit administration thereof. Respondent refused; thus, the
interpretation of its terms. 52, is P21,633.20. We are satisfied by the evidence filing of this case.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR that said balance is correct. Respondent traversed petitioners' allegations and
CONTRACT. In an action upon a contract For the foregoing reasons, the decision appealed from claimed that Elfledo was himself a partner of Norberto
containing a provision a doubtful application it is modified and the defendant corporation is sentenced and Jimmy. Respondent also claimed that per
appeared that under a similar prior contract the parties to pay the plaintiff twenty-one thousand, six hundred testimony of Cresencia, sometime in 1980, Jose gave
had, upon the termination of said contract, adjusted and thirty-three pesos and twenty centavos Elfledo 50,000.00 as the latter's capital in an informal
their rights and made a settlement in which the (P21,633.20), with legal interest thereon from the date partnership with Jimmy and Norberto. When Elfledo
doubtful clause had been given effect in conformity of the filing of the complaint on June 17, 1927, without and respondent got married in 1981, the partnership
with the interpretation placed thereon by one of the a special finding as to costs. only had one truck; but through the efforts of Elfledo,
parties. Held: That this action of the parties under the Street, Villamor, and Villa-Real, JJ., concur. the business flourished. Other than this trucking
prior contract could properly be considered upon the Justice Hull participated in this case, but on account of business, Elfledo, together with respondent, engaged
question of the interpretation of the same clause in the his absence on leave at the time of the promulgation of in other business ventures. Thus, they were able to
later contract. the decision he authorized the undersigned to certify buy real properties and to put up their own car
3. ID.; ID.; ACQUIESCENCE. Where one of the that he voted to modify the decision of the trial court as assembly and repair business. When Norberto was
parties to a contract acquiesces in the interpretation appears in the foregoing decision of this court. ambushed and killed on July 16, 1993, the trucking
placed by the other upon a provision of doubtful VILLAMOR, J., Presiding. business started to falter. When Elfledo died on May
application, the party so acquiescing is bound by such 18, 1995 due to a heart attack, respondent talked to
interpretation. 10. Heirs of Jose Lim vs Juliet Villa Lim GR 172690 Jimmy and to the heirs of Norberto, as she could no
4. ID.; ID.; ILLUSTRATION. One of the parties to a HEIRS OF JOSE LIM, represented by ELENITO longer run the business. Jimmy suggested that three
contract, being aware at the time of the execution LIM, Petitioners, vs.JULIET VILLA LIM, Respondent. out of the nine trucks be given to him as his share,
thereof that the other placed a certain interpretation Before this Court is a Petition for Review on while the other three trucks be given to the heirs of
upon a provision of doubtful application, nevertheless Certiorari1 under Rule 45 of the Rules of Civil Norberto. However, Norberto's wife, Paquita Uy, was
proceeded, without raising any question upon the Procedure, assailing the Court of Appeals (CA) not interested in the vehicles. Thus, she sold the same
point, to perform the services which he was bound to Decision2 dated June 29, 2005, which reversed and to respondent, who paid for them in installments.
render under the contract. Upon the termination of the set aside the decision3 of the Regional Trial Court Respondent also alleged that when Jose died in 1981,
contract by mutual consent a question was raised as (RTC) of Lucena City, dated April 12, 2004. he left no known assets, and the partnership with
to the proper interpretation of the doubtful The facts of the case are as follows: Jimmy and Norberto ceased upon his demise.
provision. Held: That the party raising such question Petitioners are the heirs of the late Jose Lim (Jose), Respondent also stressed that Jose left no properties
had acquiesced in the interpretation placed upon the namely: Jose's widow Cresencia Palad (Cresencia); that Elfledo could have held in trust. Respondent
contract by the other party and was bound thereby. and their children Elenito, Evelia, Imelda, Edelyna and maintained that all the properties involved in this case
The trial court held that the plaintiff was entitled to Edison, all surnamed Lim (petitioners), represented by were purchased and acquired through her and her
P6,578.38 or 35 per cent of the net profits derived by Elenito Lim (Elenito). They filed a Complaint4 for husbands joint efforts and hard work, and without any
Menzi & Co., Inc., from its contract for fertilizers with Partition, Accounting and Damages against participation or contribution from petitioners or from
the Tabacalera. This finding in our opinion is not respondent Juliet Villa Lim (respondent), widow of the Jose. Respondent submitted that these are conjugal
justified by the evidence. This contract was obtained late Elfledo Lim (Elfledo), who was the eldest son of partnership properties; and thus, she had the right to
by Menzi & Co., Inc., shortly before plaintiff's contract Jose and Cresencia. refuse to render an accounting for the income or
with the defendant corporation expired. Plaintiff tried to Petitioners alleged that Jose was the liaison officer of profits of their own business.
get the Tabacalera contract for himself. When this Interwood Sawmill in Cagsiay, Mauban, Quezon. Trial on the merits ensued. On April 12, 2004, the RTC
contract was filled, plaintiff had ceased to work for Sometime in 1980, Jose, together with his friends rendered its decision in favor of petitioners, thus:
Menzi & Co., Inc., and he has no right to participate in Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed WHEREFORE, premises considered, judgment is
the profits derived therefrom. a partnership to engage in the trucking business. hereby rendered:
Appellant's sixth assignment of error is that the trial Initially, with a contribution of 50,000.00 each, they 1) Ordering the partition of the above-mentioned
court erred in finding the value of the good-will of the purchased a truck to be used in the hauling and properties equally between the plaintiffs and heirs of
fertilizer business in question to be P562,312, and that transport of lumber of the sawmill. Jose managed the Jose Lim and the defendant Juliet Villa-Lim; and
the plaintiff was entitled to 35 per cent thereof or operations of this trucking business until his death on 2) Ordering the defendant to submit an accounting of
P196,709.20. In reaching this conclusion the trial court August 15, 1981. Thereafter, Jose's heirs, including all incomes, profits and rentals received by her from
unfortunately relied on the opinion of the accountant, Elfledo, and partners agreed to continue the business said properties.
Vernon Thompson, who assumed, erroneously as we under the management of Elfledo. The shares in the SO ORDERED.
have seen, that the plaintiff and Menzi & Co., Inc., partnership profits and income that formed part of the Aggrieved, respondent appealed to the CA.
were partners; but even if they had been partners estate of Jose were held in trust by Elfledo, with On June 29, 2005, the CA reversed and set aside the
there would have been no good-will to dispose of. The petitioners' authority for Elfledo to use, purchase or RTC's decision, dismissing petitioners' complaint for
defendant corporation had a fertilizer business before acquire properties using said funds. lack of merit. Undaunted, petitioners filed their Motion
it entered into any agreement with the plaintiff; Petitioners also alleged that, at that time, Elfledo was a for Reconsideration,5 which the CA, however, denied
plaintiff's agreement was for a fixed period, five years, fresh commerce graduate serving as his fathers driver in its Resolution6 dated May 8, 2006.
and during that time the business was carried on in the in the trucking business. He was never a partner or an Hence, this Petition, raising the sole question, viz.:
name of Menzi & Co., Inc., and in Menzi & Co.'s investor in the business and merely supervised the IN THE APPRECIATION BY THE COURT OF THE
warehouses and after the expiration of plaintiff's purchase of additional trucks using the income from EVIDENCE SUBMITTED BY THE PARTIES, CAN
contract Menzi & Co., Inc., continued its fertilizer the trucking business of the partners. By the time the THE TESTIMONY OF ONE OF THE PETITIONERS
business, as it had a perfect right to do. There was partnership ceased, it had nine trucks, which were all BE GIVEN GREATER WEIGHT THAN THAT BY A
really nothing to which any good-will could attach. registered in Elfledo's name. Petitioners asseverated FORMER PARTNER ON THE ISSUE OF THE
Plaintiff maintains, however, that the trade-marks used that it was also through Elfledos management of the IDENTITY OF THE OTHER PARTNERS IN THE
in the fertilizer business during the time that he was partnership that he was able to purchase numerous PARTNERSHIP?7
connected with it acquired great value, and that they real properties by using the profits derived therefrom, In essence, petitioners argue that according to the
have been appropriated by the appellant to its own all of which were registered in his name and that of testimony of Jimmy, the sole surviving partner, Elfledo
use. That seems to be the only basis of the alleged respondent. In addition to the nine trucks, Elfledo also was not a partner; and that he and Norberto entered
good-will, to which a fabulous valuation was given. As acquired five other motor vehicles. into a partnership with Jose. Thus, the CA erred in not
we have seen, the trade- marks were not new. They giving that testimony greater weight than that of
Cresencia, who was merely the spouse of Jose and and respondent form part of the estate of Jose, having Jimmy testified that Elfledo did not receive wages or
not a party to the partnership.8 been derived from the alleged partnership. salaries from the partnership, indicating that what he
Respondent counters that the issue raised by Petitioners heavily rely on Jimmy's testimony. But that actually received were shares of the profits of the
petitioners is not proper in a petition for review on testimony is just one piece of evidence against business;17 and (5) none of the petitioners, as heirs of
certiorari under Rule 45 of the Rules of Civil respondent. It must be considered and weighed along Jose, the alleged partner, demanded periodic
Procedure, as it would entail the review, evaluation, with petitioners' other evidence vis--vis respondent's accounting from Elfledo during his lifetime. As
calibration, and re-weighing of the factual findings of contrary evidence. In civil cases, the party having the repeatedly stressed in Heirs of Tan Eng Kee,18 a
the CA. Moreover, respondent invokes the rationale of burden of proof must establish his case by a demand for periodic accounting is evidence of a
the CA decision that, in light of the admissions of preponderance of evidence. "Preponderance of partnership.
Cresencia and Edison and the testimony of evidence" is the weight, credit, and value of the Furthermore, petitioners failed to adduce any evidence
respondent, the testimony of Jimmy was effectively aggregate evidence on either side and is usually to show that the real and personal properties acquired
refuted; accordingly, the CA's reversal of the RTC's considered synonymous with the term "greater weight and registered in the names of Elfledo and respondent
findings was fully justified.9 of the evidence" or "greater weight of the credible formed part of the estate of Jose, having been derived
We resolve first the procedural matter regarding the evidence." "Preponderance of evidence" is a phrase from Jose's alleged partnership with Jimmy and
propriety of the instant Petition. that, in the last analysis, means probability of the truth. Norberto. They failed to refute respondent's claim that
Verily, the evaluation and calibration of the evidence It is evidence that is more convincing to the court as Elfledo and respondent engaged in other businesses.
necessarily involves consideration of factual issues worthy of belief than that which is offered in opposition Edison even admitted that Elfledo also sold Interwood
an exercise that is not appropriate for a petition for thereto.13 Rule 133, Section 1 of the Rules of Court lumber as a sideline.19 Petitioners could not offer any
review on certiorari under Rule 45. This rule provides provides the guidelines in determining preponderance credible evidence other than their bare assertions.
that the parties may raise only questions of law, of evidence, thus: Thus, we apply the basic rule of evidence that
because the Supreme Court is not a trier of facts. SECTION I. Preponderance of evidence, how between documentary and oral evidence, the former
Generally, we are not duty-bound to analyze again and determined. In civil cases, the party having burden of carries more weight.20
weigh the evidence introduced in and considered by proof must establish his case by a preponderance of Finally, we agree with the judicious findings of the CA,
the tribunals below.10 When supported by substantial evidence. In determining where the preponderance or to wit:
evidence, the findings of fact of the CA are conclusive superior weight of evidence on the issues involved The above testimonies prove that Elfledo was not just
and binding on the parties and are not reviewable by lies, the court may consider all the facts and a hired help but one of the partners in the trucking
this Court, unless the case falls under any of the circumstances of the case, the witnesses' manner of business, active and visible in the running of its affairs
following recognized exceptions: testifying, their intelligence, their means and from day one until this ceased operations upon his
(1) When the conclusion is a finding grounded entirely opportunity of knowing the facts to which they are demise. The extent of his control, administration and
on speculation, surmises and conjectures; testifying, the nature of the facts to which they testify, management of the partnership and its business, the
(2) When the inference made is manifestly mistaken, the probability or improbability of their testimony, their fact that its properties were placed in his name, and
absurd or impossible; interest or want of interest, and also their personal that he was not paid salary or other compensation by
(3) Where there is a grave abuse of discretion; credibility so far as the same may legitimately appear the partners, are indicative of the fact that Elfledo was
(4) When the judgment is based on a misapprehension upon the trial. The court may also consider the number a partner and a controlling one at that. It is apparent
of facts; of witnesses, though the preponderance is not that the other partners only contributed in the initial
(5) When the findings of fact are conflicting; necessarily with the greater number. capital but had no say thereafter on how the business
(6) When the Court of Appeals, in making its findings, At this juncture, our ruling in Heirs of Tan Eng Kee v. was ran. Evidently it was through Elfredos efforts and
went beyond the issues of the case and the same is Court of Appeals14 is enlightening. Therein, we cited hard work that the partnership was able to acquire
contrary to the admissions of both appellant and Article 1769 of the Civil Code, which provides: more trucks and otherwise prosper. Even the appellant
appellee; Art. 1769. In determining whether a partnership exists, participated in the affairs of the partnership by acting
(7) When the findings are contrary to those of the trial these rules shall apply: as the bookkeeper sans salary.1avvphi1
court; (1) Except as provided by Article 1825, persons who It is notable too that Jose Lim died when the
(8) When the findings of fact are conclusions without are not partners as to each other are not partners as to partnership was barely a year old, and the partnership
citation of specific evidence on which they are based; third persons; and its business not only continued but also flourished.
(9) When the facts set forth in the petition as well as in (2) Co-ownership or co-possession does not of itself If it were true that it was Jose Lim and not Elfledo who
the petitioners' main and reply briefs are not disputed establish a partnership, whether such co-owners or co- was the partner, then upon his death the partnership
by the respondents; and possessors do or do not share any profits made by the should have been dissolved and its assets liquidated.
(10) When the findings of fact of the Court of Appeals use of the property; On the contrary, these were not done but instead its
are premised on the supposed absence of evidence (3) The sharing of gross returns does not of itself operation continued under the helm of Elfledo and
and contradicted by the evidence on record.11 establish a partnership, whether or not the persons without any participation from the heirs of Jose Lim.
We note, however, that the findings of fact of the RTC sharing them have a joint or common right or interest Whatever properties appellant and her husband had
are contrary to those of the CA. Thus, our review of in any property from which the returns are derived; acquired, this was through their own concerted efforts
such findings is warranted. (4) The receipt by a person of a share of the profits of and hard work. Elfledo did not limit himself to the
On the merits of the case, we find that the instant a business is a prima facie evidence that he is a business of their partnership but engaged in other
Petition is bereft of merit. partner in the business, but no such inference shall be lines of businesses as well.
A partnership exists when two or more persons agree drawn if such profits were received in payment: In sum, we find no cogent reason to disturb the
to place their money, effects, labor, and skill in lawful (a) As a debt by installments or otherwise; findings and the ruling of the CA as they are amply
commerce or business, with the understanding that (b) As wages of an employee or rent to a landlord; supported by the law and by the evidence on record.
there shall be a proportionate sharing of the profits and (c) As an annuity to a widow or representative of a WHEREFORE, the instant Petition is DENIED. The
losses among them. A contract of partnership is deceased partner; assailed Court of Appeals Decision dated June 29,
defined by the Civil Code as one where two or more (d) As interest on a loan, though the amount of 2005 is AFFIRMED. Costs against petitioners.
persons bind themselves to contribute money, payment vary with the profits of the business;
property, or industry to a common fund, with the (e) As the consideration for the sale of a goodwill of a Art 1770
intention of dividing the profits among themselves.12 business or other property by installments or 1. Arbes vs Polistico 53 Phil 489 1929
Undoubtedly, the best evidence would have been the otherwise. ADRIANO ARBES, ET AL., plaintiffs-appellees, vs.
contract of partnership or the articles of partnership. Applying the legal provision to the facts of this case, VICENTE POLISTICO, ET AL., defendants-.
Unfortunately, there is none in this case, because the the following circumstances tend to prove that Elfledo This is an action to bring about liquidation of the funds
alleged partnership was never formally organized. was himself the partner of Jimmy and Norberto: 1) and property of the association called "Turnuhan
Nonetheless, we are asked to determine who between Cresencia testified that Jose gave Elfledo 50,000.00, Polistico & Co." The plaintiffs were members or
Jose and Elfledo was the "partner" in the trucking as share in the partnership, on a date that coincided shareholders, and the defendants were designated as
business. with the payment of the initial capital in the president-treasurer, directors and secretary of said
A careful review of the records persuades us to affirm partnership;15 (2) Elfledo ran the affairs of the association.
the CA decision. The evidence presented by partnership, wielding absolute control, power and It is well to remember that this case is now brought
petitioners falls short of the quantum of proof required authority, without any intervention or opposition before the consideration of this court for the second
to establish that: (1) Jose was the partner and not whatsoever from any of petitioners herein;16 (3) all of time. The first one was when the same plaintiffs
Elfledo; and (2) all the properties acquired by Elfledo the properties, particularly the nine trucks of the appeared from the order of the court below sustaining
partnership, were registered in the name of Elfledo; (4) the defendant's demurrer, and requiring the former to
amend their complaint within a period, so as to include included, as a party defendant. The appellants refer to are the result of the industry, business or speculation
all the members of "Turnuhan Polistico & Co.," either article 1666 of the Civil Code, which provides: which is the object of the partnership,
as plaintiffs or as a defendants. This court held then A partnership must have a lawful object, and must be and therefor, in order to demand the proportional part
that in an action against the officers of a voluntary established for the common benefit of the partners. of the said profits, the partner would have to base his
association to wind up its affairs and enforce an When the dissolution of an unlawful partnership is action on the contract which is null and void, since this
accounting for money and property in their decreed, the profits shall be given to charitable partition or distribution of the profits is one of the
possessions, it is not necessary that all members of institutions of the domicile of the partnership, or, in juridical effects thereof. Wherefore considering this
the association be made parties to the action. (Borlasa default of such, to those of the province. contract as non-existent, by reason of its illicit object, it
vs. Polistico, 47 Phil., 345.) The case having been Appellant's contention on this point is untenable. cannot give rise to the necessary action, which must
remanded to the court of origin, both parties amend, According to said article, no charitable institution is a be the basis of the judicial complaint. Furthermore, it
respectively, their complaint and their answer, and by necessary party in the present case of determination would be immoral and unjust for the law to permit a
agreement of the parties, the court appointed Amadeo of the rights of the parties. The action which may arise profit from an industry prohibited by it.
R. Quintos, of the Insular Auditor's Office, from said article, in the case of unlawful partnership, is Hence the distinction made in the second paragraph of
commissioner to examine all the books, documents, that for the recovery of the amounts paid by the this article of this Code, providing that the profits
and accounts of "Turnuhan Polistico & Co.," and to member from those in charge of the administration of obtained by unlawful means shall not enrich the
receive whatever evidence the parties might desire to said partnership, and it is not necessary for the said partners, but shall upon the dissolution of the
present. parties to base their action to the existence of the partnership, be given to the charitable institutions of
The commissioner rendered his report, which is partnership, but on the fact that of having contributed the domicile of the partnership, or, in default of such,
attached to the record, with the following resume: some money to the partnership capital. And hence, the to those of the province.
charitable institution of the domicile of the partnership, This is a new rule, unprecedented by our law,
The defendants objected to the commissioner's report, and in the default thereof, those of the province are not introduced to supply an obvious deficiency of the
but the trial court, having examined the reasons for the necessary parties in this case. The article cited above former law, which did not describe the purpose to
objection, found the same sufficiently explained in the permits no action for the purpose of obtaining the which those profits denied the partners were to be
report and the evidence, and accepting it, rendered earnings made by the unlawful partnership, during its applied, nor state what to be done with them.
judgment, holding that the association "Turnuhan existence as result of the business in which it was The profits are so applied, and not the contributions,
Polistico & Co." is unlawful, and sentencing the engaged, because for the purpose, as Manresa because this would be an excessive and unjust
defendants jointly and severally to return the amount remarks, the partner will have to base his action upon sanction for, as we have seen, there is no reason, in
of P24,607.80, as well as the documents showing the the partnership contract, which is to annul and without such a case, for depriving the partner of the portion of
uncollected credits of the association, to the plaintiffs legal existence by reason of its unlawful object; and it the capital that he contributed, the circumstances of
in this case, and to the rest of the members of the said is self evident that what does not exist cannot be a the two cases being entirely different.
association represented by said plaintiffs, with costs cause of action. Hence, paragraph 2 of the same Our Code does not state whether, upon the dissolution
against the defendants. article provides that when the dissolution of the of the unlawful partnership, the amounts contributed
The defendants assigned several errors as grounds for unlawful partnership is decreed, the profits cannot are to be returned by the partners, because it only
their appeal, but we believe they can all be reduced to inure to the benefit of the partners, but must be given deals with the disposition of the profits; but the fact
two points, to wit: (1) That not all persons having an to some charitable institution. that said contributions are not
interest in this association are included as plaintiffs or We deem in pertinent to quote Manresa's included in the disposal prescribed profits, shows that
defendants; (2) that the objection to the commentaries on article 1666 at length, as a clear in consequences of said exclusion, the general law
commissioner's report should have been admitted by explanation of the scope and spirit of the provision of must be followed, and hence the partners should
the court below. the Civil Code which we are concerned. Commenting reimburse the amount of their respective contributions.
As to the first point, the decision on the case of on said article Manresa, among other things says: Any other solution is immoral, and the law will not
Borlasa vs. Polistico, supra, must be followed. When the subscriptions of the members have been consent to the latter remaining in the possession of the
With regard to the second point, despite the paid to the management of the partnership, and manager or administrator who has refused to return
praiseworthy efforts of the attorney of the defendants, employed by the latter in transactions consistent with them, by denying to the partners the action to demand
we are of opinion that, the trial court having examined the purposes of the partnership may the former them. (Manresa, Commentaries on the Spanish Civil
all the evidence touching the grounds for the objection demand Code, vol. XI, pp. 262-264)
and having found that they had been explained away the return of the reimbursement thereof from the The judgment appealed from, being in accordance
in the commissioner's report, the conclusion reached manager or administrator withholding them? with law, should be, as it is hereby, affirmed with costs
by the court below, accepting and adopting the Apropos of this, it is asserted: If the partnership has no against the appellants; provided, however, the
findings of fact contained in said report, and especially valid existence, if it is considered juridically non- defendants shall pay the legal interest on the sum of
those referring to the disposition of the association's existent, the contract entered into can have no legal P24,607.80 from the date of the decision of the court,
money, should not be disturbed. effect; and in that case, how can it give rise to an and provided, further, that the defendants shall deposit
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 action in favor of the partners to judicially demand from this sum of money and other documents evidencing
Phil., 516), it was held that the findings of facts made the manager or the administrator of the partnership uncollected credits in the office of the clerk of the trial
by a referee appointed under the provisions of section capital, each one's contribution? court, in order that said court may distribute them
135 of the Code of Civil Procedure stand upon the The authors discuss this point at great length, but Ricci among the members of said association, upon being
same basis, when approved by the Court, as findings decides the matter quite clearly, dispelling all doubts duly identified in the manner that it may deem proper.
made by the judge himself. And in Kriedt vs. E. C. thereon. He holds that the partner who limits himself to So ordered.
McCullogh & Co.(37 Phil., 474), the court held: "Under demanding only the amount contributed by him need
section 140 of the Code of Civil Procedure it is made not resort to the partnership contract on which to base Art 1771 to 1773Fernandez vs Dela Rosa 1 Phil 671
the duty of the court to render judgment in accordance his action. And he adds in explanation that the partner 1903 JOSE FERNANDEZ, plaintiff-appellant,
with the report of the referee unless the court shall makes his contribution, which passes to the managing vs.FRANCISCO DE LA ROSA, defendant-
unless for cause shown set aside the report or partner for the purpose of carrying on the business or The object of this action is to obtain from the court a
recommit it to the referee. This provision places upon industry which is the object of the partnership; or in declaration that a partnership exists between the
the litigant parties of the duty of discovering and other words, to breathe the breath of life into a parties, that the plaintiff has a consequent interested in
exhibiting to the court any error that may be contained partnership contract with an objection forbidden by certain cascoes which are alleged to be partnership
therein." The appellants stated the grounds for their law. And as said contrast does not exist in the eyes of property, and that the defendant is bound to render an
objection. The trial examined the evidence and the the law, the purpose from which the contribution was account of his administration of the cascoes and the
commissioner's report, and accepted the findings of made has not come into business carried on with them.
fact made in the report. We find no convincing existence, and the administrator of the Judgment was rendered for the defendant in the court
arguments on the appellant's brief to justify a reversal partnership holding said contribution retains what below and the plaintiff appealed.
of the trial court's conclusion admitting the belongs to others, without any consideration; for which The respective claims of the parties as to the facts, so
commissioner's findings. reason he is not bound to return it and he who has far as it is necessary to state them in order to indicate
There is no question that "Turnuhan Polistico & Co." is paid in his share is entitled to recover it. the point in dispute, may be briefly summarized. The
an unlawful partnership (U.S. vs. Baguio, 39 Phil., But this is not the case with regard to profits earned in plaintiff alleges that in January, 1900, he entered into a
962), but the appellants allege that because it is so, the course of the partnership, because they do not verbal agreement with the defendant to form a
some charitable institution to whom the partnership constitute or represent the partner's contribution but partnership for the purchase of cascoes and the
funds may be ordered to be turned over, should be carrying on of the business of letting the same for hire
in Manila, the defendant to buy the cascoes and each Manila, March 5, 1900. Francisco de la Rosa." The intention of dividing the profits among themselves."
partner to furnish for that purpose such amount of authenticity of this receipt is admitted by the (Civil Code, art. 1665.)
money as he could, the profits to be divided defendant. If casco No. 1515 was bought, as we think The essential points upon which the minds of the
proportionately; that in the same January the plaintiff it was, in January, the casco referred to in the receipt parties must meet in a contract of partnership are,
furnished the defendant 300 pesos to purchase a which the parties "are to purchase in company" must therefore, (1) mutual contribution to a common stock,
casco designated as No. 1515, which the defendant be casco No. 2089, which was bought March 22. We and (2) a joint interest in the profits. If the contract
did purchase for 500 pesos of Doa Isabel Vales, find this to be the fact, and that the plaintiff furnished contains these two elements the partnership relation
taking the title in his own name; that the plaintiff and the defendant received 825 pesos toward the results, and the law itself fixes the incidents of this
furnished further sums aggregating about 300 pesos purchase of this casco, with the understanding that it relation if the parties fail to do so. (Civil Code, secs.
for repairs on this casco; that on the fifth of the was to be purchased on joint account. 1689, 1695.)
following March he furnished the defendant 825 pesos (3) Antonio Fernandez testifies that in the early part of We have found as a fact that money was furnished by
to purchase another casco designated as No. 2089, January, 1900, he saw Antonio Angulo give the the plaintiff and received by the defendant with the
which the defendant did purchase for 1,000 pesos of defendant, in the name of the plaintiff, a sum of understanding that it was to be used for the purchase
Luis R. Yangco, taking the title to this casco also in his money, the amount of which he is unable to state, for of the cascoes in question. This establishes the first
own name; that in April the parties undertook to draw the purchase of a casco to be used in the plaintiff's element of the contract, namely, mutual contribution to
up articles of partnership for the purpose of embodying and defendant's business. Antonio Angulo also a common stock. The second element, namely, the
the same in an authentic document, but that the testifies, but the defendant claims that the fact that intention to share profits, appears to be an
defendant having proposed a draft of such articles Angulo was a partner of the plaintiff rendered him unavoidable deduction from the fact of the purchase of
which differed materially from the terms of the earlier incompetent as a witness under the provisions of the cascoes in common, in the absence of any other
verbal agreement, and being unwillingly to include article 643 of the then Code of Civil Procedure, and explanation of the object of the parties in making the
casco No. 2089 in the partnership, they were unable to without deciding whether this point is well taken, we purchase in that form, and, it may be added, in view of
come to any understanding and no written agreement have discarded his testimony altogether in considering the admitted fact that prior to the purchase of the first
was executed; that the defendant having in the the case. The defendant admits the receipt of 300 casco the formation of a partnership had been a
meantime had the control and management of the two pesos from Antonio Angulo in January, claiming, as subject of negotiation between them.
cascoes, the plaintiff made a demand for an has been stated, that it was a loan from the firm. Yet Under other circumstances the relation of joint
accounting upon him, which the defendant refused to he sets up the claim that the 825 pesos which he ownership, a relation distinct though perhaps not
render, denying the existence of the partnership received from the plaintiff in March were furnished essentially different in its practical consequence from
altogether. toward the purchase of casco No. 1515, thereby that of partnership, might have been the result of the
The defendant admits that the project of forming a virtually admitting that casco was purchased in joint purchase. If, for instance, it were shown that the
partnership in the casco business in which he was company with the plaintiff. We discover nothing in the object of the parties in purchasing in company had
already engaged to some extent individually was evidence to support the claim that the 300 pesos been to make a more favorable bargain for the two
discussed between himself and the plaintiff in January, received in January was a loan, unless it may be the cascoes that they could have done by purchasing
1900, and earlier, one Marcos Angulo, who was a fact that the defendant had on previous occasions them separately, and that they had no ulterior object
partner of the plaintiff in a bakery business, being also borrowed money from the bakery firm. We think all the except to effect a division of the common property
a party to the negotiations, but he denies that any probabilities of the case point to the truth of the when once they had acquired it, the affectio
agreement was ever consummated. He denies that the evidence of Antonio Fernandez as to this transaction, societatiswould be lacking and the parties would have
plaintiff furnished any money in January, 1900, for the and we find the fact to be that the sum in question was become joint tenants only; but, as nothing of this sort
purchase of casco No. 1515, or for repairs on the furnished by the plaintiff toward the purchase for joint appears in the case, we must assume that the object
same, but claims that he borrowed 300 pesos on his ownership of casco No. 1515, and that the defendant of the purchase was active use and profit and not
individual account in January from the bakery firm, received it with the understanding that it was to be mere passive ownership in common.
consisting of the plaintiff, Marcos Angulo, and Antonio used for this purposed. We also find that the plaintiff It is thus apparent that a complete and perfect contract
Angulo. The 825 pesos, which he admits he received furnished some further sums of money for the repair of of partnership was entered into by the parties. This
from the plaintiff March 5, he claims was for the casco. contract, it is true, might have been subject to a
purchase of casco No. 1515, which he alleged was (4) The balance of the purchase price of each of the suspensive condition, postponing its operation until an
bought March 12, and he alleges that he never two cascoes over and above the amount contributed agreement was reached as to the respective
received anything from the defendant toward the by the plaintiff was furnished by the defendant. participation of the partners in the profits, the character
purchase of casco No. 2089. He claims to have paid, (5) We are unable to find upon the evidence before us of the partnership as collective or en comandita, and
exclusive of repairs, 1,200 pesos for the first casco that there was any specific verbal agreement of other details, but although it is asserted by counsel for
and 2,000 pesos for the second one. partnership, except such as may be implied from the the defendant that such was the case, there is little or
The case comes to this court under the old procedure, fact as to the purchase of the casco. nothing in the record to support this claim, and that
and it is therefore necessary for us the review the (6) Although the evidence is somewhat unsatisfactory fact that the defendant did actually go on and
evidence and pass upon the facts. Our general upon this point, we think it more probable than purchase the boat, as it would seem, before any
conclusions may be stated as follows: otherwise that no attempt was made to agree upon attempt had been made to formulate partnership
(1) Doa Isabel Vales, from whom the defendant articles of partnership till about the middle of the April articles, strongly discountenances the theory.
bought casco No. 1515, testifies that the sale was following the purchase of the cascoes. The execution of a written agreement was not
made and the casco delivered in January, although the (7) At some time subsequently to the failure of the necessary in order to give efficacy to the verbal
public document of sale was not executed till some attempt to agree upon partnership articles and after contract of partnership as a civil contract, the
time afterwards. This witness is apparently the defendant had been operating the cascoes for contributions of the partners not having been in the
disinterested, and we think it is safe to rely upon the some time, the defendant returned to the plaintiff 1,125 form of immovables or rights in immovables. (Civil
truth of her testimony, especially as the defendant, pesos, in two different sums, one of 300 and one of Code, art. 1667.) The special provision cited, requiring
while asserting that the sale was in March, admits that 825 pesos. The only evidence in the record as to the the execution of a public writing in the single case
he had the casco taken to the ways for repairs in circumstances under which the plaintiff received these mentioned and dispensing with all formal requirements
January. sums is contained in his answer to the interrogatories in other cases, renders inapplicable to this species of
It is true that the public document of sale was proposed to him by the defendant, and the whole of contract the general provisions of article 1280 of the
executed March 10, and that the vendor declares his statement on this point may properly be considered Civil Code.
therein that she is the owner of the casco, but such in determining the fact as being in the nature of an (2) The remaining question is as to the legal effect of
declaration does not exclude proof as to the actual indivisible admission. He states that both sums were the acceptance by the plaintiff of the money returned
date of the sale, at least as against the plaintiff, who received with an express reservation on his part of all to him by the defendant after the definitive failure of
was not a party to the instrument. (Civil Code, sec. his rights as a partner. We find this to be the fact. the attempt to agree upon partnership articles. The
1218.) It often happens, of course, in such cases, that Two questions of law are raised by the foregoing facts: amount returned fell short, in our view of the facts, of
the actual sale precedes by a considerable time the (1) Did a partnership exist between the parties? (2) If that which the plaintiff had contributed to the capital of
execution of the formal instrument of transfer, and this such partnership existed, was it terminated as a result the partnership, since it did not include the sum which
is what we think occurred here. of the act of the defendant in receiving back the 1,125 he had furnished for the repairs of casco No. 1515.
(2) The plaintiff presented in evidence the following pesos? Moreover, it is quite possible, as claimed by the
receipt: "I have this day received from D. Jose (1) "Partnership is a contract by which two or more plaintiff, that a profit may have been realized from the
Fernandez eight hundred and twenty-five pesos for the persons bind themselves to contribute money, business during the period in which the defendant
cost of a casco which we are to purchase in company. property, or industry to a common fund, with the have been administering it prior to the return of the
money, and if so he still retained that sum in his Discussing this part of the decision, the defendant plaintiff of the sum of 1,125 pesos. This could only be
hands. For these reasons the acceptance of the says that, in the judgment of the court, if on the one determined after a liquidation of the partnership. Then,
money by the plaintiff did not have the effect of hand there is no direct evidence of a contract, on the and only then, can it be known if this sum is to be
terminating the legal existence of the partnership by other its existence can only be inferred from certain charged to the capital contributed by the plaintiff, or to
converting it into a societas leonina, as claimed by facts, and the defendant adds that the possibility of an his share of the profits, or to both. It might well be that
counsel for the defendant. inference is not sufficient ground upon which to the partnership has earned profits, and that the
Did the defendant waive his right to such interest as consider as existing what may be inferred to exist, and plaintiff's participation therein is equivalent to or
remained to him in the partnership property by still less as sufficient ground for declaring its efficacy to exceeds the sum mentioned. In this case it is evident
receiving the money? Did he by so doing waive his produce legal effects. that, notwithstanding that payment, his interest in the
right to an accounting of the profits already realized, if This reasoning rests upon a false basis. We have not partnership would still continue. This is one case. It
any, and a participation in them in proportion to the taken into consideration the mere possibility of an would be easy to imagine many others, as the possible
amount he had originally contributed to the common inference, as the appellant gratuitously stated, for the results of a liquidation are innumerable. The liquidation
fund? Was the partnership dissolved by the "will or purpose of arriving at a conclusion that a contract of will finally determine the condition of the legal relations
withdrawal of one of the partners" under article 1705 of partnership was entered into between him and the of the partners inter se at the time of the withdrawal of
the Civil Code? We think these questions must be plaintiff, but have considered the proof which is the sum mentioned. It was not, nor is it possible to
answered in the negative. derived from the facts connected with the purchase of determine this status a priori without prejudging the
There was no intention on the part of the plaintiff in the cascoes. It is stated in the decision that with the result, as yet unknown, of the litigation. Therefore it is
accepting the money to relinquish his rights as a exception of this evidence we find no other which that in the decision no direct statement has been made
partner, nor is there any evidence that by anything that shows the making of the contract. But this does not upon this point. It is for the same reason that it was
he said or by anything that he omitted to say he gave mean (for it says exactly the contrary) that this fact is expressly stated in the decision that it "does not
the defendant any ground whatever to believe that he not absolutely proven, as the defendant erroneously involve an adjudication as to any disputed item of the
intended to relinquish them. On the contrary he appears to think. From this data we infer a fact which partnership account."
notified the defendant that he waived none of his rights to our mind is certain and positive, and not a mere The contentions advanced by the moving party are so
in the partnership. Nor was the acceptance of the possibility; we infer not that it is possible that the evidently unfounded that we can not see the necessity
money an act which was in itself inconsistent with the contract may have existed, but that it actually did exist. or convenience of granting the rehearing prayed for,
continuance of the partnership relation, as would have The proofs constituted by the facts referred to, and the motion is therefore denied.
been the case had the plaintiff withdrawn his entire although it is the only evidence, and in spite of the fact
interest in the partnership. There is, therefore, nothing that it is not direct, we consider, however, sufficient to 2. Estanislao vs CA 160 SCRA 830 1988
upon which a waiver, either express or implied, can be produce such a conviction, which may certainly be ELIGIO ESTANISLAO, JR., petitioner,
predicated. The defendant might have himself founded upon any of the various classes of evidence vs.THE HONORABLE COURT OF APPEALS,
terminated the partnership relation at any time, if he which the law admits. There is all the more reason for REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
had chosen to do so, by recognizing the plaintiff's right its being so in this case, because a civil partnership SANTIAGO, respondents.
in the partnership property and in the profits. Having may be constituted in any form, according to article
failed to do this he can not be permitted to force a 1667 of the Civil Code, unless real property or real By this petition for certiorari the Court is asked to
dissolution upon his co-partner upon terms which the rights are contributed to it the only case of determine if a partnership exists between members of
latter is unwilling to accept. We see nothing in the case exception in which it is necessary that the agreement the same family arising from their joint ownership of
which can give the transaction in question any other be recorded in a public instrument. certain properties.
aspect than that of the withdrawal by one partner with It is of no importance that the parties have failed to Petitioner and private respondents are brothers and
the consent of the other of a portion of the common reach an agreement with respect to the minor details sisters who are co-owners of certain lots at the corner
capital. of contract. These details pertain to the accidental and of Annapolis and Aurora Blvd., QuezonCity which were
The result is that we hold and declare that a not to the essential part of the contract. We have then being leased to the Shell Company of the
partnership was formed between the parties in already stated in the opinion what are the essential Philippines Limited (SHELL). They agreed to open and
January, 1900, the existence of which the defendant is requisites of a contract of partnership, according to the operate a gas station thereat to be known as
bound to recognize; that cascoes No. 1515 and 2089 definition of article 1665. Considering as a whole the Estanislao Shell Service Station with an initial
constitute partnership property, and that the plaintiff is probatory facts which appears from the record, we investment of P 15,000.00 to be taken from the
entitled to an accounting of the defendant's have reached the conclusion that the plaintiff and the advance rentals due to them from SHELL for the
administration of such property, and of the profits defendant agreed to the essential parts of that occupancy of the said lots owned in common by them.
derived therefrom. This declaration does not involve contract, and did in fact constitute a partnership, with A joint affidavit was executed by them on April 11,
an adjudication as to any disputed items of the the funds of which were purchased the cascoes with 1966 which was prepared byAtty. Democrito
partnersip account. which this litigation deals, although it is true that they Angeles 1 They agreed to help their brother, petitioner
The judgment of the court below will be reversed did not take the precaution to precisely establish and herein, by allowing him to operate and manage the
without costs, and the record returned for the determine from the beginning the conditions with gasoline service station of the family. They negotiated
execution of the judgment now rendered. So ordered. respect to the participation of each partner in the with SHELL. For practical purposes and in order not to
profits or losses of the partnership. The disagreements run counter to the company's policy of appointing only
ON MOTION FOR A REHEARING. MAPA, J.: subsequently arising between them, when one dealer, it was agreed that petitioner would apply
This case has been decided on appeal in favor of the endeavoring to fix these conditions, should not and for the dealership. Respondent Remedios helped in
plaintiff, and the defendant has moved for a rehearing can not produce the effect of destroying that which has managing the bussiness with petitioner from May 3,
upon the following grounds: been done, to the prejudice of one of the partners, nor 1966 up to February 16, 1967.
1. Because that part of the decision which refers to the could it divest his rights under the partnership which On May 26, 1966, the parties herein entered into an
existence of the partnership which is the object of the had accrued by the actual contribution of capital which Additional Cash Pledge Agreement with SHELL
complaint is not based upon clear and decisive legal followed the agreement to enter into a partnership, wherein it was reiterated that the P 15,000.00 advance
grounds; and together with the transactions effected with partnership rental shall be deposited with SHELL to cover
2. Because, upon the supposition of the existence of funds. The law has foreseen the possibility of the advances of fuel to petitioner as dealer with a proviso
the partnership, the decision does not clearly constitution of a partnership without an express that said agreement "cancels and supersedes the Joint
determine whether the juridical relation between the stipulation by the partners upon those conditions, and Affidavit dated 11 April 1966 executed by the co-
partners suffered any modification in consequence of has established rules which may serve as a basis for owners." 2
the withdrawal by the plaintiff of the sum of 1,125 the distribution of profits and losses among the For sometime, the petitioner submitted financial
pesos from the funds of the partnership, or if it partners. (Art. 1689 of the Civil Code. ) We consider statements regarding the operation of the business to
continued as before, the parties being thereby that the partnership entered into by the plaintiff and the private respondents, but therafter petitioner failed to
deprived, he alleges, of one of the principal bases for defendant falls within the provisions of this article. render subsequent accounting. Hence through Atty.
determining with exactness the amount due to each. With respect to the second point, it is obvious that Angeles, a demand was made on petitioner to render
With respect to the first point, the appellant cites the upon declaring the existence of a partnership and the an accounting of the profits.
fifth conclusion of the decision, which is as follows: right of the plaintiff to demand from the defendant an The financial report of December 31, 1968 shows that
"We are unable to find from the evidence before us itemized accounting of his management thereof, it was the business was able to make a profit of P 87,293.79
that there was any specific verbal agreement of impossible at the same time to determine the effects and that by the year ending 1969, a profit of P
partnership, except such as may be implied from the which might have been produced with respect to the 150,000.00 was realized. 3
facts as to the purchase of the cascoes." interest of the partnership by the withdrawal by the
Thus, on August 25, 1970 private respondents filed a Cash Pledge Agreement of May 20, 1966 (Exhibit 6) the CO-OWNERS herein and SHELL, said parties
complaint in the Court of First Instance of Rizal against which are herein reproduced- have agreed and hereby agree as follows:
petitioner praying among others that the latter be (a) The joint Affidavit of April 11, 1966, Exhibit A reads:
ordered: (1) That we are the Lessors of two parcels of land fully l. The CO-OWNERS dohere by waive in favor of
to execute a public document embodying all the describe in Transfer Certificates of Title Nos. 45071 DEALER the monthly rentals due to all CO-OWNERS,
provisions of the partnership agreement entered into and 71244 of the Register of Deeds of Quezon City, in collectively, under the above describe two Lease
between plaintiffs and defendant as provided in Article favor of the LESSEE - SHELL COMPANY OF THE Agreements, one dated 13th November 1963 and the
1771 of the New Civil Code; PHILIPPINES LIMITED a corporation duly licensed to other dated 19th March 1964 to enable DEALER to
2. to render a formal accounting of the business do business in the Philippines; increase his existing cash deposit to SHELL, from P
operation covering the period from May 6, 1966 up to (2) That we have requested the said SHELL 10,000 to P 25,000, for such purpose, the SHELL CO-
December 21, 1968 and from January 1, 1969 up to COMPANY OF THE PHILIPPINE LIMITED advanced OWNERS and DEALER hereby irrevocably assign to
the time the order is issued and that the same be rentals in the total amount of FIFTEEN THOUSAND SHELL the monthly rental of P 3,382.29 payable to
subject to proper audit; PESOS (P l5,000.00) Philippine Currency, so that we them respectively as they fall due, monthly,
3. to pay the plaintiffs their lawful shares and can use the said amount to augment our capital commencing 24th May 1966, until such time that the
participation in the net profits of the business in an investment in the operation of that gasoline station monthly rentals accumulated, shall be equal to P
amount of no less than P l50,000.00 with interest at constructed ,by the said company on our two lots l5,000.
the rate of 1% per month from date of demand until full aforesaid by virtue of an outstanding Lease Agreement 2. The above stated monthly rentals accumulated shall
payment thereof for the entire duration of the business; we have entered into with the said company; be treated as additional cash deposit by DEALER to
and (3) That the and SHELL COMPANY OF THE SHELL, thereby in increasing his credit limit from P
4. to pay the plaintiffs the amount of P 10,000.00 as PHILIPPINE LIMITED out of its benevolence and 10,000 to P 25,000. This agreement, therefore,
attorney's fees and costs of the suit (pp. 13-14 Record desire to help us in aumenting our capital investment cancels and supersedes the Joint affidavit dated 11
on Appeal.) in the operation of the said gasoline station, has April 1966 executed by the CO-OWNERS.
After trial on the merits, on October 15, 1975, Hon. agreed to give us the said amount of P 15,000.00,
Lino Anover who was then the temporary presiding which amount will partake the nature of ADVANCED 3. Effective upon the signing of this agreement, SHELL
judge of Branch IV of the trial court, rendered RENTALS; agrees to allowDEALER to purchase from SHELL
judgment dismissing the complaint and counterclaim (4) That we have freely and voluntarily agreed that petroleum products, on credit, up to the amount of P
and ordering private respondents to pay petitioner P upon receipt of the said amount of FIFTEEN 25,000.
3,000.00 attorney's fee and costs. Private respondent THOUSAND PESOS (P l6,000.00) from he SHELL 4. This increase in the credit shall also be subject to
filed a motion for reconsideration of the decision. On COMPANY OF THE PHILIPPINES LIMITED, the said the same terms and conditions of the above-
December 10, 1975, Hon. Ricardo Tensuan who was sum as ADVANCED RENTALS to us be applied as mentioned Cash Pledge Agreement dated llth May
the newly appointed presiding judge of the same monthly rentals for the sai two lots under our Lease 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
branch, set aside the aforesaid derision and rendered Agreement starting on the 25th of May, 1966 until such In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit
another decision in favor of said respondents. time that the said of P 15,000.00 be applicable, which A), it is clearly stipulated by the parties that the P
The dispositive part thereof reads as follows: time to our estimate and one-half months from May 25, 15,000.00 advance rental due to them from SHELL
WHEREFORE, the Decision of this Court dated 1966 or until the 10th of October, 1966 more or less; shall augment their "capital investment" in the
October 14, 1975 is hereby reconsidered and a (5) That we have likewise agreed among ourselves operation of the gasoline station, which advance
new judgment is hereby that the SHELL COMPANY OF THE PHILIPPINES rentals shall be credited as rentals from May 25, 1966
rendered in favor of the plaintiffs and as against LIMITED execute an instrument for us to sign up to four and one-half months or until 10 October
the defendant: embodying our conformity that the said amount that it 1966, more or less covering said P 15,000.00.
Ordering the defendant to execute a public will generously grant us as requested be applied as In the subsequent document entitled "Additional Cash
instrument embodying all the provisions of the ADVANCED RENTALS; and Pledge Agreement" above reproduced (Exhibit 6), the
partnership agreement entered into between plaintiffs (6) FURTHER AFFIANTS SAYETH NOT., private respondents and petitioners assigned to
and defendant as provided for in Article 1771, Civil (b) The Additional Cash Pledge Agreement of May SHELL the monthly rentals due them commencing the
Code of the Philippines; 20,1966, Exhibit 6, is as follows: 24th of May 1966 until such time that the monthly
(2) Ordering the defendant to render a formal WHEREAS, under the lease Agreement dated 13th rentals accumulated equal P 15,000.00 which private
accounting of the business operation from April 1969 November, 1963 (identified as doc. Nos. 491 & 1407, respondents agree to be a cash deposit of petitioner in
up to the time this order is issued, the same to be Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 favor of SHELL to increase his credit limit as dealer.
subject to examination and audit by the plaintiff, in the Notarial Registers of Notaries Public Rosauro As above-stated it provided therein that "This
(3) Ordering the defendant to pay plaintiffs their lawful Marquez, and R.D. Liwanag, respectively) executed in agreement, therefore, cancels and supersedes the
shares and participation in the net profits of the favour of SHELL by the herein CO-OWNERS and Joint Affidavit dated 11 April 1966 executed by the
business in the amount of P 150,000.00, with interest another Lease Agreement dated 19th March 1964 . . . CO-OWNERS."
thereon at the rate of One (1%) Per Cent per month also executed in favour of SHELL by CO-OWNERS Petitioner contends that because of the said stipulation
from date of demand until full payment thereof; Remedios and MARIA ESTANISLAO for the lease of cancelling and superseding that previous Joint
(4) Ordering the defendant to pay the plaintiffs the sum adjoining portions of two parcels of land at Aurora Affidavit, whatever partnership agreement there was in
of P 5,000.00 by way of attorney's fees of plaintiffs' Blvd./ Annapolis, Quezon City, the CO OWNERS said previous agreement had thereby been abrogated.
counsel; as well as the costs of suit. (pp. 161-162. RECEIVE a total monthly rental of PESOS THREE We find no merit in this argument. Said cancelling
Record on Appeal). THOUSAND THREE HUNDRED EIGHTY TWO AND provision was necessary for the Joint Affidavit speaks
Petitioner then interposed an appeal to the Court of 29/100 (P 3,382.29), Philippine Currency; of P 15,000.00 advance rentals starting May 25, 1966
Appeals enumerating seven (7) errors allegedly WHEREAS, CO-OWNER Eligio Estanislao Jr. is the while the latter agreement also refers to advance
committed by the trial court. In due course, a decision Dealer of the Shell Station constructed on the leased rentals of the same amount starting May 24, 1966.
was rendered by the Court of Appeals on November land, and as Dealer under the Cash Pledge There is, therefore, a duplication of reference to the P
28,1978 affirming in toto the decision of the lower court Agreement dated llth May 1966, he deposited to 15,000.00 hence the need to provide in the
with costs against petitioner. * SHELL in cash the amount of PESOS TEN subsequent document that it "cancels and supersedes"
A motion for reconsideration of said decision filed by THOUSAND (P 10,000), Philippine Currency, to the previous one. True it is that in the latter document,
petitioner was denied on January 30, 1979. Not secure his purchase on credit of Shell petroleum it is silent as to the statement in the Joint Affidavit that
satisfied therewith, the petitioner now comes to this products; . . . the P 15,000.00 represents the "capital investment" of
court by way of this petition for certiorari alleging that WHEREAS, said DEALER, in his desire, to be granted the parties in the gasoline station business and it
the respondent court erred: an increased the limit up to P 25,000, has secured the speaks of petitioner as the sole dealer, but this is as it
1. In interpreting the legal import of the Joint Affidavit conformity of his CO-OWNERS to waive and assign to should be for in the latter document SHELL was a
(Exh. 'A') vis-a-vis the Additional Cash Pledge SHELL the total monthly rentals due to all of them to signatory and it would be against its policy if in the
Agreement (Exhs. "B-2","6", and "L"); and accumulate the equivalent amount of P 15,000, agreement it should be stated that the business is a
2. In declaring that a partnership was established by commencing 24th May 1966, this P 15,000 shall be partnership with private respondents and not a sole
and among the petitioner and the private respondents treated as additional cash deposit to SHELL under the proprietorship of petitioner.
as regards the ownership and or operation of the same terms and conditions of the aforementioned Moreover other evidence in the record shows that
gasoline service station business. Cash Pledge Agreement dated llth May 1966. there was in fact such partnership agreement between
Petitioner relies heavily on the provisions of the Joint NOW, THEREFORE, for and in consideration of the the parties. This is attested by the testimonies of
Affidavit of April 11, 1966 (Exhibit A) and the Additional foregoing premises,and the mutual covenants among private respondent Remedies Estanislao and Atty.
Angeles. Petitioner submitted to private respondents Writ of Replevin and as listed in the complaint are enough to suppress and negate petitioners
periodic accounting of the business. 4 Petitioner gave a hereby sustained to belong to plaintiff being the owner submissions along this line:
written authority to private respondent Remedies of these properties; the motor vehicle, particularly that To be resolved by this Court factually involved in the
Estanislao, his sister, to examine and audit the books Ford Fiera Jeep registered in and which had remain in issue of whether there was a partnership that existed
of their "common business' aming the possession of the defendant is likewise declared to between the parties based on their verbal contention;
negosyo). 5 Respondent Remedios assisted in the belong to her, however, said defendant is hereby whether the properties that were commonly used in
running of the business. There is no doubt that the ordered to reimburse plaintiff the sum of P6,500.00 the operation of Allied Air Freight belonged to the
parties hereto formed a partnership when they bound representing the amount advanced to pay part of the alleged partnership business; and the status of the
themselves to contribute money to a common fund price therefor; and said defendant is likewise hereby parties in this transaction of alleged partnership. On
with the intention of dividing the profits among ordered to return to plaintiff such other equipment[s] as the other hand, the legal issues revolves on the
themselves.6 The sole dealership by the petitioner and were brought by the latter to and during the operation dissolution and winding up in case a partnership so
the issuance of all government permits and licenses in of their business as were listed in the complaint and existed as well as the issue of ownership over the
the name of petitioner was in compliance with the not recovered as yet by virtue of the previous Writ of properties subject matter of recovery.\ As a premise,
afore-stated policy of SHELL and the understanding of Replevin. (p. 12, Rollo.) Article 1767 of the New Civil Code defines the contract
the parties of having only one dealer of the SHELL Petitioner received a copy of the decision on January of partnership to quote:
products. 10, 1991 (almost 9 months after its rendition) and filed Art. 1767. By the contract of partnership two or more
Further, the findings of facts of the respondent court on January 16, 1991 a "Motion for Extension of Time persons bind themselves to contribute money,
are conclusive in this proceeding, and its conclusion To File a Motion for Reconsideration". This was property, or industry to a common fund, with the
based on the said facts are in accordancewith the granted on January 18, 1991. Private respondents intention of dividing the proceeds among themselves.
applicable law. filed their opposition, citing the ruling in the case xxx xxx xxx
WHEREFORE, the judgment appealed from is of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA Corollary to this definition is the provision in
AFFIRMED in toto with costs against petitioner. This 208 [1986]) proscribing the filing of any motion for determining whether a partnership exist as so provided
decision is immediately executory and no motion for extension of time to file a motion for a new trial or under Article 1769, to wit:
extension of time to file a motion for reconsideration reconsideration. The trial judge vacated the order
shag beentertained. dated January 18, 1991 and declared the decision of Furthermore, the Code provides under Article 1771
April 30, 1990 as final and executory. (Petitioners' and 1772 that while a partnership may be constituted
3. Lourdes Navarro vs CA GR 101847 May 27 1993 motion for reconsideration was subsequently filed on in any form, a public instrument is necessary where
LOURDES NAVARRO AND MENARDO February 1, 1991 or 22 days after the receipt of the immovables or any rights is constituted. Likewise, if
NAVARRO, petitioners, decision). the partnership involves a capitalization of P3,000.00
vs.COURT OF APPEALS, JUDGE BETHEL On February 4, 1991, the trial court issued a writ of or more in money or property, the same must appear
KATALBAS-MOSCARDON, Presiding Judge, execution (Annex "5", p. 79, Rollo). The Sheriff's in a public instrument which must be recorded in the
Regional Trial Court of Bacolod City, Branch 52, Return of Service (Annex "6", p. 82, Rollo) declared Office of the Securities and Exchange Commission.
Sixth Judicial Region and Spouses OLIVIA V. that the writ was "duly served and satisfied". A receipt Failure to comply with these requirements shall only
YANSON AND RICARDO B. YANSON, respondents. for the amount of P6,500.00 issued by Mrs. Lourdes affect liability of the partners to third persons.
Assailed and sought to be set aside by the petition Yanson, co-petitioner in this case, was likewise In consideration of the above, it is undeniable that both
before us is the Resolution of the Court of Appeals submitted by the Sheriff (Annex "7", p. 83, Rollo). the plaintiff and the defendant-wife made admission to
dated June 20, 1991 which dismissed the petition for On June 26, 1991, petitioners filed with respondent have entered into an agreement of operating this Allied
annulment of judgment filed by the Spouses Lourdes court a petition for annulment of the trial court's Air Freight Agency of which the plaintiff personally
and Menardo Navarro, thusly: decision, claiming that the trial judge erred in declaring constituted with the Manila Office in a sense that the
The instant petition for annulment of decision is the non-existence of a partnership, contrary to the plaintiff did supply the necessary equipments and
DISMISSED. evidence on record. money while her brother Atty. Rodolfo Villaflores was
1. Judgments may be annulled only on the ground of The appellate court, as aforesaid, outrightly dismissed the Manager and the defendant the Cashier. It was
extrinsic or collateral fraud, as distinguished from the petition due to absence of extrinsic or collateral also admitted that part of this agreement was an equal
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA fraud, observing further that an appeal was the proper sharing of whatever proceeds realized. Consequently,
160, 170). No such ground is alleged in the petition. remedy. the plaintiff brought into this transaction certain
2. Even if the judgment rendered by the respondent In the petition before us, petitioners claim that the trial chattels in compliance with her obligation. The same
Court were erroneous, it is not necessarily void judge ignored evidence that would show that the has been done by the herein brother and the herein
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it parties "clearly intended to form, and (in fact) actually defendant who started to work in the business. A
cannot be annulled by the proceeding sought to be formed a verbal partnership engaged in the business cursory examination of the evidences presented no
commenced by the petitioners. of Air Freight Service Agency in Bacolod"; and that the proof that a partnership, whether oral or written had
3. The petitioners' remedy against the judgment decision sustaining the writ of replevin is void since the been constituted at the inception of this transaction.
enforcement of which is sought to be stopped should properties belonging to the partnership do not actually True it is that even up to the filing of this complaint
have been appeal. belong to any of the parties until the final disposition those movables brought by the plaintiff for the use in
SO ORDERED. (pp. 24-25, Rollo.) and winding up of the partnership" (p. 15, Rollo). the operation of the business remain registered in her
The antecedent facts of the case are as follows: These issues, however, were extensively discussed by name.
On July 23, 1976, herein private respondent Olivia V. the trial judge in her 16-page, single-spaced decision. While there may have been co-ownership or co-
Yanson filed a complaint against petitioner Lourdes We agree with respondents that the decision in this possession of some items and/or any sharing of
Navarro for "Delivery of Personal Properties With case has become final. In fact a writ of execution had proceeds by way of advances received by both plaintiff
Damages". The complaint incorporated an application been issued and was promptly satisfied by the and the defendant, these are not indicative and
for a writ of replevin. The complaint was later docketed payment of P6,500.00 to private respondents. supportive of the existence of any partnership between
as Civil Case No. 716 (12562) of the then Court of Having lost their right to appeal, petitioners resorted to them. Article 1769 of the New Civil Code is explicit.
First Instance of Bacolod (Branch 55) and was annulment proceedings to justify a belated judicial Even the books and records retrieved by the
subsequently amended to include private respondent's review of their case. This was, however, correctly Commissioner appointed by the Court did not show
husband, Ricardo B. Yanson, as co-plaintiff, and thrown out by the Court of Appeals because proof of the existence of a partnership as
petitioner's husband, as co-defendant. petitioners failed to cite extrinsic or collateral fraud to conceptualized by law. Such that if assuming that
On July 27, 1976, then Executive Judge Oscar R. warrant the setting aside of the trial court's decision. there were profits realized in 1975 after the two-year
Victoriano (later to be promoted and to retire as We respect the appellate court's finding in this regard. deficits were compensated, this could only be subject
Presiding Justice of the Court of Appeals) approved Petitioners have come to us in a petition for review. to an equal sharing consonant to the agreement to
private respondents' application for a writ of replevin. However, the petition is focused solely on factual equally divide any profit realized. However, this Court
The Sheriff's Return of Service dated March 3, 1978 issues which can no longer be entertained. Petitioners' cannot overlook the fact that the Audit Report of the
affirmed receipt by private respondents of all pieces of arguments are all directed against the decision of the appointed Commissioner was not highly reliable in the
personal property sought to be recovered from regional trial court; not a word is said in regard to the sense that it was more of his personal estimate of
petitioners. appellate's court disposition of their petition for what is available on hand. Besides, the alleged profits
On April 30, 1990, Presiding Judge Bethel Katalbas- annulment of judgment. Verily, petitioners keeps on was a difference found after valuating the assets and
Moscardon rendered a decision, disposing as follows : pressing that the idea of a partnership exists on not arising from the real operation of the business. In
Accordingly, in the light of the aforegoing findings, all account of the so-called admissions in judicio. But the accounting procedures, strictly, this could not be profit
chattels already recovered by plaintiff by virtue of the factual premises of the trial court were more than but a net worth.
In view of the above factual findings of the Court it Anays name in securing distributorship of cookware as moral damages, and (3) P100,000.00 as exemplary
follows inevitably therefore that there being no from that company. The parties agreed further that damages. The plaintiff also prayed for an audit of the
partnership that existed, any dissolution, liquidation or Anay would be entitled to: (1) ten percent (10%) of the finances of Geminesse Enterprise from the inception
winding up is beside the point. The plaintiff himself had annual net profits of the business; (2) overriding of its business operation until she was "illegally
summarily ceased from her contract of agency and it is commission of six percent (6%) of the overall weekly dismissed" to determine her ten percent (10%) share
a personal prerogative to desist. On the other hand, production; (3) thirty percent (30%) of the sales she in the net profits. She further prayed that she be paid
the assumption by the defendant in negotiating for would make; and (4) two percent (2%) for her the five percent (5%) "overriding commission" on the
herself the continuance of the Agency with the demonstration services. The agreement was not remaining 150 West Bend cookware sets before her
principal in Manila is comparable to plaintiff's. Any reduced to writing on the strength of Belos "dismissal."
account of plaintiff with the principal as alleged, bore assurances that he was sincere, dependable and In their answer,9 Marjorie Tocao and Belo asserted that
no evidence as no collection was ever demanded of honest when it came to financial commitments. the "alleged agreement" with Anay that was "neither
from her. The alleged P20,000.00 assumption Anay having secured the distributorship of cookware reduced in writing, nor ratified," was "either
specifically, as would have been testified to by the products from the West Bend Company and organized unenforceable or void or inexistent." As far as Belo
defendant's husband remain a mere allegation. the administrative staff and the sales force, the was concerned, his only role was to introduce Anay to
As to the properties sought to be recovered, the Court cookware business took off successfully. They Marjorie Tocao. There could not have been a
sustains the possession by plaintiff of all equipments operated under the name of Geminesse Enterprise, a partnership because, as Anay herself admitted,
and chattels recovered by virtue of the Writ of sole proprietorship registered in Marjorie Tocaos Geminesse Enterprise was the sole proprietorship of
Replevin. Considering the other vehicle which name, with office at 712 Rufino Building, Ayala Marjorie Tocao. Because Anay merely acted as
appeared registered in the name of the defendant, and Avenue, Makati City. Belo made good his monetary marketing demonstrator of Geminesse Enterprise for
to which even she admitted that part of the purchase commitments to Anay. Thereafter, Roger an agreed remuneration, and her complaint referred to
price came from the business claimed mutually Muencheberg of West Bend Company invited Anay to either her compensation or dismissal, such complaint
operated, although the Court have not as much the distributor/dealer meeting in West Bend, should have been lodged with the Department of
considered all entries in the Audit Report as totally Wisconsin, U.S.A., from July 19 to 21, 1987 and to the Labor and not with the regular court.
reliable to be sustained insofar as the operation of the southwestern regional convention in Pismo Beach, Petitioners (defendants therein) further alleged that
business is concerned, nevertheless, with this California, U.S.A., from July 25-26, 1987. Anay Anay filed the complaint on account of "ill-will and
admission of the defendant and the fact that as borne accepted the invitation with the consent of Marjorie resentment" because Marjorie Tocao did not allow her
out in said Report there has been disbursed and paid Tocao who, as president and general manager of to "lord it over in the Geminesse Enterprise." Anay had
for in this vehicle out of the business funds in the total Geminesse Enterprise, even wrote a letter to the Visa acted like she owned the enterprise because of her
sum of P6,500.00, it is only fitting and proper that Section of the U.S. Embassy in Manila on July 13, experience and expertise. Hence, petitioners were the
validity of these disbursements must be sustained as 1987. A portion of the letter reads: ones who suffered actual damages "including
true (Exhs. M-1 to M-3, p. 180, Records). In this "Ms. Nenita D. Anay (sic), who has been patronizing unreturned and unaccounted stocks of Geminesse
connection and taking into account the earlier and supporting West Bend Co. for twenty (20) years Enterprise," and "serious anxiety, besmirched
agreement that only profits were to be shared equally, now, acquired the distributorship of Royal Queen reputation in the business world, and various damages
the plaintiff must be reimbursed of this cost if only to cookware for Geminesse Enterprise, is the Vice not less than P500,000.00." They also alleged that, to
allow the defendant continuous possession of the President Sales Marketing and a business partner of "vindicate their names," they had to hire counsel for a
vehicle in question. It is a fundamental moral, moral our company, will attend in response to the invitation." fee of P23,000.00.
and civil injunction that no one shall enrich himself at (Italics supplied.)3 At the pre-trial conference, the issues were limited to:
the expense of another. (pp. 71-75, Rollo.) Anay arrived from the U.S.A. in mid-August 1987, and (a) whether or not the plaintiff was an employee or
Withal, the appellate court acted properly in dismissing immediately undertook the task of saving the business partner of Marjorie Tocao and Belo, and (b) whether or
the petition for annulment of judgment, the issue on account of the unsatisfactory sales record in the not the parties are entitled to damages.10
raised therein having been directly litigated in, and Makati and Cubao offices. On August 31, 1987, she In their defense, Belo denied that Anay was supposed
passed upon by, the trial court. received a plaque of appreciation from the to receive a share in the profit of the business. He,
WHEREFORE, the petition is DISMISSED. The administrative and sales people through Marjorie however, admitted that the two had agreed that Anay
Resolution of the Court of Appeals dated June 20, Tocao4 for her excellent job performance. On October would receive a three to four percent (3-4%) share in
1991 is AFFIRMED in all respects. 7, 1987, in the presence of Anay, Belo signed a the gross sales of the cookware. He denied
memo5 entitling her to a thirty-seven percent (37%) contributing capital to the business or receiving a
4. Marjorie Tocao and William Belo vs CA GR 127405 commission for her personal sales "up Dec 31/87." share in its profits as he merely served as a guarantor
Oct 4 2000 MARJORIE TOCAO and WILLIAM T. Belo explained to her that said commission was apart of Marjorie Tocao, who was new in the business. He
BELO, petitioners, vs.COURT OF APPEALS and from her ten percent (10%) share in the profits. On attended and/or presided over business meetings of
NENITA A. ANAY, respondents. October 9, 1987, Anay learned that Marjorie Tocao the venture in his capacity as a guarantor but he never
This is a petition for review of the Decision of the Court had signed a letter6 addressed to the Cubao sales participated in decision-making. He claimed that he
of Appeals in CA-G.R. CV No. 41616,1 affirming the office to the effect that she was no longer the vice- wrote the memo granting the plaintiff thirty-seven
Decision of the Regional Trial Court of Makati, Branch president of Geminesse Enterprise. The following day, percent (37%) commission upon her dismissal from
140, in Civil Case No. 88-509.2 October 10, she received a note from Lina T. Cruz, the business venture at the request of Tocao, because
Fresh from her stint as marketing adviser of Technolux marketing manager, that Marjorie Tocao had barred Anay had no other income.
in Bangkok, Thailand, private respondent Nenita A. her from holding office and conducting demonstrations For her part, Marjorie Tocao denied having entered
Anay met petitioner William T. Belo, then the vice- in both Makati and Cubao offices.7 Anay attempted to into an oral partnership agreement with Anay.
president for operations of Ultra Clean Water Purifier, contact Belo. She wrote him twice to demand her However, she admitted that Anay was an expert in the
through her former employer in Bangkok. Belo overriding commission for the period of January 8, cookware business and hence, they agreed to grant
introduced Anay to petitioner Marjorie Tocao, who 1988 to February 5, 1988 and the audit of the her the following commissions: thirty-seven percent
conveyed her desire to enter into a joint venture with company to determine her share in the net profits. (37%) on personal sales; five percent (5%) on gross
her for the importation and local distribution of kitchen When her letters were not answered, Anay consulted sales; two percent (2%) on product demonstrations,
cookwares. Belo volunteered to finance the joint her lawyer, who, in turn, wrote Belo a letter. Still, that and two percent (2%) for recruitment of personnel.
venture and assigned to Anay the job of marketing the letter was not answered. Marjorie denied that they agreed on a ten percent
product considering her experience and established Anay still received her five percent (5%) overriding (10%) commission on the net profits. Marjorie claimed
relationship with West Bend Company, a manufacturer commission up to December 1987. The following year, that she got the capital for the business out of the sale
of kitchen wares in Wisconsin, U.S.A. Under the joint 1988, she did not receive the same commission of the sewing machines used in her garments
venture, Belo acted as capitalist, Tocao as president although the company netted a gross sales of business and from Peter Lo, a Singaporean friend-
and general manager, and Anay as head of the P13,300,360.00. financier who loaned her the funds with interest.
marketing department and later, vice-president for On April 5, 1988, Nenita A. Anay filed Civil Case No. Because she treated Anay as her "co-equal," Marjorie
sales. Anay organized the administrative staff and 88-509, a complaint for sum of money with received the same amounts of commissions as her.
sales force while Tocao hired and fired employees, damages8 against Marjorie D. Tocao and William Belo However, Anay failed to account for stocks valued at
determined commissions and/or salaries of the before the Regional Trial Court of Makati, Branch 140. P200,000.00.
employees, and assigned them to different branches. In her complaint, Anay prayed that defendants be On April 22, 1993, the trial court rendered a decision
The parties agreed that Belos name should not ordered to pay her, jointly and severally, the following: the dispositive part of which is as follows:
appear in any documents relating to their transactions (1) P32,00.00 as unpaid overriding commission from "WHEREFORE, in view of the foregoing, judgment is
with West Bend Company. Instead, they agreed to use January 8, 1988 to February 5, 1988; (2) P100,000.00 hereby rendered:
1. Ordering defendants to submit to the Court a formal petition for review on certiorari, asserting that there "Marge Tocao is president of Geminesse Enterprises.
account as to the partnership affairs for the years 1987 was no business partnership between them and herein Geminesse will finance the operations. Marge does
and 1988 pursuant to Art. 1809 of the Civil Code in private respondent Nenita A. Anay who is, therefore, not have cookware experience. Nita Anay has started
order to determine the ten percent (10%) share of not entitled to the damages awarded to her by the to gather former managers, Lina Torda and Dory Vista.
plaintiff in the net profits of the cookware business; Court of Appeals. She has also gathered former demonstrators, Betty
2. Ordering defendants to pay five percent (5%) Petitioners Tocao and Belo contend that the Court of Bantilan, Eloisa Lamela, Menchu Javier. They will
overriding commission for the one hundred and fifty Appeals erroneously held that a partnership existed continue to gather other key people and build up the
(150) cookware sets available for disposition when between them and private respondent Anay because organization. All they need is the finance and the
plaintiff was wrongfully excluded from the partnership Geminesse Enterprise "came into being" exactly a products to sell."19
by defendants; year before the "alleged partnership" was formed, and On the other hand, petitioner Belos denial that he
3. Ordering defendants to pay plaintiff overriding that it was very unlikely that petitioner Belo would financed the partnership rings hollow in the face of the
commission on the total production which for the invest the sum of P2,500,000.00 with petitioner Tocao established fact that he presided over meetings
period covering January 8, 1988 to February 5, 1988 contributing nothing, without any "memorandum regarding matters affecting the operation of the
amounted to P32,000.00; whatsoever regarding the alleged partnership."13 business. Moreover, his having authorized in writing
4. Ordering defendants to pay P100,000.00 as moral The issue of whether or not a partnership exists is a on October 7, 1987, on a stationery of his own
damages and P100,000.00 as exemplary damages, factual matter which are within the exclusive domain of business firm, Wilcon Builders Supply, that private
and both the trial and appellate courts. This Court cannot respondent should receive thirty-seven (37%) of the
5. Ordering defendants to pay P50,000.00 as set aside factual findings of such courts absent any proceeds of her personal sales, could not be
attorneys fees and P20,000.00 as costs of suit. showing that there is no evidence to support the interpreted otherwise than that he had a proprietary
SO ORDERED." conclusion drawn by the court a quo.14 In this case, interest in the business. His claim that he was merely
The trial court held that there was indeed an "oral both the trial court and the Court of Appeals are one in a guarantor is belied by that personal act of
partnership agreement between the plaintiff and the ruling that petitioners and private respondent proprietorship in the business. Moreover, if he was
defendants," based on the following: (a) there was an established a business partnership. This Court finds indeed a guarantor of future debts of petitioner Tocao
intention to create a partnership; (b) a common fund no reason to rule otherwise. under Article 2053 of the Civil Code,20 he should have
was established through contributions consisting of To be considered a juridical personality, a partnership presented documentary evidence therefor. While
money and industry, and (c) there was a joint interest must fulfill these requisites: (1) two or more persons Article 2055 of the Civil Code simply provides that
in the profits. The testimony of Elizabeth Bantilan, bind themselves to contribute money, property or guaranty must be "express," Article 1403, the Statute
Anays cousin and the administrative officer of industry to a common fund; and (2) intention on the of Frauds, requires that "a special promise to answer
Geminesse Enterprise from August 21, 1986 until it part of the partners to divide the profits among for the debt, default or miscarriage of another" be in
was absorbed by Royal International, Inc., buttressed themselves.15 It may be constituted in any form; a writing.21
the fact that a partnership existed between the parties. public instrument is necessary only where immovable Petitioner Tocao, a former ramp model,22 was also a
The letter of Roger Muencheberg of West Bend property or real rights are contributed thereto.16 This capitalist in the partnership. She claimed that she
Company stating that he awarded the distributorship to implies that since a contract of partnership is herself financed the business. Her and petitioner
Anay and Marjorie Tocao because he was convinced consensual, an oral contract of partnership is as good Belos roles as both capitalists to the partnership with
that with Marjories financial contribution and Anays as a written one. Where no immovable property or real private respondent are buttressed by petitioner
experience, the combination of the two would be rights are involved, what matters is that the parties Tocaos admissions that petitioner Belo was her
invaluable to the partnership, also supported that have complied with the requisites of a partnership. The boyfriend and that the partnership was not their only
conclusion. Belos claim that he was merely a fact that there appears to be no record in the business venture together. They also established a
"guarantor" has no basis since there was no written Securities and Exchange Commission of a public firm that they called "Wiji," the combination of
evidence thereof as required by Article 2055 of the instrument embodying the partnership agreement petitioner Belos first name, William, and her nickname,
Civil Code. Moreover, his acts of attending and/or pursuant to Article 1772 of the Civil Code17 did not Jiji.23 The special relationship between them dovetails
presiding over meetings of Geminesse Enterprise plus cause the nullification of the partnership. The pertinent with petitioner Belos claim that he was acting in behalf
his issuance of a memo giving Anay 37% commission provision of the Civil Code on the matter states: of petitioner Tocao. Significantly, in the early stage of
on personal sales belied this. On the contrary, it Art. 1768. The partnership has a juridical personality the business operation, petitioners requested West
demonstrated his involvement as a partner in the separate and distinct from that of each of the partners, Bend Company to allow them to "utilize their banking
business. even in case of failure to comply with the requirements and trading facilities in Singapore" in the matter of
The trial court further held that the payment of of article 1772, first paragraph. importation and payment of the cookware
commissions did not preclude the existence of the Petitioners admit that private respondent had the products.24 The inevitable conclusion, therefore, was
partnership inasmuch as such practice is often expertise to engage in the business of distributorship that petitioners merged their respective capital and
resorted to in business circles as an impetus to bigger of cookware. Private respondent contributed such infused the amount into the partnership of distributing
sales volume. It did not matter that the agreement was expertise to the partnership and hence, under the law, cookware with private respondent as the managing
not in writing because Article 1771 of the Civil Code she was the industrial or managing partner. It was partner.
provides that a partnership may be "constituted in any through her reputation with the West Bend Company The business venture operated under Geminesse
form." The fact that Geminesse Enterprise was that the partnership was able to open the business of Enterprise did not result in an employer-employee
registered in Marjorie Tocaos name is not distributorship of that companys cookware products; it relationship between petitioners and private
determinative of whether or not the business was was through the same efforts that the business was respondent. While it is true that the receipt of a
managed and operated by a sole proprietor or a propelled to financial success. Petitioner Tocao herself percentage of net profits constitutes only prima
partnership. What was registered with the Bureau of admitted private respondents indispensable role in facie evidence that the recipient is a partner in the
Domestic Trade was merely the business name or putting up the business when, upon being asked if business,25 the evidence in the case at bar controverts
style of Geminesse Enterprise. private respondent held the positions of marketing an employer-employee relationship between the
The trial court finally held that a partner who is manager and vice-president for sales, she testified parties. In the first place, private respondent had a
excluded wrongfully from a partnership is an innocent thus: voice in the management of the affairs of the cookware
partner. Hence, the guilty partner must give him his "A: No, sir at the start she was the marketing manager distributorship,26 including selection of people who
due upon the dissolution of the partnership as well as because there were no one to sell yet, its only me would constitute the administrative staff and the sales
damages or share in the profits "realized from the there then her and then two (2) people, so about four force. Secondly, petitioner Tocaos admissions militate
appropriation of the partnership business and (4). Now, after that when she recruited already Oscar against an employer-employee relationship. She
goodwill." An innocent partner thus possesses Abella and Lina Torda-Cruz these two (2) people were admitted that, like her who owned Geminesse
"pecuniary interest in every existing contract that was given the designation of marketing managers of which Enterprise,27 private respondent received only
incomplete and in the trade name of the co-partnership definitely Nita as superior to them would be the Vice commissions and transportation and representation
and assets at the time he was wrongfully expelled." President."18 allowances28 and not a fixed salary.29 Petitioner Tocao
Petitioners appeal to the Court of Appeals11 was By the set-up of the business, third persons were testified:
dismissed, but the amount of damages awarded by the made to believe that a partnership had indeed been "Q: Of course. Now, I am showing to you certain
trial court were reduced to P50,000.00 for moral forged between petitioners and private respondents. documents already marked as Exhs. X and Y.
damages and P50,000.00 as exemplary damages. Thus, the communication dated June 4, 1986 of Missy Please go over this. Exh. Y is denominated `Cubao
Their Motion for Reconsideration was denied by the Jagler of West Bend Company to Roger Muencheberg overrides 8-21-87 with ending August 21, 1987, will
Court of Appeals for lack of merit.12 Petitioners Belo of the same company states: you please go over this and tell the Honorable Court
and Marjorie Tocao are now before this Court on a
whether you ever came across this document and common name for petitioner Tocaos various business entrusted to private respondent in the pursuit of the
know of your own knowledge the amount --- activities, which included the distributorship of partnership business.
A: Yes, sir this is what I am talking about earlier. Thats cookware. The determination of the amount of damages
the one I am telling you earlier a certain percentage for Petitioners underscore the fact that the Court of commensurate with the factual findings upon which it
promotions, advertising, incentive. Appeals did not return the "unaccounted and is based is primarily the task of the trial court.45 The
Q: I see. Now, this promotion, advertising, incentive, unremitted stocks of Geminesse Enterprise amounting Court of Appeals may modify that amount only when
there is a figure here and words which I quote: to P208,250.00."36 Obviously a ploy to offset the its factual findings are diametrically opposed to that of
Overrides Marjorie Ann Tocao P21,410.50 this means damages awarded to private respondent, that claim, the lower court,46 or the award is palpably or
that you have received this amount? more than anything else, proves the existence of a scandalously and unreasonably excessive.47 However,
A: Oh yes, sir. partnership between them. In Idos v. Court of exemplary damages that are awarded "by way of
Q: I see. And, by way of amplification this is what you Appeals, this Court said: example or correction for the public good,"48should be
are saying as one representing commission, "The best evidence of the existence of the partnership, reduced to P50,000.00, the amount correctly awarded
representation, advertising and promotion? which was not yet terminated (though in the winding by the Court of Appeals. Concomitantly, the award of
A: Yes, sir. up stage), were the unsold goods and uncollected moral damages of P100,000.00 was excessive and
Q: I see. Below your name is the words and figure and receivables, which were presented to the trial court. should be likewise reduced to P50,000.00. Similarly,
I quote Nita D. Anay P21,410.50, what is this? Since the partnership has not been terminated, the attorneys fees that should be granted on account of
A: Thats her overriding commission. petitioner and private complainant remained as co- the award of exemplary damages and petitioners
Q: Overriding commission, I see. Of course, you are partners. x x x."37 evident bad faith in refusing to satisfy private
telling this Honorable Court that there being the same It is not surprising then that, even after private respondents plainly valid, just and demandable
P21,410.50 is merely by coincidence? respondent had been unceremoniously booted out of claims,49 appear to have been excessively granted by
A: No, sir, I made it a point that we were equal the partnership in October 1987, she still received her the trial court and should therefore be reduced to
because the way I look at her kasi, you know in a overriding commission until December 1987. P25,000.00.
sense because of her expertise in the business she is Undoubtedly, petitioner Tocao unilaterally excluded WHEREFORE, the instant petition for review
vital to my business. So, as part of the incentive I offer private respondent from the partnership to reap for on certiorari is DENIED. The partnership among
her the same thing. herself and/or for petitioner Belo financial gains petitioners and private respondent is ordered
Q: So, in short you are saying that this you have resulting from private respondents efforts to make the dissolved, and the parties are ordered to effect the
shared together, I mean having gotten from the business venture a success. Thus, as petitioner Tocao winding up and liquidation of the partnership pursuant
company P21,140.50 is your way of indicating that you became adept in the business operation, she started to the pertinent provisions of the Civil Code. This case
were treating her as an equal? to assert herself to the extent that she would even is remanded to the Regional Trial Court for proper
A: As an equal. shout at private respondent in front of other proceedings relative to said dissolution. The appealed
Q: As an equal, I see. You were treating her as an people.38 Her instruction to Lina Torda Cruz, marketing decisions of the Regional Trial Court and the Court of
equal? manager, not to allow private respondent to hold office Appeals are AFFIRMED with MODIFICATIONS, as
A: Yes, sir. in both the Makati and Cubao sales offices concretely follows ---
Q: I am calling again your attention to Exh. Y spoke of her perception that private respondent was 1. Petitioners are ordered to submit to the Regional
Overrides Makati the other one is --- no longer necessary in the business operation,39 and Trial Court a formal account of the partnership affairs
A: That is the same thing, sir. resulted in a falling out between the two. However, a for the years 1987 and 1988, pursuant to Article 1809
Q: With ending August 21, words and figure Overrides mere falling out or misunderstanding between partners of the Civil Code, in order to determine private
Marjorie Ann Tocao P15,314.25 the amount there you does not convert the partnership into a sham respondents ten percent (10%) share in the net profits
will acknowledge you have received that? organization.40 The partnership exists until dissolved of the partnership;
A: Yes, sir. under the law. Since the partnership created by 2. Petitioners are ordered, jointly and severally, to pay
Q: Again in concept of commission, representation, petitioners and private respondent has no fixed term private respondent five percent (5%) overriding
promotion, etc.? and is therefore a partnership at will predicated on commission for the one hundred and fifty (150)
A: Yes, sir. their mutual desire and consent, it may be dissolved cookware sets available for disposition since the time
Q: Okey. Below your name is the name of Nita Anay by the will of a partner. Thus: private respondent was wrongfully excluded from the
P15,314.25 that is also an indication that she received "x x x. The right to choose with whom a person wishes partnership by petitioners;
the same amount? to associate himself is the very foundation and 3. Petitioners are ordered, jointly and severally, to pay
A: Yes, sir. essence of that partnership. Its continued existence is, private respondent overriding commission on the total
Q: And, as in your previous statement it is not by in turn, dependent on the constancy of that mutual production which, for the period covering January 8,
coincidence that these two (2) are the same? resolve, along with each partners capability to give it, 1988 to February 5, 1988, amounted to P32,000.00;
A: No, sir. and the absence of cause for dissolution provided by 4. Petitioners are ordered, jointly and severally, to pay
Q: It is again in concept of you treating Miss Anay as the law itself. Verily, any one of the partners may, at private respondent moral damages in the amount of
your equal? his sole pleasure, dictate a dissolution of the P50,000.00, exemplary damages in the amount of
A: Yes, sir." (Italics supplied.)30 partnership at will. He must, however, act in good faith, P50,000.00 and attorneys fees in the amount of
If indeed petitioner Tocao was private respondents not that the attendance of bad faith can prevent the P25,000.00.
employer, it is difficult to believe that they shall receive dissolution of the partnership but that it can result in a
the same income in the business. In a partnership, liability for damages."41 5. Rojas vs Maglana 192 SCRA 110 1990
each partner must share in the profits and losses of An unjustified dissolution by a partner can subject him EUFRACIO D. ROJAS, Plaintiff-Appellant,
the venture, except that the industrial partner shall not to action for damages because by the mutual agency vs. CONSTANCIO B.MAGLANA,Defendant-
be liable for the losses.31 As an industrial partner, that arises in a partnership, the doctrine of delectus
private respondent had the right to demand for a personae allows the partners to have This is a direct appeal to this Court from a decision **
formal accounting of the business and to receive her the power, although not necessarily the right to of the then Court of First Instance of Davao, Seventh
share in the net profit.32 dissolve the partnership.42 Judicial District, Branch III, in Civil Case No. 3518,
The fact that the cookware distributorship was In this case, petitioner Tocaos unilateral exclusion of dismissing appellant's complaint.
operated under the name of Geminesse Enterprise, a private respondent from the partnership is shown by As found by the trial court, the antecedent facts of the
sole proprietorship, is of no moment. What was her memo to the Cubao office plainly stating that case are as follows:
registered with the Bureau of Domestic Trade on private respondent was, as of October 9, 1987, no On January 14, 1955, Maglana and Rojas executed
August 19, 1987 was merely the name of that longer the vice-president for sales of Geminesse their Articles of Co-Partnership (Exhibit "A") called
enterprise.33 While it is true that in her undated Enterprise.43 By that memo, petitioner Tocao effected Eastcoast Development Enterprises (EDE) with only
application for renewal of registration of that firm her own withdrawal from the partnership and the two of them as partners. The partnership EDE with
name, petitioner Tocao indicated that it would be considered herself as having ceased to be associated an indefinite term of existence was duly registered on
engaged in retail of "kitchenwares, cookwares, with the partnership in the carrying on of the business. January 21, 1955 with the Securities and Exchange
utensils, skillet,"34 she also admitted that the enterprise Nevertheless, the partnership was not terminated Commission.
was only "60% to 70% for the cookware business," thereby; it continues until the winding up of the One of the purposes of the duly-registered partnership
while 20% to 30% of its business activity was devoted business.44 was to "apply or secure timber and/or minor forests
to the sale of water sterilizer or purifier.35 Indubitably The winding up of partnership affairs has not yet been products licenses and concessions over public and/or
then, the business name Geminesse Enterprise was undertaken by the partnership.1wphi1 This is private forest lands and to operate, develop and
used only for practical reasons - it was utilized as the manifest in petitioners claim for stocks that had been
promote such forests rights and concessions." (Rollo, On March 17, 1957, Maglana wrote Rojas reminding "2. Whether the sharing of partnership profits should
p. 114). the latter of his obligation to contribute, either in cash be on the basis of computation, that is the ratio and
A duly registered Articles of Co-Partnership was filed or in equipment, to the capital investments of the proportion of their respective contributions, or on the
together with an application for a timber concession partnership as well as his obligation to perform his basis of share and share alike this covered by
covering the area located at Cateel and Baganga, duties as logging superintendent. actual contributions of the plaintiff and the defendant
Davao with the Bureau of Forestry which was Two weeks after March 17, 1957, Rojas told Maglana and by their verbal agreement; that the sharing of
approved and Timber License No. 35-56 was duly that he will not be able to comply with the promised profits and losses is on the basis of actual
issued and became the basis of subsequent renewals contributions and he will not work as logging contributions; that from 1957 to 1959, the sharing is on
made for and in behalf of the duly registered superintendent. Maglana then told Rojas that the the basis of 80% for the defendant and 20% for the
partnership EDE. latter's share will just be 20% of the net profits. Such plaintiff of the profits, but from 1960 to the date of
Under the said Articles of Co-Partnership, appellee was the sharing from 1957 to 1959 without complaint dissolution, February 23, 1961, the plaintiff's share will
Maglana shall manage the business affairs of the or dispute (Decision, R.A. 949).: nad be on the basis of his actual contribution and,
partnership, including marketing and handling of cash Meanwhile, Rojas took funds from the partnership considering his indebtedness to the partnership, the
and is authorized to sign all papers and instruments more than his contribution. Thus, in a letter dated plaintiff is not entitled to any share in the profits of the
relating to the partnership, while appellant Rojas shall February 21, 1961 (Exhibit "10") Maglana notified said partnership;
be the logging superintendent and shall manage the Rojas that he dissolved the partnership (R.A. 949). "3. As to whether the properties which were bought by
logging operations of the partnership. It is also On April 7, 1961, Rojas filed an action before the Court the defendant and placed in his or in his wife's name
provided in the said articles of co-partnership that all of First Instance of Davao against Maglana for the were acquired with partnership funds or with funds of
profits and losses of the partnership shall be divided recovery of properties, accounting, receivership and the defendant and the Court declares that there is
share and share alike between the partners. damages, docketed as Civil Case No. 3518 (Record no evidence that these properties were acquired by
During the period from January 14, 1955 to April 30, on Appeal, pp. 1-26). the partnership funds, and therefore the same should
1956, there was no operation of said partnership Rojas' petition for appointment of a receiver was not belong to the partnership;
(Record on Appeal [R.A.] p. 946). denied (R.A. 894). "4. As to whether damages were suffered and, if so,
Because of the difficulties encountered, Rojas and Upon motion of Rojas on May 23, 1961, Judge how much, and who caused them and who should be
Maglana decided to avail of the services of Romero appointed commissioners to examine the long liable for them the Court declares that neither
Pahamotang as industrial partner. and voluminous accounts of the Eastcoast parties is entitled to damages, for as already stated
On March 4, 1956, Maglana, Rojas and Agustin Development Enterprises (Ibid., pp. 894-895). above it is not a wise policy to place a price on the
Pahamotang executed their Articles of Co-Partnership The motion to dismiss the complaint filed by Maglana right of a person to litigate and/or to come to Court for
(Exhibit "B" and Exhibit "C") under the firm name on June 21, 1961 (Ibid., pp. 102-114) was denied by the assertion of the rights they believe they are entitled
EASTCOAST DEVELOPMENT ENTERPRISES Judge Romero for want of merit (Ibid., p. 125). Judge to;
(EDE). Aside from the slight difference in the purpose Romero also required the inclusion of the entire year "5. As to what is the legal effect of the letter of
of the second partnership which is to hold and secure 1961 in the report to be submitted by the defendant to the plaintiff dated February 23, 1961; did
renewal of timber license instead of to secure the commissioners (Ibid., pp. 138-143). Accordingly, the it dissolve the partnership or not the Court declares
license as in the first partnership and the term of the commissioners started examining the records and that the letter of the
second partnership is fixed to thirty (30) years, supporting papers of the partnership as well as the defendant to the plaintiff dated February 23, 1961, in
everything else is the same. information furnished them by the parties, which were effect dissolved the partnership;
The partnership formed by Maglana, Pahamotang and compiled in three (3) volumes. "6. Further, the Court relative to the canteen, which
Rojas started operation on May 1, 1956, and was able On May 11, 1964, Maglana filed his motion for leave of sells foodstuffs, supplies, and other merchandise to
to ship logs and realize profits. An income was derived court to amend his answer with counterclaim, the laborers and employees of the Eastcoast
from the proceeds of the logs in the sum of attaching thereto the amended answer (Ibid., pp. 26- Development Enterprises, the COURT DECLARES
P643,633.07 (Decision, R.A. 919). 336), which was granted on May 22, 1964 (Ibid., p. THE SAME AS NOT BELONGING TO THE
On October 25, 1956, Pahamotang, Maglana and 336). PARTNERSHIP;
Rojas executed a document entitled "CONDITIONAL On May 27, 1964, Judge M.G. Reyes approved the "7. That the alleged sale of forest concession Exhibit
SALE OF INTEREST IN THE PARTNERSHIP, submitted Commissioners' Report (Ibid., p. 337). 9-B, executed by Pablo Angeles David is VALID
EASTCOAST DEVELOPMENT ENTERPRISE" On June 29, 1965, Rojas filed his motion for AND BINDING UPON THE PARTIES AND SHOULD
(Exhibits "C" and "D") agreeing among themselves that reconsideration of the order dated May 27, 1964 BE CONSIDERED AS PART OF MAGLANA'S
Maglana and Rojas shall purchase the interest, share approving the report of the commissioners which was CONTRIBUTION TO THE PARTNERSHIP;
and participation in the Partnership of Pahamotang opposed by the appellee. "8. Further, the Court orders and directs plaintiff Rojas
assessed in the amount of P31,501.12. It was also On September 19, 1964, appellant's motion for to pay or turn over to the partnership the amount of
agreed in the said instrument that after payment of the reconsideration was denied (Ibid., pp. 446-451). P69,000.00 the profits he received from the CMS
sum of P31,501.12 to Pahamotang including the A mandatory pre-trial was conducted on September 8 Estate, Inc. operated by him;
amount of loan secured by Pahamotang in favor of the and 9, 1964 and the following issues were agreed "9. The claim that plaintiff Rojas should be ordered to
partnership, the two (Maglana and Rojas) shall upon to be submitted to the trial court: pay the further sum of P85,000.00 which according to
become the owners of all equipment contributed by (a) The nature of partnership and the legal relations of him he is still entitled to receive from the CMS Estate,
Pahamotang and the EASTCOAST DEVELOPMENT Maglana and Rojas after the dissolution of the second Inc. is hereby denied considering that it has not yet
ENTERPRISES, the name also given to the second partnership; been actually received, and further the receipt is
partnership, be dissolved. Pahamotang was paid in fun (b) Their sharing basis: whether in proportion to their merely based upon an expectancy and/or still
on August 31, 1957. No other rights and obligations contribution or share and share alike; speculative;
accrued in the name of the second partnership (R.A. (c) The ownership of properties bought by Maglana in "10. The Court also directs and orders plaintiff Rojas to
921). his wife's name; pay the sum of P62,988.19 his personal account to the
After the withdrawal of Pahamotang, the partnership (d) The damages suffered and who should be liable for partnership;
was continued by Maglana and Rojas without the them; and "11. The Court also credits the defendant the amount
benefit of any written agreement or reconstitution of (e) The legal effect of the letter dated February 23, of P85,000.00 the amount he should have received as
their written Articles of Partnership (Decision, R.A. 1961 of Maglana dissolving the partnership (Decision, logging superintendent, and which was not paid to
948). R.A. pp. 895-896).- nad him, and this should be considered as part of
On January 28, 1957, Rojas entered into a After trial, the lower court rendered its decision on Maglana's contribution likewise to the partnership; and
management contract with another logging enterprise, March 11, 1968, the dispositive portion of which reads "12. The complaint is hereby dismissed with costs
the CMS Estate, Inc. He left and abandoned the as follows: against the plaintiff.: rd
partnership (Decision, R.A. 947). "WHEREFORE, the above facts and issues duly "SO ORDERED." Decision, Record on Appeal, pp.
On February 4, 1957, Rojas withdrew his equipment considered, judgment is hereby rendered by the Court 985-989).
from the partnership for use in the newly acquired area declaring that: Rojas interposed the instant appeal.
(Decision, R.A. 948). "1. The nature of the partnership and the legal The main issue in this case is the nature of the
The equipment withdrawn were his supposed relations of Maglana and Rojas after Pahamotang partnership and legal relationship of the Maglana-
contributions to the first partnership and was retired from the second partnership, that is, after Rojas after Pahamotang retired from the second
transferred to CMS Estate, Inc. by way of chattel August 31, 1957, when Pahamotang was finally paid partnership.
mortgage (Decision, R.A. p. 948). his share the partnership of the defendant and the The lower court is of the view that the second
plaintiff is one of a de facto and at will; partnership superseded the first, so that when the
second partnership was dissolved there was no written the latter of his obligation to contribute either in cash or As to whether Maglana is liable for damages because
contract of co-partnership; there was no reconstitution in equipment, to the capital investment of the of such withdrawal, it will be recalled that after the
as provided for in the Maglana, Rojas and partnership as well as his obligation to perform his withdrawal of Pahamotang, Rojas entered into a
Pahamotang partnership contract. Hence, the duties as logging superintendent. This reminder management contract with another logging enterprise,
partnership which was carried on by Rojas and cannot refer to any other but to the provisions of the the CMS Estate, Inc., a company engaged in the same
Maglana after the dissolution of the second duly registered Articles of Co-Partnership. As earlier business as the partnership. He withdrew his
partnership was a de facto partnership and at will. It stated, Rojas replied that he will not be able to comply equipment, refused to contribute either in cash or in
was considered as a partnership at will because there with the promised contributions and he will not work as equipment to the capital investment and to perform his
was no term, express or implied; no period was fixed, logging superintendent. By such statements, it is duties as logging superintendent, as stipulated in their
expressly or impliedly (Decision, R.A. pp. 962-963). obvious that Roxas understood what Maglana was partnership agreement. The records also show that
On the other hand, Rojas insists that the registered referring to and left no room for doubt that both Rojas not only abandoned the partnership but also
partnership under the firm name of Eastcoast considered themselves governed by the articles of the took funds in an amount more than his contribution
Development Enterprises (EDE) evidenced by the duly registered partnership. (Decision, R.A., p. 949).
Articles of Co-Partnership dated January 14, 1955 Under the circumstances, the relationship of Rojas and In the given situation Maglana cannot be said to be in
(Exhibit "A") has not been novated, superseded and/or Maglana after the withdrawal of Pahamotang can bad faith nor can he be liable for damages.
dissolved by the unregistered articles of co-partnership neither be considered as a De Facto Partnership, nor PREMISES CONSIDERED, the assailed decision of
among appellant Rojas, appellee Maglana and Agustin a Partnership at Will, for as stressed, there is an the Court of First Instance of Davao, Branch III, is
Pahamotang, dated March 4, 1956 (Exhibit "C") and existing partnership, duly registered. hereby MODIFIED in the sense that the duly
accordingly, the terms and stipulations of said As to the question of whether or not Maglana can registered partnership of Eastcoast Development
registered Articles of Co-Partnership (Exhibit "A") unilaterally dissolve the partnership in the case at bar, Enterprises continued to exist until liquidated and that
should govern the relations between him and Maglana. the answer is in the affirmative. the sharing basis of the partners should be on share
Upon withdrawal of Agustin Pahamotang from the Hence, as there are only two parties when Maglana and share alike as provided for in its Articles of
unregistered partnership (Exhibit "C"), the legally notified Rojas that he dissolved the partnership, it is in Partnership, in accordance with the computation of the
constituted partnership EDE (Exhibit "A") continues to effect a notice of withdrawal. commissioners. We also hereby AFFIRM the decision
govern the relations between them and it was legal Under Article 1830, par. 2 of the Civil Code, even if of the trial court in all other respects.: nad
error to consider a de facto partnership between said there is a specified term, one partner can cause its SO ORDERED.
two partners or a partnership at will. Hence, the letter dissolution by expressly withdrawing even before the
of appellee Maglana dated February 23, 1961, did not expiration of the period, with or without justifiable Art 1774-1783 CIR vs William Suter GR L 25532 Feb
legally dissolve the registered partnership between cause. Of course, if the cause is not justified or no 28 1969 COMMISSIONER OF INTERNAL
them, being in contravention of the partnership cause was given, the withdrawing partner is liable for REVENUE, petitioner, vs. WILLIAM J. SUTER and
agreement agreed upon and stipulated in their Articles damages but in no case can he be compelled to THE COURT OF TAX APPEALS,
of Co-Partnership (Exhibit "A"). Rather, appellant is remain in the firm. With his withdrawal, the number of A limited partnership, named "William J. Suter
entitled to the rights enumerated in Article 1837 of the members is decreased, hence, the dissolution. And in 'Morcoin' Co., Ltd.," was formed on 30 September
Civil Code and to the sharing profits between them of whatever way he may view the situation, the 1947 by herein respondent William J. Suter as the
"share and share alike" as stipulated in the registered conclusion is inevitable that Rojas and Maglana shall general partner, and Julia Spirig and Gustav Carlson,
Articles of Co-Partnership (Exhibit "A"). After a careful be guided in the liquidation of the partnership by the as the limited partners. The partners contributed,
study of the records as against the conflicting claims of provisions of its duly registered Articles of Co- respectively,
Rojas and Maglana, it appears evident that it was not Partnership; that is, all profits and losses of the P20,000.00, P18,000.00 and P2,000.00 to the
the intention of the partners to dissolve the first partnership shall be divided "share and share alike" partnership. On 1 October 1947, the limited
partnership, upon the constitution of the second one, between the partners. partnership was registered with the Securities and
which they unmistakably called an "Additional But an accounting must first be made and which in fact Exchange Commission. The firm engaged, among
Agreement" (Exhibit "9-B") (Brief for Defendant- was ordered by the trial court and accomplished by the other activities, in the importation, marketing,
Appellee, pp. 24-25). Except for the fact that they took commissioners appointed for the purpose. distribution and operation of automatic phonographs,
in one industrial partner; gave him an equal share in On the basis of the Commissioners' Report, the radios, television sets and amusement machines, their
the profits and fixed the term of the second partnership corresponding contribution of the partners from 1956- parts and accessories. It had an office and held itself
to thirty (30) years, everything else was the same. 1961 are as follows: Eufracio Rojas who should have out as a limited partnership, handling and carrying
Thus, they adopted the same name, EASTCOAST contributed P158,158.00, contributed only P18,750.00 merchandise, using invoices, bills and letterheads
DEVELOPMENT ENTERPRISES, they pursued the while Maglana who should have contributed bearing its trade-name, maintaining its own books of
same purposes and the capital contributions of Rojas P160,984.00, contributed P267,541.44 (Decision, R.A. accounts and bank accounts, and had a quota
and Maglana as stipulated in both partnerships call for p. 976). It is a settled rule that when a partner who has allocation with the Central Bank.
the same amounts. Just as important is the fact that all undertaken to contribute a sum of money fails to do In 1948, however, general partner Suter and limited
subsequent renewals of Timber License No. 35-36 so, he becomes a debtor of the partnership for partner Spirig got married and, thereafter, on 18
were secured in favor of the First Partnership, the whatever he may have promised to contribute (Article December 1948, limited partner Carlson sold his share
original licensee. To all intents and purposes therefore, 1786, Civil Code) and for interests and damages from in the partnership to Suter and his wife. The sale was
the First Articles of Partnership were only amended, in the time he should have complied with his obligation duly recorded with the Securities and Exchange
the form of Supplementary Articles of Co-Partnership (Article 1788, Civil Code) (Moran, Jr. v. Court of Commission on 20 December 1948.
(Exhibit "C") which was never registered (Brief for Appeals, 133 SCRA 94 [1984]). Being a contract of The limited partnership had been filing its income tax
Plaintiff-Appellant, p. 5). Otherwise stated, even during partnership, each partner must share in the profits and returns as a corporation, without objection by the
the existence of the second partnership, all business losses of the venture. That is the essence of a herein petitioner, Commissioner of Internal Revenue,
transactions were carried out under the duly registered partnership (Ibid., p. 95). until in 1959 when the latter, in an assessment,
articles. As found by the trial court, it is an admitted Thus, as reported in the Commissioners' Report, Rojas consolidated the income of the firm and the individual
fact that even up to now, there are still subsisting is not entitled to any profits. In their voluminous reports incomes of the partners-spouses Suter and Spirig
obligations and contracts of the latter (Decision, R.A. which was approved by the trial court, they showed resulting in a determination of a deficiency income tax
pp. 950-957). No rights and obligations accrued in the that on 50-50% basis, Rojas will be liable in the against respondent Suter in the amount of P2,678.06
name of the second partnership except in favor of amount of P131,166.00; on 80-20%, he will be liable for 1954 and P4,567.00 for 1955.
Pahamotang which was fully paid by the duly for P40,092.96 and finally on the basis of actual capital Respondent Suter protested the assessment, and
registered partnership (Decision, R.A., pp. 919-921). contribution, he will be liable for P52,040.31. requested its cancellation and withdrawal, as not in
On the other hand, there is no dispute that the second Consequently, except as to the legal relationship of the accordance with law, but his request was denied.
partnership was dissolved by common consent. Said partners after the withdrawal of Pahamotang which is Unable to secure a reconsideration, he appealed to
dissolution did not affect the first partnership which unquestionably a continuation of the duly registered the Court of Tax Appeals, which court, after trial,
continued to exist. Significantly, Maglana and Rojas partnership and the sharing of profits and losses which rendered a decision, on 11 November 1965, reversing
agreed to purchase the interest, share and should be on the basis of share and share alike as that of the Commissioner of Internal Revenue.
participation in the second partnership of Pahamotang provided for in the duly registered Articles of Co- The present case is a petition for review, filed by the
and that thereafter, the two (Maglana and Rojas) Partnership, no plausible reason could be found to Commissioner of Internal Revenue, of the tax court's
became the owners of equipment contributed by disturb the findings and conclusions of the trial court.: aforesaid decision. It raises these issues:
Pahamotang. Even more convincing, is the fact that nad (a) Whether or not the corporate personality of the
Maglana on March 17, 1957, wrote Rojas, reminding William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that "Morcoin" Co., Ltd. was not a partnership that spouses conducted its own dealings with its customers prior to
respondent William J. Suter and his wife, Julia Spirig were forbidden to enter by Article 1677 of the Civil appellee's marriage, and had been filing its own
Suter actually formed a single taxable unit; and Code of 1889. income tax returns as such independent entity. The
(b) Whether or not the partnership was dissolved after The former Chief Justice of the Spanish Supreme change in its membership, brought about by the
the marriage of the partners, respondent William J. Court, D. Jose Casan, in his Derecho Civil, 7th Edition, marriage of the partners and their subsequent
Suter and Julia Spirig Suter and the subsequent sale 1952, Volume 4, page 546, footnote 1, says with acquisition of all interest therein, is no ground for
to them by the remaining partner, Gustav Carlson, of regard to the prohibition contained in the aforesaid withdrawing the partnership from the coverage of
his participation of P2,000.00 in the partnership for a Article 1677: Section 24 of the tax code, requiring it to pay income
nominal amount of P1.00. Los conyuges, segun esto, no pueden celebrar entre tax. As far as the records show, the partners did not
The theory of the petitioner, Commissioner of Internal si el contrato de sociedad universal, pero o podran enter into matrimony and thereafter buy the interests
Revenue, is that the marriage of Suter and Spirig and constituir sociedad particular? Aunque el punto ha sido of the remaining partner with the premeditated scheme
their subsequent acquisition of the interests of muy debatido, nos inclinamos a la tesis permisiva de or design to use the partnership as a business conduit
remaining partner Carlson in the partnership dissolved los contratos de sociedad particular entre esposos, ya to dodge the tax laws. Regularity, not otherwise, is
the limited partnership, and if they did not, the fiction of que ningun precepto de nuestro Codigo los prohibe, y presumed.
juridical personality of the partnership should be hay que estar a la norma general segun la que toda As the limited partnership under consideration is
disregarded for income tax purposes because the persona es capaz para contratar mientras no sea taxable on its income, to require that income to be
spouses have exclusive ownership and control of the declarado incapaz por la ley. La jurisprudencia de la included in the individual tax return of respondent
business; consequently the income tax return of Direccion de los Registros fue favorable a esta misma Suter is to overstretch the letter and intent of the law.
respondent Suter for the years in question should have tesis en su resolution de 3 de febrero de 1936, mas In fact, it would even conflict with what it specifically
included his and his wife's individual incomes and that parece cambiar de rumbo en la de 9 de marzo de provides in its Section 24: for the appellant
of the limited partnership, in accordance with Section 1943. Commissioner's stand results in equal treatment, tax
45 (d) of the National Internal Revenue Code, which Nor could the subsequent marriage of the partners wise, of a general copartnership (compaia colectiva)
provides as follows: operate to dissolve it, such marriage not being one of and a limited partnership, when the code plainly
(d) Husband and wife. In the case of married the causes provided for that purpose either by the differentiates the two. Thus, the code taxes the latter
persons, whether citizens, residents or non-residents, Spanish Civil Code or the Code of Commerce. on its income, but not the former, because it is in the
only one consolidated return for the taxable year shall The appellant's view, that by the marriage of both case of compaias colectivas that the members, and
be filed by either spouse to cover the income of both partners the company became a single proprietorship, not the firm, are taxable in their individual capacities
spouses; .... is equally erroneous. The capital contributions of for any dividend or share of the profit derived from the
In refutation of the foregoing, respondent Suter partners William J. Suter and Julia Spirig were duly registered general partnership (Section 26,
maintains, as the Court of Tax Appeals held, that his separately owned and contributed by them before their N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As
marriage with limited partner Spirig and their marriage; and after they were joined in wedlock, such Amended, Vol. 1, pp. 88-89)
acquisition of Carlson's interests in the partnership in contributions remained their respective separate But it is argued that the income of the limited
1948 is not a ground for dissolution of the partnership, property under the Spanish Civil Code (Article 1396): partnership is actually or constructively the income of
either in the Code of Commerce or in the New Civil The following shall be the exclusive property of each the spouses and forms part of the conjugal partnership
Code, and that since its juridical personality had not spouse: of gains. This is not wholly correct. As pointed out in
been affected and since, as a limited partnership, as That which is brought to the marriage as his or her Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
contra distinguished from a duly registered general own; .... Register of Deeds of Manila, 60 Phil. 167, the fruits of
partnership, it is taxable on its income similarly with Thus, the individual interest of each consort in William the wife's parapherna become conjugal only when no
corporations, Suter was not bound to include in his J. Suter "Morcoin" Co., Ltd. did not become common longer needed to defray the expenses for the
individual return the income of the limited partnership. property of both after their marriage in 1948. administration and preservation of the paraphernal
We find the Commissioner's appeal unmeritorious. It being a basic tenet of the Spanish and Philippine law capital of the wife. Then again, the appellant's
The thesis that the limited partnership, William that the partnership has a juridical personality of its argument erroneously confines itself to the question of
J. Suter "Morcoin" Co., Ltd., has been dissolved by own, distinct and separate from that of its partners the legal personality of the limited partnership, which is
operation of law because of the marriage of the only (unlike American and English law that does not not essential to the income taxability of the partnership
general partner, William J. Suter to the originally recognize such separate juridical personality), the since the law taxes the income of even joint accounts
limited partner, Julia Spirig one year after the bypassing of the existence of the limited partnership that have no personality of their own. 1 Appellant is,
partnership was organized is rested by the appellant as a taxpayer can only be done by ignoring or likewise, mistaken in that it assumes that the conjugal
upon the opinion of now Senator Tolentino in disregarding clear statutory mandates and basic partnership of gains is a taxable unit, which it is not.
Commentaries and Jurisprudence on Commercial principles of our law. The limited partnership's What is taxable is the "income of both spouses"
Laws of the Philippines, Vol. 1, 4th Ed., page 58, that separate individuality makes it impossible to equate its (Section 45 [d] in their individual capacities. Though
reads as follows: income with that of the component members. True, the amount of income (income of the conjugal
A husband and a wife may not enter into a section 24 of the Internal Revenue Code merges partnership vis-a-vis the joint income of husband and
contract of general copartnership, because under the registered general co-partnerships (compaias wife) may be the same for a given taxable year, their
Civil Code, which applies in the absence of express colectivas) with the personality of the individual consequences would be different, as their
provision in the Code of Commerce, persons partners for income tax purposes. But this rule is contributions in the business partnership are not the
prohibited from making donations to each other are exceptional in its disregard of a cardinal tenet of our same.
prohibited from entering into universal partnerships. (2 partnership laws, and can not be extended by mere The difference in tax rates between the income of the
Echaverri 196) It follows that the marriage of partners implication to limited partnerships. limited partnership being consolidated with, and when
necessarily brings about the dissolution of a pre- The rulings cited by the petitioner (Collector of Internal split from the income of the spouses, is not a
existing partnership. (1 Guy de Montella 58) Revenue vs. University of the Visayas, L-13554, justification for requiring consolidation; the revenue
The petitioner-appellant has evidently failed to observe Resolution of 30 October 1964, and Koppel [Phil.], Inc. code, as it presently stands, does not authorize it, and
the fact that William J. Suter "Morcoin" Co., Ltd. vs. Yatco, 77 Phil. 504) as authority for disregarding even bars it by requiring the limited partnership to pay
was not a universal partnership, but a particular one. the fiction of legal personality of the corporations tax on its own income.
As appears from Articles 1674 and 1675 of the involved therein are not applicable to the present case. FOR THE FOREGOING REASONS, the decision
Spanish Civil Code, of 1889 (which was the law in In the cited cases, the corporations were under review is hereby affirmed. No costs.
force when the subject firm was organized in 1947), already subject to tax when the fiction of their
a universal partnership requires either that the object corporate personality was pierced; in the present case, 2. Aurback vs Sanitary Wares GR 75875 Dec 15 1989
of the association be all the present property of the to do so would exempt the limited partnership from WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
partners, as contributed by them to the common fund, income taxation but would throw the tax burden upon WHITTINGHAM and CHARLES
or else "all that the partners may acquire by the partners-spouses in their individual capacities. The CHAMSAY, petitioners, vs.SANITARYWARES
their industry or work during the existence of the corporations, in the cases cited, merely served as MANUFACTURING CORPORATOIN, ERNESTO V.
partnership". William J. Suter "Morcoin" Co., Ltd. was business conduits or alter egos of the stockholders, a LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
not such a universal partnership, since the factor that justified a disregard of their corporate ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
contributions of the partners were fixed sums of personalities for tax purposes. This is not true in the A. BONCAN, BALDWIN YOUNG and AVELINO V.
money, P20,000.00 by William Suter and P18,000.00 present case. Here, the limited partnership is not a CRUZ, respondents.
by Julia Spirig and neither one of them was an mere business conduit of the partner-spouses; it was G.R. No. 75951 December 15, 1989
industrial partner. It follows that William J. Suter organized for legitimate business purposes; it
SANITARY WARES MANUFACTURING officers, such as a member of the Executive was accepted by the Chairman, Baldwin Young, who
CORPORATION, ERNESTO R. LAGDAMEO, Committee whose vote was required for important announced that the motion was carried and declared
ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL corporate transactions. the meeting adjourned. Protests against the
A. BONCAN, BALDWIN YOUNG and AVELINO V. Later, the 30% capital stock of ASI was increased to adjournment were registered and having been ignored,
CRUX, petitioners, 40%. The corporation was also registered with the Mr. Jaqua the ASI representative, stated that the
vs.THE COURT OF APPEALS, WOLFGANG Board of Investments for availment of incentives with meeting was not adjourned but only recessed and that
AURBACH, JOHN GRIFFIN, DAVID P. the condition that at least 60% of the capital stock of the meeting would be reconvened in the next room.
WHITTINGHAM, CHARLES CHAMSAY and the corporation shall be owned by Philippine nationals. The Chairman then threatened to have the
LUCIANO SALAZAR, respondents. The joint enterprise thus entered into by the Filipino stockholders who did not agree to the decision of the
G.R. Nos. 75975-76 December 15, 1989 investors and the American corporation prospered. Chairman on the casting of votes bodily thrown out.
LUCIANO E. SALAZAR, petitioner, Unfortunately, with the business successes, there The ASI Group, Luciano E. Salazar and other
vs.SANITARY WARES MANUFACTURING came a deterioration of the initially harmonious stockholders, allegedly representing 53 or 54% of the
CORPORATION, ERNESTO V. LAGDAMEO, relations between the two groups. According to the shares of Saniwares, decided to continue the meeting
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. Filipino group, a basic disagreement was due to their at the elevator lobby of the American Standard
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, desire to expand the export operations of the company Building. The continued meeting was presided by
BALDWIN YOUNG, AVELINO V. CRUZ and the to which ASI objected as it apparently had other Luciano E. Salazar, while Andres Gatmaitan acted as
COURT OF APPEALS, respondents. subsidiaries of joint joint venture groups in the Secretary. On the basis of the cumulative votes cast
countries where Philippine exports were contemplated. earlier in the meeting, the ASI Group nominated its
GUTIERREZ, JR., J.: On March 8, 1983, the annual stockholders' meeting four nominees; Wolfgang Aurbach, John Griffin, David
These consolidated petitions seek the review of the was held. The meeting was presided by Baldwin Whittingham and Charles Chamsay. Luciano E.
amended decision of the Court of Appeals in CA-G.R. Young. The minutes were taken by the Secretary, Salazar voted for himself, thus the said five directors
SP Nos. 05604 and 05617 which set aside the earlier Avelino Cruz. After disposing of the preliminary items were certified as elected directors by the Acting
decision dated June 5, 1986, of the then Intermediate in the agenda, the stockholders then proceeded to the Secretary, Andres Gatmaitan, with the explanation that
Appellate Court and directed that in all subsequent election of the members of the board of directors. The there was a tie among the other six (6) nominees for
elections for directors of Sanitary Wares ASI group nominated three persons namely; Wolfgang the four (4) remaining positions of directors and that
Manufacturing Corporation (Saniwares), American Aurbach, John Griffin and David P. Whittingham. The the body decided not to break the tie. (pp. 37-39, Rollo
Standard Inc. (ASI) cannot nominate more than three Philippine investors nominated six, namely; Ernesto of 75975-76)
(3) directors; that the Filipino stockholders shall not Lagdameo, Sr., Raul A. Boncan, Ernesto R. These incidents triggered off the filing of separate
interfere in ASI's choice of its three (3) nominees; that, Lagdameo, Jr., George F. Lee, and Baldwin Young. petitions by the parties with the Securities and
on the other hand, the Filipino stockholders can Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Exchange Commission (SEC). The first petition filed
nominate only six (6) candidates and in the event they Salazar, who in turn nominated Mr. Charles Chamsay. was for preliminary injunction by Saniwares, Emesto V.
cannot agree on the six (6) nominees, they shall vote The chairman, Baldwin Young ruled the last two Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
only among themselves to determine who the six (6) nominations out of order on the basis of section 5 (a) R. Lagdameo, Jr., Enrique Lagdameo and George F.
nominees will be, with cumulative voting to be allowed of the Agreement, the consistent practice of the parties Lee against Luciano Salazar and Charles Chamsay.
but without interference from ASI. during the past annual stockholders' meetings to The case was denominated as SEC Case No. 2417.
The antecedent facts can be summarized as follows: nominate only nine persons as nominees for the nine- The second petition was for quo warranto and
In 1961, Saniwares, a domestic corporation was member board of directors, and the legal advice of application for receivership by Wolfgang Aurbach,
incorporated for the primary purpose of manufacturing Saniwares' legal counsel. The following events then, John Griffin, David Whittingham, Luciano E. Salazar
and marketing sanitary wares. One of the transpired: and Charles Chamsay against the group of Young and
incorporators, Mr. Baldwin Young went abroad to look ... There were protests against the action of the Lagdameo (petitioners in SEC Case No. 2417) and
for foreign partners, European or American who could Chairman and heated arguments ensued. An appeal Avelino F. Cruz. The case was docketed as SEC Case
help in its expansion plans. On August 15, 1962, ASI, was made by the ASI representative to the body of No. 2718. Both sets of parties except for Avelino Cruz
a foreign corporation domiciled in Delaware, United stockholders present that a vote be taken on the ruling claimed to be the legitimate directors of the
States entered into an Agreement with Saniwares and of the Chairman. The Chairman, Baldwin Young, corporation.
some Filipino investors whereby ASI and the Filipino declared the appeal out of order and no vote on the The two petitions were consolidated and tried jointly by
investors agreed to participate in the ownership of an ruling was taken. The Chairman then instructed the a hearing officer who rendered a decision upholding
enterprise which would engage primarily in the Corporate Secretary to cast all the votes present and the election of the Lagdameo Group and dismissing
business of manufacturing in the Philippines and represented by proxy equally for the 6 nominees of the the quo warranto petition of Salazar and Chamsay.
selling here and abroad vitreous china and sanitary Philippine Investors and the 3 nominees of ASI, thus The ASI Group and Salazar appealed the decision to
wares. The parties agreed that the business effectively excluding the 2 additional persons the SEC en banc which affirmed the hearing officer's
operations in the Philippines shall be carried on by an nominated, namely, Luciano E. Salazar and Charles decision.
incorporated enterprise and that the name of the Chamsay. The ASI representative, Mr. Jaqua The SEC decision led to the filing of two separate
corporation shall initially be "Sanitary Wares protested the decision of the Chairman and appeals with the Intermediate Appellate Court by
Manufacturing Corporation." announced that all votes accruing to ASI shares, a Wolfgang Aurbach, John Griffin, David Whittingham
The Agreement has the following provisions relevant total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. and Charles Chamsay (docketed as AC-G.R. SP No.
to the issues in these cases on the nomination and 05617) were being cumulatively voted for the three 05604) and by Luciano E. Salazar (docketed as AC-
election of the directors of the corporation: ASI nominees and Charles Chamsay, and instructed G.R. SP No. 05617). The petitions were consolidated
3. Articles of Incorporation the Secretary to so vote. Luciano E. Salazar and other and the appellate court in its decision ordered the
(a) The Articles of Incorporation of the Corporation proxy holders announced that all the votes owned by remand of the case to the Securities and Exchange
shall be substantially in the form annexed hereto as and or represented by them 467,197 shares (p. 27, Commission with the directive that a new stockholders'
Exhibit A and, insofar as permitted under Philippine Rollo, AC-G.R. SP No. 05617) were being voted meeting of Saniwares be ordered convoked as soon
law, shall specifically provide for cumulatively in favor of Luciano E. Salazar. The as possible, under the supervision of the Commission.
(1)Cumulative voting for directors: Chairman, Baldwin Young, nevertheless instructed the Upon a motion for reconsideration filed by the
xxx xxx xxx Secretary to cast all votes equally in favor of the three appellees Lagdameo Group) the appellate court (Court
5. Management ASI nominees, namely, Wolfgang Aurbach, John of Appeals) rendered the questioned amended
(a) The management of the Corporation shall be Griffin and David Whittingham and the six originally decision. Petitioners Wolfgang Aurbach, John Griffin,
vested in a Board of Directors, which shall consist of nominated by Rogelio Vinluan, namely, Ernesto David P. Whittingham and Charles Chamsay in G.R.
nine individuals. As long as American-Standard shall Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., No. 75875 assign the following errors:
own at least 30% of the outstanding stock of the Enrique Lagdameo, George F. Lee, and Baldwin THE COURT OF APPEALS, IN EFFECT, UPHELD
Corporation, three of the nine directors shall be Young. The Secretary then certified for the election of THE ALLEGED ELECTION OF PRIVATE
designated by American-Standard, and the other six the following Wolfgang Aurbach, John Griffin, David RESPONDENTS AS MEMBERS OF THE BOARD OF
shall be designated by the other stockholders of the Whittingham Ernesto Lagdameo, Sr., Ernesto DIRECTORS OF SANIWARES WHEN IN FACT
Corporation. (pp. 51 & 53, Rollo of 75875) Lagdameo, Jr., Enrique Lagdameo, George F. Lee, THERE WAS NO ELECTION AT ALL.
At the request of ASI, the agreement contained Raul A. Boncan, Baldwin Young. The representative of II. THE COURT OF APPEALS PROHIBITS THE
provisions designed to protect it as a minority group, ASI then moved to recess the meeting which was duly STOCKHOLDERS FROM EXERCISING THEIR FULL
including the grant of veto powers over a number of seconded. There was also a motion to adjourn (p. 28, VOTING RIGHTS REPRESENTED BY THE NUMBER
corporate acts and the right to designate certain Rollo, AC-G.R. SP No. 05617). This motion to adjourn OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY Lagdameo and Young Group never pleaded in their Executive Committee and the vote of this member is
REPRESENT OF THEIR PROPERTY RIGHTS pleading that the "Agreement" failed to express the required for certain transactions [Sec. 3 (b) (i)].
WITHOUT DUE PROCESS OF LAW. true intent of the parties. The Agreement also requires a 75% super-majority
III. THE COURT OF APPEALS IMPOSES The parol evidence Rule under Rule 130 provides: vote for the amendment of the articles and by-laws of
CONDITIONS AND READS PROVISIONS INTO THE Evidence of written agreements-When the terms of an Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also
AGREEMENT OF THE PARTIES WHICH WERE NOT agreement have been reduced to writing, it is to be given the right to designate the president and plant
THERE, WHICH ACTION IT CANNOT LEGALLY DO. considered as containing all such terms, and therefore, manager [Sec. 5 (6)]. The Agreement further provides
(p. 17, Rollo-75875) there can be, between the parties and their successors that the sales policy of Saniwares shall be that which
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 in interest, no evidence of the terms of the agreement is normally followed by ASI [Sec. 13 (a)] and that
assails the amended decision on the following other than the contents of the writing, except in the Saniwares should not export "Standard" products
grounds: following cases: otherwise than through ASI's Export Marketing
11.1ThatAmendedDecisionwouldsanctiontheCA'sdisre (a) Where a mistake or imperfection of the writing, or Services [Sec. 13 (6)]. Under the Agreement, ASI
gard of binding contractual agreements entered into by its failure to express the true intent and agreement of agreed to provide technology and know-how to
stockholders and the replacement of the conditions of the parties or the validity of the agreement is put in Saniwares and the latter paid royalties for the same.
such agreements with terms never contemplated by issue by the pleadings. (At p. 2).
the stockholders but merely dictated by the CA (b) When there is an intrinsic ambiguity in the writing. xxx xxx xxx
11.2. The Amended decision would likewise sanction Contrary to ASI Group's stand, the Lagdameo and It is pertinent to note that the provisions of the
the deprivation of the property rights of stockholders Young Group pleaded in their Reply and Answer to Agreement requiring a 7 out of 9 votes of the board of
without due process of law in order that a favored Counterclaim in SEC Case No. 2417 that the directors for certain actions, in effect gave ASI (which
group of stockholders may be illegally benefitted and Agreement failed to express the true intent of the designates 3 directors under the Agreement) an
guaranteed a continuing monopoly of the control of a parties, to wit: effective veto power. Furthermore, the grant to ASI of
corporation. (pp. 14-15, Rollo-75975-76) xxx xxx xxx the right to designate certain officers of the
On the other hand, the petitioners in G.R. No. 75951 4. While certain provisions of the Agreement would corporation; the super-majority voting requirements for
contend that: make it appear that the parties thereto disclaim being amendments of the articles and by-laws; and most
partners or joint venturers such disclaimer is directed significantly to the issues of tms case, the provision
ITHE AMENDED DECISION OF THE RESPONDENT at third parties and is not inconsistent with, and does that ASI shall designate 3 out of the 9 directors and
COURT, WHILE RECOGNIZING THAT THE not preclude, the existence of two distinct groups of the other stockholders shall designate the other 6,
STOCKHOLDERS OF SANIWARES ARE DIVIDED stockholders in Saniwares one of which (the Philippine clearly indicate that there are two distinct groups in
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE Investors) shall constitute the majority, and the other Saniwares, namely ASI, which owns 40% of the capital
THE BASIC INTENT OF THE AGREEMENT AND ASI shall constitute the minority stockholder. In any stock and the Philippine National stockholders who
THE LAW. event, the evident intention of the Philippine Investors own the balance of 60%, and that 2) ASI is given
IITHE AMENDED DECISION DOES NOT and ASI in entering into the Agreement is to enter into certain protections as the minority stockholder.
CATEGORICALLY RULE THAT PRIVATE ajoint venture enterprise, and if some words in the Premises considered, we believe that under the
PETITIONERS HEREIN WERE THE DULY ELECTED Agreement appear to be contrary to the evident Agreement there are two groups of stockholders who
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL intention of the parties, the latter shall prevail over the established a corporation with provisions for a special
STOCKHOLDERS MEETING OF SANTWARES. (P. former (Art. 1370, New Civil Code). The various contractual relationship between the parties, i.e., ASI
24, Rollo-75951) stipulations of a contract shall be interpreted together and the other stockholders. (pp. 4-5)
The issues raised in the petitions are interrelated, attributing to the doubtful ones that sense which may Section 5 (a) of the agreement uses the word
hence, they are discussed jointly. result from all of them taken jointly (Art. 1374, New "designated" and not "nominated" or "elected" in the
The main issue hinges on who were the duly elected Civil Code). Moreover, in order to judge the intention of selection of the nine directors on a six to three ratio.
directors of Saniwares for the year 1983 during its the contracting parties, their contemporaneous and Each group is assured of a fixed number of directors in
annual stockholders' meeting held on March 8, 1983. subsequent acts shall be principally considered. (Art. the board.
To answer this question the following factors should be 1371, New Civil Code). (Part I, Original Records, SEC Moreover, ASI in its communications referred to the
determined: (1) the nature of the business established Case No. 2417) enterprise as joint venture. Baldwin Young also
by the parties whether it was a joint venture or a It has been ruled: testified that Section 16(c) of the Agreement that
corporation and (2) whether or not the ASI Group may In an action at law, where there is evidence tending to "Nothing herein contained shall be construed to
vote their additional 10% equity during elections of prove that the parties joined their efforts in furtherance constitute any of the parties hereto partners or joint
Saniwares' board of directors. of an enterprise for their joint profit, the question venturers in respect of any transaction hereunder" was
The rule is that whether the parties to a particular whether they intended by their agreement to create a merely to obviate the possibility of the enterprise being
contract have thereby established among themselves joint adventure, or to assume some other relation is a treated as partnership for tax purposes and liabilities to
a joint venture or some other relation depends upon question of fact for the jury. (Binder v. Kessler v 200 third parties.
their actual intention which is determined in App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Quite often, Filipino entrepreneurs in their desire to
accordance with the rules governing the interpretation Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, develop the industrial and manufacturing capacities of
and construction of contracts. (Terminal Shares, Inc. v. 200 P 96 33 C.J. p. 871) a local firm are constrained to seek the technology and
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; In the instant cases, our examination of important marketing assistance of huge multinational
Universal Sales Corp. v. California Press Mfg. Co. 20 provisions of the Agreement as well as the testimonial corporations of the developed world. Arrangements
Cal. 2nd 751, 128 P 2nd 668) evidence presented by the Lagdameo and Young are formalized where a foreign group becomes a
The ASI Group and petitioner Salazar (G.R. Nos. Group shows that the parties agreed to establish a minority owner of a firm in exchange for its
75975-76) contend that the actual intention of the joint venture and not a corporation. The history of the manufacturing expertise, use of its brand names, and
parties should be viewed strictly on the "Agreement" organization of Saniwares and the unusual other such assistance. However, there is always a
dated August 15,1962 wherein it is clearly stated that arrangements which govern its policy making body are danger from such arrangements. The foreign group
the parties' intention was to form a corporation and not all consistent with a joint venture and not with an may, from the start, intend to establish its own sole or
a joint venture. ordinary corporation. As stated by the SEC: monopolistic operations and merely uses the joint
According to the unrebutted testimony of Mr. Baldwin venture arrangement to gain a foothold or test the
They specifically mention number 16 Young, he negotiated the Agreement with ASI in Philippine waters, so to speak. Or the covetousness
under Miscellaneous Provisions which states: behalf of the Philippine nationals. He testified that ASI may come later. As the Philippine firm enlarges its
xxx xxx xxx agreed to accept the role of minority vis-a-vis the operations and becomes profitable, the foreign group
c) nothing herein contained shall be construed to Philippine National group of investors, on the condition undermines the local majority ownership and actively
constitute any of the parties hereto partners or joint that the Agreement should contain provisions to tries to completely or predominantly take over the
venturers in respect of any transaction hereunder. (At protect ASI as the minority. entire company. This undermining of joint ventures is
P. 66, Rollo-GR No. 75875) An examination of the Agreement shows that certain not consistent with fair dealing to say the least. To the
They object to the admission of other evidence which provisions were included to protect the interests of ASI extent that such subversive actions can be lawfully
tends to show that the parties' agreement was to as the minority. For example, the vote of 7 out of 9 prevented, the courts should extend protection
establish a joint venture presented by the Lagdameo directors is required in certain enumerated corporate especially in industries where constitutional and legal
and Young Group on the ground that it contravenes acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is requirements reserve controlling ownership to Filipino
the parol evidence rule under section 7, Rule 130 of contractually entitled to designate a member of the citizens.
the Revised Rules of Court. According to them, the
The Lagdameo Group stated in their appellees' brief in shareholders control over the selection and retention so long as such agreements do not adversely affect
the Court of Appeal of employees; and (4) set up a procedure for the third parties.
In fact, the Philippine Corporation Code itself settlement of disputes by arbitration (See I O' Neal, In any event, it is believed that we are not here called
recognizes the right of stockholders to enter into Close Corporations, 1971 ed., Section 1.06a, pp. 15- upon to make a general rule on this question. Rather,
agreements regarding the exercise of their voting 16) (Decision of SEC Hearing Officer, P. 16) all that needs to be done is to give life and effect to the
rights. Thirdly paragraph 2 of Sec. 100 of the Corporation particular contractual rights and obligations which the
Sec. 100. Agreements by stockholders.- Code does not necessarily imply that agreements parties have assumed for themselves.
2. An agreement between two or more stockholders, if regarding the exercise of voting rights are allowed only On the one hand, the clearly established minority
in writing and signed by the parties thereto, may in close corporations. As Campos and Lopez-Campos position of ASI and the contractual allocation of board
provide that in exercising any voting rights, the shares explain: seats Cannot be disregarded. On the other hand, the
held by them shall be voted as therein provided, or as Paragraph 2 refers to pooling and voting agreements rights of the stockholders to cumulative voting should
they may agree, or as determined in accordance with in particular. Does this provision necessarily imply that also be protected.
a procedure agreed upon by them. these agreements can be valid only in close In our decision sought to be reconsidered, we opted to
Appellants contend that the above provision is corporations as defined by the Code? Suppose that a uphold the second over the first. Upon further
included in the Corporation Code's chapter on close corporation has twenty five stockholders, and therefore reflection, we feel that the proper and just solution to
corporations and Saniwares cannot be a close cannot qualify as a close corporation under section 96, give due consideration to both factors suggests itself
corporation because it has 95 stockholders. Firstly, can some of them enter into an agreement to vote as a quite clearly. This Court should recognize and uphold
although Saniwares had 95 stockholders at the time of unit in the election of directors? It is submitted that the division of the stockholders into two groups, and at
the disputed stockholders meeting, these 95 there is no reason for denying stockholders of the same time uphold the right of the stockholders
stockholders are not separate from each other but are corporations other than close ones the right to enter within each group to cumulative voting in the process
divisible into groups representing a single Identifiable into not voting or pooling agreements to protect their of determining who the group's nominees would be. In
interest. For example, ASI, its nominees and lawyers interests, as long as they do not intend to commit any practical terms, as suggested by appellant Luciano E.
count for 13 of the 95 stockholders. The YoungYutivo wrong, or fraud on the other stockholders not parties to Salazar himself, this means that if the Filipino
family count for another 13 stockholders, the Chamsay the agreement. Of course, voting or pooling stockholders cannot agree who their six nominees will
family for 8 stockholders, the Santos family for 9 agreements are perhaps more useful and more often be, a vote would have to be taken among the Filipino
stockholders, the Dy family for 7 stockholders, etc. If resorted to in close corporations. But they may also be stockholders only. During this voting, each Filipino
the members of one family and/or business or interest found necessary even in widely held corporations. stockholder can cumulate his votes. ASI, however,
group are considered as one (which, it is respectfully Moreover, since the Code limits the legal meaning of should not be allowed to interfere in the voting within
submitted, they should be for purposes of determining close corporations to those which comply with the the Filipino group. Otherwise, ASI would be able to
how closely held Saniwares is there were as of 8 requisites laid down by section 96, it is entirely designate more than the three directors it is allowed to
March 1983, practically only 17 stockholders of possible that a corporation which is in fact a close designate under the Agreement, and may even be
Saniwares. (Please refer to discussion in pp. 5 to 6 of corporation will not come within the definition. In such able to get a majority of the board seats, a result which
appellees' Rejoinder Memorandum dated 11 case, its stockholders should not be precluded from is clearly contrary to the contractual intent of the
December 1984 and Annex "A" thereof). entering into contracts like voting agreements if these parties.
Secondly, even assuming that Saniwares is technically are otherwise valid. (Campos & Lopez-Campos, op cit, Such a ruling will give effect to both the allocation of
not a close corporation because it has more than 20 p. 405) the board seats and the stockholder's right to
stockholders, the undeniable fact is that it is a close- In short, even assuming that sec. 5(a) of the cumulative voting. Moreover, this ruling will also give
held corporation. Surely, appellants cannot honestly Agreement relating to the designation or nomination of due consideration to the issue raised by the appellees
claim that Saniwares is a public issue or a widely held directors restricts the right of the Agreement's on possible violation or circumvention of the Anti-
corporation. signatories to vote for directors, such contractual Dummy Law (Com. Act No. 108, as amended) and the
In the United States, many courts have taken a provision, as correctly held by the SEC, is valid and nationalization requirements of the Constitution and
realistic approach to joint venture corporations and binding upon the signatories thereto, which include the laws if ASI is allowed to nominate more than three
have not rigidly applied principles of corporation law appellants. (Rollo No. 75951, pp. 90-94) directors. (Rollo-75875, pp. 38-39)
designed primarily for public issue corporations. These In regard to the question as to whether or not the ASI The ASI Group and petitioner Salazar, now reiterate
courts have indicated that express arrangements group may vote their additional equity during elections their theory that the ASI Group has the right to vote
between corporate joint ventures should be construed of Saniwares' board of directors, the Court of Appeals their additional equity pursuant to Section 24 of the
with less emphasis on the ordinary rules of law usually correctly stated: Corporation Code which gives the stockholders of a
applied to corporate entities and with more As in other joint venture companies, the extent of ASI's corporation the right to cumulate their votes in electing
consideration given to the nature of the agreement participation in the management of the corporation is directors. Petitioner Salazar adds that this right if
between the joint venturers (Please see Wabash Ry v. spelled out in the Agreement. Section 5(a) hereof says granted to the ASI Group would not necessarily mean
American Refrigerator Transit Co., 7 F 2d 335; that three of the nine directors shall be designated by a violation of the Anti-Dummy Act (Commonwealth Act
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 ASI and the remaining six by the other stockholders, 108, as amended). He cites section 2-a thereof which
Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic i.e., the Filipino stockholders. This allocation of board provides:
Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy seats is obviously in consonance with the minority And provided finally that the election of aliens as
v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. position of ASI. members of the board of directors or governing body
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. Having entered into a well-defined contractual of corporations or associations engaging in partially
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal relationship, it is imperative that the parties should nationalized activities shall be allowed in proportion to
Status of Joint Venture Corporations", 11 Vand Law honor and adhere to their respective rights and their allowable participation or share in the capital of
Rev. p. 680,1958). These American cases dealt with obligations thereunder. Appellants seem to contend such entities. (amendments introduced by Presidential
legal questions as to the extent to which the that any allocation of board seats, even in joint venture Decree 715, section 1, promulgated May 28, 1975)
requirements arising from the corporate form of joint corporations, are null and void to the extent that such The ASI Group's argument is correct within the context
venture corporations should control, and the courts may interfere with the stockholder's rights to of Section 24 of the Corporation Code. The point of
ruled that substantial justice lay with those litigants cumulative voting as provided in Section 24 of the query, however, is whether or not that provision is
who relied on the joint venture agreement rather than Corporation Code. This Court should not be prepared applicable to a joint venture with clearly defined
the litigants who relied on the orthodox principles of to hold that any agreement which curtails in any way agreements:
corporation law. cumulative voting should be struck down, even if such The legal concept of ajoint venture is of common law
As correctly held by the SEC Hearing Officer: agreement has been freely entered into by origin. It has no precise legal definition but it has been
It is said that participants in a joint venture, in experienced businessmen and do not prejudice those generally understood to mean an organization formed
organizing the joint venture deviate from the traditional who are not parties thereto. It may well be that it would for some temporary purpose. (Gates v. Megargel, 266
pattern of corporation management. A noted authority be more cogent to hold, as the Securities and Fed. 811 [1920]) It is in fact hardly distinguishable from
has pointed out that just as in close corporations, Exchange Commission has held in the decision the partnership, since their elements are similar
shareholders' agreements in joint venture corporations appealed from, that cumulative voting rights may be community of interest in the business, sharing of
often contain provisions which do one or more of the voluntarily waived by stockholders who enter into profits and losses, and a mutual right of control.
following: (1) require greater than majority vote for special relationships with each other to pursue and Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
shareholder and director action; (2) give certain implement specific purposes, as in joint venture Carboneau v. Peterson, 95 P. 2d., 1043 [1939];
shareholders or groups of shareholders power to relationships between foreign and local stockholders, Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12
select a specified number of directors; (3) give to the 289 P. 2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdictions is that the participation of said entity. In the instant case, the E. S. LYONS, plaintiff-appellant, vs.C. W.
partnership contemplates a general business with foreign Group ASI was limited to designate three ROSENSTOCK, Executor of the Estate of Henry W.
some degree of continuity, while the joint venture is directors. This is the allowable participation of the ASI Elser, deceased, defendant-
formed for the execution of a single transaction, and is Group. Hence, in future dealings, this limitation of six This action was institute in the Court of First Instance
thus of a temporary nature. (Tufts v. Mann 116 Cal. to three board seats should always be maintained as of the City of Manila, by E. S. Lyons against C. W.
App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 long as the joint venture agreement exists considering Rosenstock, as executor of the estate of H. W. Elser,
111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 that in limiting 3 board seats in the 9-man board of deceased, consequent upon the taking of an appeal by
Fed. 811 [1920]). This observation is not entirely directors there are provisions already agreed upon and the executor from the allowance of the claim sued
accurate in this jurisdiction, since under the Civil Code, embodied in the parties' Agreement to protect the upon by the committee on claims in said estate. The
a partnership may be particular or universal, and a interests arising from the minority status of the foreign purpose of the action is to recover four hundred forty-
particular partnership may have for its object a specific investors. six and two thirds shares of the stock of J. K. Pickering
undertaking. (Art. 1783, Civil Code). It would seem With these findings, we the decisions of the SEC & Co., Ltd., together with the sum of about P125,000,
therefore that under Philippine law, a joint venture is a Hearing Officer and SEC which were impliedly affirmed representing the dividends which accrued on said
form of partnership and should thus be governed by by the appellate court declaring Messrs. Wolfgang stock prior to October 21, 1926, with lawful interest.
the law of partnerships. The Supreme Court has Aurbach, John Griffin, David P Whittingham, Emesto Upon hearing the cause the trial court absolved the
however recognized a distinction between these two V. Lagdameo, Baldwin young, Raul A. Boncan, defendant executor from the complaint, and the
business forms, and has held that although a Emesto V. Lagdameo, Jr., Enrique Lagdameo, and plaintiff appealed.
corporation cannot enter into a partnership contract, it George F. Lee as the duly elected directors of Prior to his death on June 18, 1923, Henry W. Elser
may however engage in a joint venture with others. (At Saniwares at the March 8,1983 annual stockholders' had been a resident of the City of Manila where he
p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) meeting. was engaged during the years with which we are here
(Campos and Lopez-Campos Comments, Notes and On the other hand, the Lagdameo and Young Group concerned in buying, selling, and administering real
Selected Cases, Corporation Code 1981) (petitioners in G.R. No. 75951) object to a cumulative estate. In several ventures which he had made in
Moreover, the usual rules as regards the construction voting during the election of the board of directors of buying and selling property of this kind the plaintiff, E.
and operations of contracts generally apply to a the enterprise as ruled by the appellate court and S. Lyons, had joined with him, the profits being shared
contract of joint venture. (O' Hara v. Harman 14 App. submits that the six (6) directors allotted the Filipino by the two in equal parts. In April, 1919, Lyons, whose
Dev. (167) 43 NYS 556) stockholders should be selected by consensus regular vocation was that of a missionary, or
Bearing these principles in mind, the correct view pursuant to section 5 (a) of the Agreement which uses missionary agent, of the Methodist Episcopal Church,
would be that the resolution of the question of whether the word "designate" meaning "nominate, delegate or went on leave to the United States and was gone for
or not the ASI Group may vote their additional equity appoint." nearly a year and a half, returning on September 21,
lies in the agreement of the parties. They also stress the possibility that the ASI Group 1920. On the eve of his departure Elser made a written
Necessarily, the appellate court was correct in might take control of the enterprise if the Filipino statements showing that Lyons was, at that time, half
upholding the agreement of the parties as regards the stockholders are allowed to select their nominees owner with Elser of three particular pieces of real
allocation of director seats under Section 5 (a) of the separately and not as a common slot determined by property. Concurrently with this act Lyons execute in
"Agreement," and the right of each group of the majority of their group. favor of Elser a general power of attorney empowering
stockholders to cumulative voting in the process of Section 5 (a) of the Agreement which uses the word him to manage and dispose of said properties at will
determining who the group's nominees would be under designates in the allocation of board directors should and to represent Lyons fully and amply, to the mutual
Section 3 (a) (1) of the "Agreement." As pointed out by not be interpreted in isolation. This should be advantage of both. During the absence of Lyons two of
SEC, Section 5 (a) of the Agreement relates to the construed in relation to section 3 (a) (1) of the the pieces of property above referred to were sold by
manner of nominating the members of the board of Agreement. As we stated earlier, section 3(a) (1) Elser, leaving in his hands a single piece of property
directors while Section 3 (a) (1) relates to the manner relates to the manner of voting for these nominees located at 616-618 Carried Street, in the City of
of voting for these nominees. which is cumulative voting while section 5(a) relates to Manila, containing about 282 square meters of land,
This is the proper interpretation of the Agreement of the manner of nominating the members of the board of with the improvements thereon.
the parties as regards the election of members of the directors. The petitioners in G.R. No. 75951 agreed to In the spring of 1920 the attention of Elser was drawn
board of directors. this procedure, hence, they cannot now impugn its to a piece of land, containing about 1,500,000 square
To allow the ASI Group to vote their additional equity legality. meters, near the City of Manila, and he discerned
to help elect even a Filipino director who would be The insinuation that the ASI Group may be able to therein a fine opportunity for the promotion and
beholden to them would obliterate their minority status control the enterprise under the cumulative voting development of a suburban improvement. This
as agreed upon by the parties. As aptly stated by the procedure cannot, however, be ignored. The validity of property, which will be herein referred to as the San
appellate court: the cumulative voting procedure is dependent on the Juan Estate, was offered by its owners for P570,000.
... ASI, however, should not be allowed to interfere in directors thus elected being genuine members of the To afford a little time for maturing his plans, Elser
the voting within the Filipino group. Otherwise, ASI Filipino group, not voters whose interest is to increase purchased an option on this property for P5,000, and
would be able to designate more than the three the ASI share in the management of Saniwares. The when this option was about to expire without his
directors it is allowed to designate under the joint venture character of the enterprise must always having been able to raise the necessary funds, he paid
Agreement, and may even be able to get a majority of be taken into account, so long as the company exists P15,000 more for an extension of the option, with the
the board seats, a result which is clearly contrary to under its original agreement. Cumulative voting may understanding in both cases that, in case the option
the contractual intent of the parties. not be used as a device to enable ASI to achieve should be exercised, the amounts thus paid should be
Such a ruling will give effect to both the allocation of stealthily or indirectly what they cannot accomplish credited as part of the first payment. The amounts paid
the board seats and the stockholder's right to openly. There are substantial safeguards in the for this option and its extension were supplied by Elser
cumulative voting. Moreover, this ruling will also give Agreement which are intended to preserve the majority entirely from his own funds. In the end he was able
due consideration to the issue raised by the appellees status of the Filipino investors as well as to maintain from his own means, and with the assistance which he
on possible violation or circumvention of the Anti- the minority status of the foreign investors group as obtained from others, to acquire said estate. The
Dummy Law (Com. Act No. 108, as amended) and the earlier discussed. They should be maintained. amount required for the first payment was P150,000,
nationalization requirements of the Constitution and WHEREFORE, the petitions in G.R. Nos. 75975-76 and as Elser had available only about P120,000,
the laws if ASI is allowed to nominate more than three and G.R. No. 75875 are DISMISSED and the petition including the P20,000 advanced upon the option, it
directors. (At p. 39, Rollo, 75875) in G.R. No. 75951 is partly GRANTED. The amended was necessary to raise the remainder by obtaining a
Equally important as the consideration of the decision of the Court of Appeals is MODIFIED in that loan for P50,000. This amount was finally obtained
contractual intent of the parties is the consideration as Messrs. Wolfgang Aurbach John Griffin, David from a Chinese merchant of the city named Uy
regards the possible domination by the foreign Whittingham Emesto V. Lagdameo, Baldwin Young, Siuliong. This loan was secured through Uy Cho Yee,
investors of the enterprise in violation of the Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique a son of the lender; and in order to get the money it
nationalization requirements enshrined in the Lagdameo, and George F. Lee are declared as the was necessary for Elser not only to give a personal
Constitution and circumvention of the Anti-Dummy Act. duly elected directors of Saniwares at the March note signed by himself and his two associates in the
In this regard, petitioner Salazar's position is that the 8,1983 annual stockholders' meeting. In all other projected enterprise, but also by the Fidelity & Surety
Anti-Dummy Act allows the ASI group to elect board respects, the questioned decision is AFFIRMED. Costs Company. The money thus raised was delivered to
directors in proportion to their share in the capital of against the petitioners in G.R. Nos. 75975-76 and G.R. Elser by Uy Siuliong on June 24, 1920. With this
the entity. It is to be noted, however, that the same law No. 75875. money and what he already had in bank Elser
also limits the election of aliens as members of the purchased the San Juan Estate on or about June 28,
board of directors in proportion to their allowance 3. Lyons vs Rosentock, 56 Phil 632 1932 1920. For the purpose of the further development of
the property a limited partnership had, about this time, considerations involved in a feature of the case to be that had been derived from the mortgage placed upon
been organized by Elser and three associates, under presently explained. This view is manifestly untenable, Lyon's interest in the Carriedo property. Whether the
the name of J. K. Pickering & Company; and when the since the ratification of the transaction by Lyons and agreement was reached exactly upon this precise line
transfer of the property was effected the deed was the appropriation by him of the shares which were of thought is of little moment, but the relations of the
made directly to this company. As Elser was the issued to him leaves no ground whatever for treating parties had been such that it was to be expected that
principal capitalist in the enterprise he received by far the transaction as a source of further equitable rights Elser would be generous; and he could scarcely have
the greater number of the shares issued, his portion in Lyons. We should perhaps add that after Lyons' failed to take account of the use he had made of the
amount in the beginning to 3,290 shares. return to the Philippine Islands he acted for a time as joint property of the two.
While these negotiations were coming to a head, Elser one of the members of the board of directors of the J. As the development of the San Juan Estate was a
contemplated and hoped that Lyons might be induced K. Pickering & Company, his qualification for this office success from the start, Elser paid the note of P50,000
to come in with him and supply part of the means being derived precisely from the ownership of these to Uy Siuliong on January 18, 1921, although it was
necessary to carry the enterprise through. In this shares. not due until more than five months later. It will thus be
connection it appears that on May 20, 1920, Elser We now turn to the incident which supplies the main seen that the mortgaging of the Carriedo property
wrote Lyons a letter, informing him that he had made basis of this action. It will be remembered that, when never resulted in damage to Lyons to the extent of a
an offer for a big subdivision and that, if it should be Elser obtained the loan of P50,000 to complete the single cent; and although the court refused to allow the
acquired and Lyons would come in, the two would be amount needed for the first payment on the San Juan defendant to prove the Elser was solvent at this time in
well fixed. (Exhibit M-5.) On June 3, 1920, eight days Estate, the lender, Uy Siuliong, insisted that he should an amount much greater than the entire encumbrance
before the first option expired, Elser cabled Lyons that procure the signature of the Fidelity & Surety Co. on placed upon the property, it is evident that the risk
he had bought the San Juan Estate and thought it the note to be given for said loan. But before signing imposed upon Lyons was negligible. It is also plain
advisable for Lyons to resign (Exhibit M-13), meaning the note with Elser and his associates, the Fidelity & that no money actually deriving from this mortgage
that he should resign his position with the mission Surety Co. insisted upon having security for the liability was ever applied to the purchase of the San Juan
board in New York. On the same date he wrote Lyons thus assumed by it. To meet this requirements Elser Estate. What really happened was the Elser merely
a letter explaining some details of the purchase, and mortgaged to the Fidelity & Surety Co. the equity of subjected the property to a contingent liability, and no
added "have advised in my cable that you resign and I redemption in the property owned by himself and actual liability ever resulted therefrom. The financing of
hope you can do so immediately and will come and Lyons on Carriedo Street. This mortgage was the purchase of the San Juan Estate, apart from the
join me on the lines we have so often spoken about. . . executed on June 30, 1920, at which time Elser modest financial participation of his three associates in
. There is plenty of business for us all now and I expected that Lyons would come in on the purchase of the San Juan deal, was the work of Elser
believe we have started something that will keep us the San Juan Estate. But when he learned from the accomplished entirely upon his own account.
going for some time." In one or more communications letter from Lyons of July 21, 1920, that the latter had The case for the plaintiff supposes that, when Elser
prior to this, Elser had sought to impress Lyons with determined not to come into this deal, Elser began to placed a mortgage for P50,000 upon the equity of
the idea that he should raise all the money he could for cast around for means to relieve the Carriedo property redemption in the Carriedo property, Lyons, as half
the purpose of giving the necessary assistance in of the encumbrance which he had placed upon it. For owner of said property, became, as it were,
future deals in real estate. this purpose, on September 9, 1920, he addressed a involuntarily the owner of an undivided interest in the
The enthusiasm of Elser did not communicate itself in letter to the Fidelity & Surety Co., asking it to permit property acquired partly by that money; and it is
any marked degree to Lyons, and found him averse him to substitute a property owned by himself at 644 insisted for him that, in consideration of this fact, he is
from joining in the purchase of the San Juan Estate. In M. H. del Pilar Street, Manila, and 1,000 shares of the entitled to the four hundred forty-six and two-thirds
fact upon this visit of Lyons to the United States a J. K. Pickering & Company, in lieu of the Carriedo shares of J. K. Pickering & Company, with the
grave doubt had arisen as to whether he would ever property, as security. The Fidelity & Surety Co. agreed earnings thereon, as claimed in his complaint.
return to Manila, and it was only in the summer of to the proposition; and on September 15, 1920, Elser Lyons tells us that he did not know until after Elser's
1920 that the board of missions of his church prevailed executed in favor of the Fidelity & Surety Co. a new death that the money obtained from Uy Siuliong in the
upon him to return to Manila and resume his position mortgage on the M. H. del Pillar property and delivered manner already explained had been used to held
as managing treasurer and one of its trustees. the same, with 1,000 shares of J. K. Pickering & finance the purchase of the San Juan Estate. He
Accordingly, on June 21, 1920, Lyons wrote a letter Company, to said company. The latter thereupon in seems to have supposed that the Carried property had
from New York thanking Elser for his offer to take turn executed a cancellation of the mortgage on the been mortgaged to aid in putting through another deal,
Lyons into his new project and adding that from the Carriedo property and delivered it to Elser. But namely, the purchase of a property referred to in the
standpoint of making money, he had passed up a notwithstanding the fact that these documents were correspondence as the "Ronquillo property"; and in
good thing. executed and delivered, the new mortgage and the this connection a letter of Elser of the latter part of
One source of embarrassment which had operated on release of the old were never registered; and on May, 1920, can be quoted in which he uses this
Lyson to bring him to the resolution to stay out of this September 25, 1920, thereafter, Elser returned the language:
venture, was that the board of mission was averse to cancellation of the mortgage on the Carriedo property As stated in cablegram I have arranged for P50,000
his engaging in business activities other than those in and took back from the Fidelity & Surety Co. the new loan on Carriedo property. Will use part of the money
which the church was concerned; and some of Lyons' mortgage on the M. H. del Pilar property, together with for Ronquillo buy (P60,000) if the owner comes
missionary associates had apparently been criticizing the 1,000 shares of the J. K. Pickering & Company through.
his independent commercial activities. This fact was which he had delivered to it. Other correspondence shows that Elser had
dwelt upon in the letter above-mentioned. Upon receipt The explanation of this change of purpose is apparently been trying to buy the Ronquillo property,
of this letter Elser was of course informed that it would undoubtedly to be found in the fact that Lyons had and Lyons leads us to infer that he thought that the
be out of the question to expect assistance from Lyons arrived in Manila on September 21, 1920, and shortly money obtained by mortgaging the Carriedo property
in carrying out the San Juan project. No further efforts thereafter, in the course of a conversation with Elser had been used in the purchase of this property. It
to this end were therefore made by Elser. told him to let the Carriedo mortgage remain on the doubtedless appeared so to him in the retrospect, but
When Elser was concluding the transaction for the property ("Let the Carriedo mortgage ride"). Mrs. Elser certain consideration show that he was inattentive to
purchase of the San Juan Estate, his book showed testified to the conversation in which Lyons used the the contents of the quotation from the letter above
that he was indebted to Lyons to the extent of, words above quoted, and as that conversation given. He had already been informed that, although
possibly, P11,669.72, which had accrued to Lyons supplies the most reasonable explanation of Elser's Elser was angling for the Ronquillo property, its price
from profits and earnings derived from other recession from his purpose of relieving the Carriedo had gone up, thus introducing a doubt as to whether
properties; and when the J. K. Pickering & Company property, the trial court was, in our opinion, well he could get it; and the quotation above given shows
was organized and stock issued, Elser indorsed to justified in accepting as a proven fact the consent of that the intended use of the money obtained by
Lyons 200 of the shares allocated to himself, as he Lyons for the mortgage to remain on the Carriedo mortgaging the Carriedo property was that only part of
then believed that Lyons would be one of his property. This concession was not only reasonable the P50,000 thus obtained would be used in this way,
associates in the deal. It will be noted that the par under the circumstances, in view of the abundant if the deal went through. Naturally, upon the arrival of
value of these 200 shares was more than P8,000 in solvency of Elser, but in view of the further fact that Lyons in September, 1920, one of his first inquiries
excess of the amount which Elser in fact owed to Elser had given to Lyons 200 shares of the stock of would have been, if he did not know before, what was
Lyons; and when the latter returned to the Philippine the J. K. Pickering & Co., having a value of nearly the status of the proposed trade for the Ronquillo
Islands, he accepted these shares and sold them for P8,000 in excess of the indebtedness which Elser had property.
his own benefit. It seems to be supposed in the owed to Lyons upon statement of account. The trial Elser's widow and one of his clerks testified that about
appellant's brief that the transfer of these shares to court found in effect that the excess value of these June 15, 1920, Elser cabled Lyons something to this
Lyons by Elser supplies some sort of basis for the shares over Elser's actual indebtedness was conceded effect;: "I have mortgaged the property on Carriedo
present action, or at least strengthens the by Elser to Lyons in consideration of the assistance Street, secured by my personal note. You are amply
protected. I wish you to join me in the San Juan defendant, 40%, for the purpose of maintaining, under the national franchise granted to Mrs. Piaosa
Subdivision. Borrow all money you can." Lyons says operating and distributing electric light and power in Buenaflor;
that no such cablegram was received by him, and we the Municipality of Dumangas, Province of Iloilo, under 2. That according to the aforementioned Partnership
consider this point of fact of little moment, since the a franchise issued to Mrs. Piadosa Buenaflor. Contract, the plaintiff Mr. Mauro Lozana, contributed
proof shows that Lyons knew that the Carriedo However, the franchise or certificate of public the amount of Eighteen Thousand Pesos
mortgage had been executed, and after his arrival in necessity and convenience in favor of the said Mrs. (P18,000.00); said contributions of both parties being
Manila he consented for the mortgage to remain on Piadosa Buenaflor was cancelled and revoked by the the appraised values of their respective properties
the property until it was paid off, as shortly occurred. It Public Service Commission on May 15, 1955. But the brought into the partnership;
may well be that Lyons did not at first clearly decision of the Public Service Commission was 3. That the said Certificate of Public Convenience and
understand all the ramifications of the situation, but he appealed to Us on October 21, 1955. A temporary Necessity was revoked and cancelled by order of the
knew enough, we think, to apprise him of the material certificate of public convenience was issued in the Public Service Commission dated March 15, 1955,
factors in the situation, and we concur in the name of Olimpia D. Decolongon on December 22, promulgated in case No. 58188, entitled, "Piadosa
conclusion of the trial court that Elser did not act in bad 1955 (Exh. "B"). Evidently because of the cancellation Buenaflor, applicant", which order has been appealed
faith and was guilty of no fraud. of the franchise in the name of Mrs. Piadosa to the Supreme Court by Mrs. Buenaflor;
In the purely legal aspect of the case, the position of Buenaflor, plaintiff herein Mauro Lozana sold a 4. That on October 30, 1955, the plaintiff sold
the appellant is, in our opinion, untenable. If Elser had generator, Buda (diesel), 75 hp. 30 KVA capacity, properties brought into by him to the said partnership
used any money actually belonging to Lyons in this Serial No. 479, to the new grantee Olimpia D. in favor of Olimpia Decolongon in the amount of
deal, he would under article 1724 of the Civil Code and Decolongon, by a deed dated October 30, 1955 P10,000.00 as per Deed of Sale dated October 30,
article 264 of the Code of Commerce, be obligated to (Exhibit "C"). Defendant Serafin Depakakibo, on the 1955 executed and ratified before Notary Public, Delfin
pay interest upon the money so applied to his own other hand, sold one Crossly Diesel Engine, 25 h. p., Demaisip, in and for the Municipality of Dumangas,
use. Under the law prevailing in this jurisdiction a trust Serial No. 141758, to the spouses Felix Jimenea and Iloilo and entered in his Notarial Registry as Doc. No.
does not ordinarily attach with respect to property Felina Harder, by a deed dated July 10, 1956. 832; Page No. 6; Book No. XIII; and Series of 1955, a
acquired by a person who uses money belonging to On November 15, 1955, plaintiff Mauro Lozana copy thereof is made as Annex "B" of defendant's
another (Martinez vs. Martinez, 1 Phil., 647; brought an action against the defendant, alleging that answer and counterclaim;
Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an he is the owner of the Generator Buda (Diesel), valued 5. That there was no liquidation of partnership and that
actual relation of partnership had existed in the money at P8,000 and 70 wooden posts with the wires at the time of said Sale on October 30, 1955,
used, the case might be difference; and much connecting the generator to the different houses defendant was the manager thereof;
emphasis is laid in the appellant's brief upon the supplied by electric current in the Municipality of 6. That by virtue of the Order of this Honorable Court
relation of partnership which, it is claimed, existed. But Dumangas, and that he is entitled to the possession dated November 18, 1955, those properties sold were
there was clearly no general relation of partnership, thereof, but that the defendant has wrongfully detained taken by the Provincial Sheriff on November 20, 1955
under article 1678 of the Civil Code. It is clear that them as a consequence of which plaintiff suffered and delivered to the plaintiff on November 25, 1955
Elser, in buying the San Juan Estate, was not acting damages. Plaintiff prayed that said properties be upon the latter posting the required bond executed by
for any partnership composed of himself and Lyons, delivered back to him. Three days after the filing of the himself and the Luzon Surety Co., dated November
and the law cannot be distorted into a proposition complaint, that is on November 18, 1955, Judge 17, 1955 and ratified before the Notary Public,
which would make Lyons a participant in this deal Pantaleon A. Pelayo issued an order in said case Eleuterio del Rosario in and for the province of Iloilo
contrary to his express determination. authorizing the sheriff to take possession of the known as Doc. No. 200; Page 90; Book No. VII; and
It seems to be supposed that the doctrines of equity generator and 70 wooden posts, upon plaintiff's filing Series of 1955; of said Notary Public;
worked out in the jurisprudence of England and the of a bond in the amount of P16,000 in favor of the 7. That the said properties sold are now in the
United States with reference to trust supply a basis for defendant (for subsequent delivery to the plaintiff). On possession of Olimpia Decolongon, the purchaser,
this action. The doctrines referred to operate, however, December 5, 1955, defendant filed an answer, denying who is presently operating an electric light plant in
only where money belonging to one person is used by that the generator and the equipment mentioned in the Dumangas, Iloilo;
another for the acquisition of property which should complaint belong to the plaintiff and alleging that the 8. That the defendant sold certain properties in favor of
belong to both; and it takes but little discernment to same had been contributed by the plaintiff to the the spouses, Felix Jimenea and Felisa Harder
see that the situation here involved is not one for the partnership entered into between them in the same contributed by him to the partnership for P3,500.00 as
application of that doctrine, for no money belonging to manner that defendant had contributed equipments per Deed of Sale executed and ratified before the
Lyons or any partnership composed of Elser and also, and therefore that he is not unlawfully detaining Notary Public Rodrigo J. Harder in and for the
Lyons was in fact used by Elser in the purchase of the them. By way of counterclaim, defendant alleged that Province of Iloilo, known as Doc. No. 76; Page 94;
San Juan Estate. Of course, if any damage had been under the partnership agreement the parties were to Book No. V; and Series of 1955, a certified copy of
caused to Lyons by the placing of the mortgage upon contribute equipments, plaintiff contributing the which is hereto attached marked as Annex "A", and
the equity of redemption in the Carriedo property, generator and the defendant, the wires for the purpose made an integral part hereof; (pp, 27-29 ROA).
Elser's estate would be liable for such damage. But it of installing the main and delivery lines; that the As it appears from the above stipulation of facts that
is evident that Lyons was not prejudice by that act. plaintiff sold his contribution to the partnership, in the plaintiff and the defendant entered into the contract
The appellee insist that the trial court committed error violation of the terms of their agreement. He, therefore, of partnership, plaintiff contributing the amount of
in admitting the testimony of Lyons upon matters that prayed that the complaint against him be dismissed; P18,000, and as it is not stated therein that there bas
passed between him and Elser while the latter was still that plaintiff be adjudged guilty of violating the been a liquidation of the partnership assets at the time
alive. While the admission of this testimony was of partnership contract and be ordered to pay the plaintiff sold the Buda Diesel Engine on October 15,
questionable propriety, any error made by the trial defendant the sum of P3,000, as actual damages, 1955, and since the court below had found that the
court on this point was error without injury, and the P600.00 as attorney's fees and P2,600 annually as plaintiff had actually contributed one engine and 70
determination of the question is not necessary to this actual damages; that the court order dissolution of the posts to the partnership, it necessarily follows that the
decision. We therefore pass the point without further partnership, after the accounting and liquidation of the Buda diesel engine contributed by the plaintiff had
discussion. same. become the property of the partnership. As properties
The judgment appealed from will be affirmed, and it is On September 27, 1956, the defendant filed a motion of the partnership, the same could not be disposed of
so ordered, with costs against the appellant. to declare plaintiff in default on his counterclaim, but by the party contributing the same without the consent
this was denied by the court. Hearings on the case or approval of the partnership or of the other partner.
Art 1784 to 1804 were conducted on October 25, 1956 and November (Clemente vs. Galvan, 67 Phil., 565).
Lozana bs Depakabibo 107 Phil 728 5, 1956, and on the latter date the judge entered a The lower court declared that the contract of
MAURO LOZANA, plaintiff-appellee, decision declaring plaintiff owner of the equipment and partnership was null and void, because by the contract
vs.SERAFIN DEPAKAKIBO, defendant- entitled to the possession thereof, with costs against of partnership, the parties thereto have become
This is an appeal from a judgment of the Court of First defendant. It is against this judgment that the dummies of the owner of the franchise. The reason for
Instance of Iloilo, certified to us by the Court of defendant has appealed. this holding was the admission by defendant when
Appeals, for the reason that only questions of law are The above judgment of the court was rendered on a being cross-examined by the court that he and the
involved in said appeal. stipulation of facts, which is as follows: plaintiff are dummies. We find that this admission by
The record discloses that on November 16, 1954 1. That on November 16, 1954, in the City of Iloilo, the the defendant is an error of law, not a statement of a
plaintiff Mauro Lozana entered into a contract with aforementioned plaintiff, and the defendant entered fact. The Anti-Dummy law has not been violated as
defendant Serafin Depakakibo wherein they into a contract of Partnership, a copy of which is parties plaintiff and defendant are not aliens but
established a partnership capitalized at the sum of attached as Annex "A" of defendant's answer and Filipinos. The Anti-Dummy law refers to aliens only
P30,000, plaintiff furnishing 60% thereof and the counterclaim, for the purpose set forth therein and (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially two floors of this building. I would like to have this appointment of a receiver to take over the assets of
the provision thereon wherein the parties agreed to resolved soon because it has to do with my own the dissolved partnership and to take charge of the
maintain, operate and distribute electric light and plans." winding up of its affairs. On 4 April 1991, respondent
power under the franchise belonging to Mrs. On 19 February 1988, petitioner-appellant wrote SEC issued an order denying reconsideration, as well
Buenaflor, we do not find the agreement to be illegal, respondents-appellees another letter stating: as rejecting the petition for receivership, and
or contrary to law and public policy such as to make "The partnership has ceased to be mutually reiterating the remand of the case to the Hearing
the contract of partnership, null and void ab initio. The satisfactory because of the working conditions of our Officer.
agreement could have been submitted to the Public employees including the assistant attorneys. All my The parties filed with the appellate court separate
Service Commission if the rules of the latter require efforts to ameliorate the below subsistence level of the appeals (docketed CA-G.R. SP No. 24638 and CA-
them to be so presented. But the fact of furnishing the pay scale of our employees have been thwarted by the G.R. SP No. 24648).
current to the holder of the franchise alone, without the other partners. Not only have they refused to give During the pendency of the case with the Court of
previous approval of the Public Service Commission, meaningful increases to the employees, even Appeals, Attorney Jesus Bito and Attorney Mariano
does not per se make the contract of partnership null attorneys, are dressed down publicly in a loud voice in Lozada both died on, respectively, 05 September 1991
and void from the beginning and render the a manner that deprived them of their self-respect. The and 21 December 1991. The death of the two
partnership entered into by the parties for the purpose result of such policies is the formation of the union, partners, as well as the admission of new partners, in
also void and non-existent. Under the circumstances, including the assistant attorneys." the law firm prompted Attorney Misa to renew his
therefore, the court erred in declaring that the contract On 30 June 1988, petitioner filed with this application for receivership (in CA G.R. SP No.
was illegal from the beginning and that parties to the Commission's Securities Investigation and Clearing 24648). He expressed concern over the need to
partnership are not bound therefor, such that the Department (SICD) a petition for dissolution and preserve and care for the partnership assets. The
contribution of the plaintiff to the partnership did not liquidation of partnership, docketed as SEC Case No. other partners opposed the prayer.
pass to it as its property. It also follows that the claim 3384 praying that the Commission: The Court of Appeals, finding no reversible error on
of the defendant in his counterclaim that the "1. Decree the formal dissolution and order the the part of respondent Commission, AFFIRMED in
partnership be dissolved and its assets liquidated is immediate liquidation of (the partnership of) Bito, Misa toto the SEC decision and order appealed from. In
the proper remedy, not for each contributing partner to & Lozada; fine, the appellate court held, per its decision of 26
claim back what he had contributed. "2. Order the respondents to deliver or pay for February 1993, (a) that Atty. Misa's withdrawal from
For the foregoing considerations, the judgment petitioner's share in the partnership assets plus the the partnership had changed the relation of the parties
appealed from as well as the order of the court for the profits, rent or interest attributable to the use of his and inevitably caused the dissolution of the
taking of the property into custody by the sheriff must right in the assets of the dissolved partnership; partnership; (b) that such withdrawal was not in bad
be, as they hereby are set aside and the case "3. Enjoin respondents from using the firm name of faith; (c) that the liquidation should be to the extent of
remanded to the court below for further proceedings in Bito, Misa & Lozada in any of their correspondence, Attorney Misa's interest or participation in the
accordance with law. checks and pleadings and to pay petitioners damages partnership which could be computed and paid in the
2. Gregorio Ortega vs CA GR 109248 Jul 3 for the use thereof despite the dissolution of the manner stipulated in the partnership agreement; (d)
GREGORIO F. ORTEGA, TOMAS O. DEL partnership in the amount of at least P50,000.00; that the case should be remanded to the SEC Hearing
CASTILLO, JR., and BENJAMIN T. "4. Order respondents jointly and severally to pay Officer for the corresponding determination of the
BACORRO, petitioners, petitioner attorney's fees and expense of litigation in value of Attorney Misa's share in the partnership
vs.HON. COURT OF APPEALS, SECURITIES AND such amounts as maybe proven during the trial and assets; and (e) that the appointment of a receiver was
EXCHANGE COMMISSION and JOAQUIN L. which the Commission may deem just and equitable unnecessary as no sufficient proof had been shown to
MISA, respondents. under the premises but in no case less than ten (10%) indicate that the partnership assets were in any such
The instant petition seeks a review of the decision per cent of the value of the shares of petitioner or danger of being lost, removed or materially impaired.
rendered by the Court of Appeals, dated 26 February P100,000.00; In this petition for review under Rule 45 of the Rules of
1993, in CA-G.R. SP No. 24638 and No. 24648 "5. Order the respondents to pay petitioner moral Court, petitioners confine themselves to the following
affirming in toto that of the Securities and Exchange damages with the amount of P500,000.00 and issues:
Commission ("SEC") in SEC AC 254. exemplary damages in the amount of P200,000.00. 1. Whether or not the Court of Appeals has erred in
The antecedents of the controversy, summarized by "Petitioner likewise prayed for such other and further holding that the partnership of Bito, Misa & Lozada
respondent Commission and quoted at length by the reliefs that the Commission may deem just and (now Bito, Lozada, Ortega & Castillo) is a partnership
appellate court in its decision, are hereunder restated. equitable under the premises." at will;
The law firm of ROSS, LAWRENCE, SELPH and On 13 July 1988, respondents-appellees filed their 2. Whether or not the Court of Appeals has erred in
CARRASCOSO was duly registered in the Mercantile opposition to the petition. holding that the withdrawal of private respondent
Registry on 4 January 1937 and reconstituted with the On 13 July 1988, petitioner filed his Reply to the dissolved the partnership regardless of his good or
Securities and Exchange Commission on 4 August Opposition. bad faith; and
1948. The SEC records show that there were several On 31 March 1989, the hearing officer rendered a 3. Whether or not the Court of Appeals has erred in
subsequent amendments to the articles of partnership decision ruling that: holding that private respondent's demand for the
on 18 September 1958, to change the firm [name] to "[P]etitioner's withdrawal from the law firm Bito, Misa & dissolution of the partnership so that he can get a
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . Lozada did not dissolve the said law partnership. physical partition of partnership was not made in bad
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO Accordingly, the petitioner and respondents are hereby faith; to which matters we shall, accordingly, likewise
& MISA; on 18 April 1972 to SALCEDO, DEL enjoined to abide by the provisions of the Agreement limit ourselves.
ROSARIO, BITO, MISA & LOZADA; on 4 December relative to the matter governing the liquidation of the A partnership that does not fix its term is a partnership
1972 to SALCEDO, DEL ROSARIO, BITO, MISA & shares of any retiring or withdrawing partner in the at will. That the law firm "Bito, Misa & Lozada," and
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, partnership interest."1 now "Bito, Lozada, Ortega and Castillo," is indeed
MISA & LOZADA; on 7 June 1977 to BITO, MISA & On appeal, the SEC en banc reversed the decision of such a partnership need not be unduly belabored. We
LOZADA; on 19 December 1980, [Joaquin L. Misa] the Hearing Officer and held that the withdrawal of quote, with approval, like did the appellate court, the
appellees Jesus B. Bito and Mariano M. Lozada Attorney Joaquin L. Misa had dissolved the findings and disquisition of respondent SEC on this
associated themselves together, as senior partners partnership of "Bito, Misa & Lozada." The Commission matter; viz:
with respondents-appellees Gregorio F. Ortega, ruled that, being a partnership at will, the law firm The partnership agreement (amended articles of 19
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as could be dissolved by any partner at anytime, such as August 1948) does not provide for a specified period
junior partners. by his withdrawal therefrom, regardless of good faith or undertaking. The "DURATION" clause simply
On February 17, 1988, petitioner-appellant wrote the or bad faith, since no partner can be forced to continue states:
respondents-appellees a letter stating: in the partnership against his will. In its decision, dated "5. DURATION. The partnership shall continue so long
I am withdrawing and retiring from the firm of Bito, 17 January 1990, the SEC held: as mutually satisfactory and upon the death or legal
Misa and Lozada, effective at the end of this month. WHEREFORE, premises considered the appealed incapacity of one of the partners,
"I trust that the accountants will be instructed to make order of 31 March 1989 is hereby REVERSED insofar shall be continued by the surviving partners."
the proper liquidation of my participation in the firm." as it concludes that the partnership of Bito, Misa & The hearing officer however opined that the
On the same day, petitioner-appellant wrote Lozada has not been dissolved. The case is hereby partnership is one for a specific undertaking and hence
respondents-appellees another letter stating: REMANDED to the Hearing Officer for determination not a partnership at will, citing paragraph 2 of the
"Further to my letter to you today, I would like to have of the respective rights and obligations of the parties.2 Amended Articles of Partnership (19 August 1948):
a meeting with all of you with regard to the mechanics The parties sought a reconsideration of the above "2. Purpose. The purpose for which the partnership is
of liquidation, and more particularly, my interest in the decision. Attorney Misa, in addition, asked for an formed, is to act as legal adviser and representative of
any individual, firm and corporation engaged in paid monthly within the first ten (10) days of every amount of P30,000.00 as his partial contribution to the
commercial, industrial or other lawful businesses and month in installments of not less than P20,000.00 for proposed partnership and which the said Puzon was to
occupations; to counsel and advise such persons and the Senior Partners, P10,000.00 in the case of two (2) use in payment of his obligation to the Rehabilitation
entities with respect to their legal and other affairs; and existing Junior Partners and P5,000.00 in the case of Finance Corporation. 7 Puzon promised William Uy
to appear for and represent their principals and client the new Junior Partner. 11 that the amount of P150,000.00 would be given to the
in all courts of justice and government departments The term "retirement" must have been used in the partnership to be applied thusly: P40,000.00, as
and offices in the Philippines, and elsewhere when articles, as we so hold, in a generic sense to mean the reimbursement of the capital contribution of William Uy
legally authorized to do so." dissociation by a partner, inclusive of resignation or which the said Uy had advanced to clear the title of
The "purpose" of the partnership is not the specific withdrawal, from the partnership that thereby dissolves Puzon's property; P50,000.00, as Puzon's contribution
undertaking referred to in the law. Otherwise, all it. to the partnership; and the balance of P60,000.00 as
partnerships, which necessarily must have a purpose, On the third and final issue, we accord due respect to Puzon's personal loan to the partnership. 8
would all be considered as partnerships for a definite the appellate court and respondent Commission on Although the partnership agreement was signed by the
undertaking. There would therefore be no need to their common factual finding, i.e., that Attorney Misa parties on January 18, 1957,9 work on the projects was
provide for articles on partnership at will as none did not act in bad faith. Public respondents viewed his started by the partnership on October 1, 1956 in view
would so exist. Apparently what the law contemplates, withdrawal to have been spurred by "interpersonal of the insistence of the Bureau of Public Highways to
is a specific undertaking or "project" which has a conflict" among the partners. It would not be right, we complete the project right away. 10 Since Puzon was
definite or definable period of completion.3 agree, to let any of the partners remain in the busy with his other projects, William Uy was entrusted
The birth and life of a partnership at will is predicated partnership under such an atmosphere of animosity; with the management of the projects and whatever
on the mutual desire and consent of the partners. The certainly, not against their will. 12 Indeed, for as long as expense the latter might incur, would be considered as
right to choose with whom a person wishes to the reason for withdrawal of a partner is not contrary to part of his contribution. 11 At the end of December,
associate himself is the very foundation and essence the dictates of justice and fairness, nor for the purpose 1957, William Uy had contributed to the partnership
of that partnership. Its continued existence is, in turn, of unduly visiting harm and damage upon the the amount of P115,453.39, including his capital. 12
dependent on the constancy of that mutual resolve, partnership, bad faith cannot be said to characterize The loan of Puzon was approved by the Philippine
along with each partner's capability to give it, and the the act. Bad faith, in the context here used, is no National Bank in November, 1956 and he gave to
absence of a cause for dissolution provided by the law different from its normal concept of a conscious and William Uy the amount of P60,000.00. Of this amount,
itself. Verily, any one of the partners may, at his sole intentional design to do a wrongful act for a dishonest P40,000.00 was for the reimbursement of Uy's
pleasure, dictate a dissolution of the partnership at will. purpose or moral obliquity. contribution to the partnership which was used to clear
He must, however, act in good faith, not that the 3. Uy vs Puzon 79 SCRA 598 1977 the title to Puzon's property, and the P20,000.00 as
attendance of bad faith can prevent the dissolution of WILLIAM UY, plaintiff-appellee, Puzon's contribution to the partnership capital. 13
the partnership4 but that it can result in a liability for vs.BARTOLOME PUZON, substituted by FRANCO To guarantee the repayment of the above-mentioned
damages.5 PUZON, defendant-appellant. loan, Bartolome Puzon, without the knowledge and
In passing, neither would the presence of a period for Appeal from the decision of the Court of First Instanre consent of William Uy, 14 assigned to the Philippine
its specific duration or the statement of a particular of Manila, dissolving the "U.P. Construction Company" National Bank all the payments to be received on
purpose for its creation prevent the dissolution of any and ordering the defendant Bartolome Puzon to pay account of the contracts with the Bureau of Public
partnership by an act or will of a partner.6 Among the plaintiff the amounts of: (1) P115,102.13, with legal Highways for the construction of the afore-mentioned
partners,7 mutual agency arises and the doctrine interest thereon from the date of the filing of the projects. 15 By virtue of said assignment, the Bureau of
of delectus personae allows them to have the power, complaint until fully paid; (2) P200,000.00, as plaintiffs Public Highways paid the money due on the partial
although not necessarily theright, to dissolve the share in the unrealized profits of the "U.P. accomplishments on the government projects in
partnership. An unjustified dissolution by the partner Construction Company" and (3) P5,000.00, as and for question to the Philippine National Bank which, in turn,
can subject him to a possible action for damages. attorney's fees. applied portions of it in payment of Puzon's loan. Of
The dissolution of a partnership is the change in the It is of record that the defendant Bartolome Puzon had the amount of P1,047,181.07, released by the Bureau
relation of the parties caused by any partner ceasing a contract with the Republic of the Philippines for the of Public Highways in payment of the partial work
to be associated in the carrying on, as might be construction of the Ganyangan Bato Section of the completed by the partnership on the projects, the
distinguished from the winding up of, the Pagadian Zamboanga City Road, province of amount of P332,539.60 was applied in payment of
business.8 Upon its dissolution, the partnership Zamboanga del Sur 1 and of five (5) bridges in the Puzon's loan and only the amount of P27,820.80 was
continues and its legal personality is retained until the Malangas-Ganyangan Road. 2 Finding difficulty in deposited in the partnership funds, 16 which, for all
complete winding up of its business culminating in its accomplishing both projects, Bartolome Puzon sought practical purposes, was also under Puzon's account
termination.9 the financial assistance of the plaintiff, William Uy. As since Puzon was the custodian of the common funds.
The liquidation of the assets of the partnership an inducement, Puzon proposed the creation of a As time passed and the financial demands of the
following its dissolution is governed by various partnership between them which would be the sub- projects increased, William Uy, who supervised the
provisions of the Civil Code; 10 however, an agreement contractor of the projects and the profits to be divided said projects, found difficulty in obtaining the
of the partners, like any other contract, is binding equally between them. William Uy inspected the necessary funds with which to pursue the construction
among them and normally takes precedence to the projects in question and, expecting to derive projects. William Uy correspondingly called on
extent applicable over the Code's general provisions. considerable profits therefrom, agreed to the Bartolome Puzon to comply with his obligations under
We here take note of paragraph 8 of the "Amendment proposition, thus resulting in the formation of the "U.P. the terms of their partnership agreement and to place,
to Articles of Partnership" reading thusly: Construction Company" 3 which was subsequently at lest, his capital contribution at the disposal of the
. . . In the event of the death or retirement of any engaged as subcontractor of the construction partnership. Despite several promises, Puzon,
partner, his interest in the partnership shall be projects. 4 however, failed to do so. 17 Realizing that his verbal
liquidated and paid in accordance with the existing The partners agreed that the capital of the partnership demands were to no avail, William Uy consequently
agreements and his partnership participation shall would be P100,000.00 of which each partner shall wrote Bartolome Puzon pormal letters of demand, 18 to
revert to the Senior Partners for allocation as the contribute the amount of P50,000.00 in cash. 5 But, as which Puzon replied that he is unable to put in
Senior Partners may determine; provided, however, heretofore stated, Puzon was short of cash and he additional capital to continue with the projects. 19
that with respect to the two (2) floors of office promised to contribute his share in the partnership Failing to reach an agreement with William Uy,
condominium which the partnership is now acquiring, capital as soon as his application for a loan with the Bartolome Puzon, as prime contractor of the
consisting of the 5th and the 6th floors of the Alpap Philippine National Bank in the amount of P150,000.00 construction projects, wrote the subcontractor, U.P.
Building, 140 Alfaro Street, Salcedo Village, Makati, shall have been approved. However, before his loan Construction Company, on November 20, 1957,
Metro Manila, their true value at the time of such death application could be acted upon, he had to clear his advising the partnership, of which he is also a partner,
or retirement shall be determined by two (2) collaterals of its incumbrances first. For this purpose, that unless they presented an immediate solution and
independent appraisers, one to be appointed (by the on October 24, 1956, Wilham Uy gave Bartolome capacity to prosecute the work effectively, he would be
partnership and the other by the) retiring partner or the Puzon the amount of P10,000.00 as advance constrained to consider the sub-contract terminated
heirs of a deceased partner, as the case may be. In contribution of his share in the partnership to be and, thereafter, to assume all responsibilities in the
the event of any disagreement between the said organized between them under the firm name U.P. construction of the projects in accordance with his
appraisers a third appraiser will be appointed by them CONSTRUCTION COMPANY which amount original contract with the Bureau of Public
whose decision shall be final. The share of the retiring mentioned above will be used by Puzon to pay his Highways. 20 On November 27, 1957, Bartolome
or deceased partner in the aforementioned two (2) obligations with the Philippine National Bank to effect Puzon again wrote the U.P.Construction Company
floor office condominium shall be determined upon the the release of his mortgages with the said Bank. 6 On finally terminating their subcontract agreement as of
basis of the valuation above mentioned which shall be October 29, 1956, William Uy again gave Puzon the December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in COMPANY which amount mentioned above will be The findings of the trial court that the appellee has
the U.P. Construction Company and his authority to used by the undersigned to pay his obligations with the been ousted from the management of the partnership
deal with the Bureau of Public Highways in behalf of Philippine National Bank to effect the release of his is also based upon persuasive evidence. The appellee
the partnership was revoked by Bartolome Puzon who mortgages with the said bank. (Emphasis supplied) testified that after he had demanded from the appellant
continued with the construction projects alone. 22 In the receipt for the amount of P30,000.00 dated payment of the latter's contribution to the partnership
On May 20, 1958, William Uy, claiming that Bartolome October 29, 1956, 26 the appellant also said: capital, the said appellant did not allow him to hold
Puzon had violated the terms of their partnership Received from William Uy the sum of THIRTY office in the U.P. Construction Company and his
agreement, instituted an action in court, seeking, inter THOUSAND PESOS (P30,000.00) in Check No. authority to deal with the Bureau of Public Highways
alia, the dissolution of the partnership and payment of SC423287, of the Equitable Banking Corporation, as was revoked by the appellant. 32
damages. partial contribution of the share of the said William Uy As the record stands, We cannot say, therefore, that
Answering, Bartolome Puzon denied that he violated to the U.P. CONSTRUCTION COMPANY for which the the decis of the trial court is not sustained by the
the terms of their agreement claiming that it was the undersigned will use the said amount in payment of his evidence of record as warrant its reverw.
plaintiff, William Uy, who violated the terms thereof. obligation to the Rehabilitation Finance Corporation. Since the defendantappellant was at fauh, the tral
He, likewise, prayed for the dissolution of the (Emphasis supplied) court properly ordered him to reimburse the plaintiff-
partnership and for the payment by the plaintiff of his, The findings of the trial court that the appellant appellee whatever amount latter had invested in or
share in the losses suffered by the partnership. misapplied partnership funds is, likewise, sustained by spent for the partnership on account of construction
After appropriate proceedings, the trial court found that competent evidence. It is of record that the appellant projects.
the defendant, contrary to the terms of their assigned to the Philippine National Bank all the How much did the appellee spend in the construction
partnership agreement, failed to contribute his share in payments to be received on account of the contracts projects question?
the capital of the partnership applied partnership funds with the Bureau of Public Highways for the It appears that although the partnership agreement
to his personal use; ousted the plaintiff from the construction of the aforementioned projects to stated the capital of the partnership is P100,000.00 of
management of the firm, and caused the failure of the guarantee the repayment of the bank. 27 By virtue of which each part shall contribute to the partnership the
partnership to realize the expected profits of at least the said appeflant's personal loan with the said bank amount of P50,000.00 cash 33 the partners of the U.P.
P400,000.00. As a consequence, the trial court assignment, the Bureau of Public Highways paid the Construction Company did contribute their agreed
dismissed the defendant's counterclaim and ordered money due on the partial accomplishments on the share in the capitalization of the enterprise in lump
the dissolution of the partnership. The trial court further construction projects in question to the Philippine sums of P50,000.00 each. Aside from the initial
ordered the defendant to pay the plaintiff the sum of National Bank who, in turn, applied portions of it in amount P40,000.00 put up by the appellee in October,
P320,103.13. payment of the appellant's loan. 28 1956, 34 the partners' investments took, the form of
Hence, the instant appeal by the defendant Bartolome The appellant claims, however, that the said cash advances coveting expenses of the construction
Puzon during the pendency of the appeal before this assignment was made with the consent of the appellee projects as they were incurred. Since the
Court, the said Bartolome Puzon died, and was and that the assignment not prejudice the partnership determination of the amount of the disbursements
substituted by Franco Puzon. as it was reimbursed by the appellant. which each of them had made for the construction
The appellant makes in his brief nineteen (19) But, the appellee categorically stated that the projects require an examination of the books of
assignment of errors, involving questions of fact, which assignment to the Philippine National Bank was made account, the trial court appointed two commissioners,
relates to the following points: without his prior knowledge and consent and that designated by the parties, "to examine the books of
(1) That the appellant is not guilty of breach of when he learned of said assignment, he cal the account of the defendant regarding the U.P.
contract; and attention of the appellant who assured him that the Construction Company and his personal account with
(2) That the amounts of money the appellant has been assignment was only temporary as he would transfer particular reference to the Public Works contract for
order to pay the appellee is not supported by the the loan to the Rehabilitation Finance Corporation the construction of the Ganyangan-Bato Section,
evidence and the law. within three (3) months time. 29 Pagadian-Zamboanga City Road and five (5) Bridges
After going over the record, we find no reason for The question of whom to believe being a matter large in Malangas-Ganyangan Road, including the
rejecting the findings of fact below, justifying the dependent on the trier's discretion, the findings of the payments received by defendant from the Bureau of
reversal of the decision appealed from. trial court who had the better opportunity to examine Public Highways by virtue of the two projects above
The findings of the trial court that the appellant failed and appraise the fact issue, certainly deserve respect. mentioned, the disbursements or disposition made by
to contribute his share in the capital of the partnership That the assignment to the Philippine National Bank defendant of the portion thereof released to him by the
is clear incontrovertible. The record shows that after prejudicial to the partnership cannot be denied. The Philippine National Bank and in whose account these
the appellant's loan the amount of P150,000.00 was record show that during the period from March, 1957 funds are deposited . 35
approved by the Philippin National Bank in November, to September, 1959, the appellant Bartolome Puzon In due time, the loners so appointed, 36 submitted their
1956, he gave the amount P60,000.00 to the appellee received from the Bureau of Public highways, in report 37 they indicated the items wherein they are in
who was then managing the construction projects. Of payment of the work accomplished on the construction agreement, as well as their points of disagreement.
this amount, P40,000.00 was to be applied a projects, the amount of P1,047,181.01, which amount In the commissioners' report, the appellant's advances
reimbursement of the appellee's contribution to the rightfully and legally belongs to the partnership by are listed under Credits; the money received from the
partnership which was used to clear the title to the virtue of the subcontract agreements between the firm, under Debits; and the resulting monthly
appellant's property, and th balance of P20,000.00, as appellant and the U.P. Construction Company. In view investment standings of the partners, under Balances.
Puzon's contribution to the partnership. 23 Thereafter, of the assignemt made by Puzon to the Philippine The commissioners are agreed that at the end of
the appellant failed to make any further contributions National Bank, the latter withheld and applied the December, 1957, the appellee had a balance of
the partnership funds as shown in his letters to the amount of P332,539,60 in payment of the appellant's P8,242.39. 38 It is in their respective adjustments of the
appellee wherein he confessed his inability to put in personal loan with the said bank. The balance was capital account of the appellee that the commissioners
additional capital to continue with the projects. 24 deposited in Puzon's current account and only the had disagreed.
Parenthetically, the claim of the appellant that the amount of P27,820.80 was deposited in the current Mr. Ablaza, designated by the appellant, would want to
appellee is equally guilty of not contributing his share account of the partnership. 30 For sure, if the appellant charge the appellee with the sum of P24,239.48,
in the partnership capital inasmuch as the amount of gave to the partnership all that were eamed and due it representing the checks isssued by the
P40,000.00, allegedly given to him in October, 1956 as under the subcontract agreements, the money would appellant, 39 and encashed by the appellee or his
partial contribution of the appellee is merely a personal have been used as a safe reserve for the discharge of brother, Uy Han so that the appellee would owe the
loan of the appellant which he had paid to the all obligations of the firm and the partnership would partnership the amount of P15,997.09
appellee, is plainly untenable. The terms of the have been able to successfully and profitably Mr. Tayag, designated by the appellee, upon the other
receipts signed by the appellant are clear and prosecute the projects it subcontracted. hand, would credit the appellee the following additional
unequivocal that the sums of money given by the When did the appellant make the reimbursement amounts:
appellee are appellee's partial contributions to the claimed by him? (1) P7,497.80 items omitted from the books of
partnership capital. Thus, in the receipt for P10,000.00 For the same period, the appellant actually disbursed partnership but recognized and charged to
dated October 24, 1956, 25 the appellant stated for the partnership, in connection with the construction Miscellaneous Expenses by Mr. Ablaza;
Received from Mr. William Uy the sum of TEN projects, the amount of P952,839.77. 31 Since the (2) P65,103.77 payrolls paid by the appellee in the
THOUSAND PESOS (P10,000.00) in Check No. SC appellant received from the Bureau of Public Highways amount P128,103.77 less payroll remittances from the
423285 Equitable Banking Corporation, dated October the sum of P1,047,181.01, the appellant has a deficit appellant in amount of P63,000.00; and
24, 1956, as advance contribution of the share of said balance of P94,342.24. The appellant, therefore, did (3) P26,027.04 other expeses incurred by the appellee
William Uy in the partnership to be organized between not make complete restitution. at construction site.
us under the firm name U.P. CONSTRUCTION
With respect to the amount of P24,239.48, claimed by completion of the projects within a definite period of The plaintiff brought an action for the rescission of a
appellant, we are hereunder adopting the findings of time, in the face of adverse and often unpredictable partnership contract between himself and the
the trial which we find to be in accord with the circumstances, as well as the fact that the appellee, defendant, entered into on October 15, 1920, the
evidence: who was in charge of the projects in the field, reimbursement by the latter of his 50,000 peso
To enhance defendant's theory that he should be contributed in a large measure to the failure of the investment therein, with interest at 12 per cent per
credited P24,239.48, he presented checks allegedly partnership to realize such profits by his field annum form October 15, 1920, with costs, and any
given to plaintiff and the latter's brother, Uy Han, management. other just and equitable remedy against said
marked as Exhibits 2 to 11. However, defendant This argument must be overruled in the light of the law defendant.
admitted that said cheeks were not entered nor record and evidence on the matter. Under Article 2200 of the The defendant denies generally and specifically all the
their books of account, as expenses for and in behalf Civil Code, indemnification for damages shall allegations of the complaint which are incompatible
of partnership or its affairs. On the other hand, Uy Han comprehend not only the value of the loss suffered, with his special defenses, cross-complaint and
testified that of the cheeks he received were exchange but also that of the profits which the obligee failed to counterclaim, setting up the latter and asking for the
for cash, while other used in the purchase of spare obtain. In other words lucrum cessans is also a basis dissolution of the partnership, and the payment to him
parts requisitioned by defendant. This testimony was for indemnification. as its manager and administrator of P500 monthly
not refuted to the satisfaction of the Court, considering Has the appellee failed to make profits because of from October 15, 1920, until the final dissolution, with
that Han's explanation thereof is the more plausible appellant's breach of contract? interest, one-half of said amount to be charged to the
because if they were employed in the prosecution of There is no doubt that the contracting business is a plaintiff. He also prays for any other just and equitable
the partners projects, the corresponding profitable one and that the U.P. Construction Company remedy.
disbursements would have certainly been recorded in derived some profits from' co io oa ects its sub ntracts The Court of First Instance of Manila, having heard the
its books, which is not the case. Taking into account in the construction of the road and bridges projects its cause, and finding it duly proved that the defendant
defendant is the custodian of the books of account, his deficient working capital and the juggling of its funds had not contributed all the capital he had bound
failure to so enter therein the alleged disbursements, by the appellant. himself to invest, and that the plaintiff had demanded
accentuates the falsity of his claim on this point. 40 Contrary to the appellant's claim, the partnership that the defendant liquidate the partnership, declared it
Besides, as further noted by the trial court, the report showed some profits during the period from July 2, dissolved on account of the expiration of the period for
Commissioner Ablaza is unreliable in view of his 1956 to December 31, 1957. If the Profit and Loss which it was constituted, and ordered the defendant,
proclivity to favor the appellant and because of the Statement 45 showed a net loss of P134,019.43, this as managing partner, to proceed without delay to
inaccurate accounting procedure adopted by him in was primarily due to the confusing accounting method liquidate it, submitting to the court the result of the
auditing the books of account of the partnership unlike employed by the auditor who intermixed h and accthe liquidation together with the accounts and vouchers
Mr. Tayag's report which inspires faith and cas ruamethod of accounting and the erroneous within the period of thirty days from receipt of notice of
credence. 41 inclusion of certain items, like personal expenses of said judgment, without costs.
As explained by Mr. Tayag, the amount of P7,497.80 the appellant and afteged extraordinary losses due to The plaintiff appealed from said decision making the
represen expenses paid by the appellee out of his an accidental plane crash, in the operating expenses following assignments of error:
personal funds which not been entered in the books of of the partnership, Corrected, the Profit and Loss 1. In holding that the plaintiff and appellant is not
the partnership but which been recognized and Statement would indicate a net profit of P41,611.28. entitled to the rescission of the partnership contract,
conceded to by the auditor designated by the appellant For the period from January 1, 1958 to September 30, Exhibit A, and that article 1124 of the Civil Code is not
who included the said amount under Expenses. 42 1959, the partnership admittedly made a net profit of applicable to the present case.
The explanation of Mr. Tayag on the inclusion of the P52,943.89. 46 2. In failing to order the defendant to return the sum of
amount of P65,103.77 is likewise clear and Besides, as We have heretofore pointed out, the P50,000 to the plaintiff with interest from October 15,
convincing. 43 appellant received from the Bureau of Public 1920, until fully paid.
As for the sum of of P26,027.04, the same represents Highways, in payment of the zonstruction projects in 3. In denying the motion for a new trial.
the expenses which the appelle paid in connection question, the amount of P1,047,181.01 47 and In the brief filed by counsel for the appellee, a
withe the projects and not entered in the books of the disbursed the amount of P952,839.77, 48 leaving an preliminary question is raised purporting to show that
partnership since all vouchers and receipts were sent unaccounted balance of P94,342.24. Obviously, this this appeal is premature and therefore will not lie. The
to the Manila office which were under the control of the amount is also part of the profits of the partnership. point is based on the contention that inasmuch as the
appellant. However, officer which were under the During the trial of this case, it was discovered that the liquidation ordered by the trial court, and the
control of the appellant. However, a list of these appellant had money and credits receivable froin the consequent accounts, have not been made and
expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ- projects in question, in the custody of the Bureau of submitted, the case cannot be deemed terminated in
4.In resume', the appelllee's credit balance would be Public Highways, in the amount of P128,669.75, said court and its ruling is not yet appealable. In
as follows: representing the 10% retention of said projects.49 After support of this contention counsel cites section 123 of
At the trial, the appellee presented a claim for the the trial of this case, it was shown that the total the Code of Civil Procedure, and the decision of this
amounts of P3,917.39 and P4,665.00 which he also retentions Wucted from the appemnt amounted to court in the case of Natividad vs. Villarica (31 Phil.,
advanced for the construction projects but which were P145,358.00. 50 Surely, these retained amounts also 172).
not included in the Commissioner's Report. 44 form part of the profits of the partnership. This contention is well founded. Until the accounts
Appellee's total investments in the partnership would, Had the appellant not been remiss in his obligations as have been rendered as ordered by the trial court, and
therefore, be: partner and as prime contractor of the construction until they have been either approved or disapproved,
projects in question as he was bound to perform the litigation involved in this action cannot be
Appellee's total credits P106,871.00
pursuant to the partnership and subcontract considered as completely decided; and, as it was held
agreements, and considering the fact that the total in said case of Natividad vs .Villarica, also with
Add: unrecorded balances for the contract amount 3,917,39of these two projects is reference to an appeal taken from a decision ordering
month of Dec. 1957 (Exhs. KKK, KK-1 to P2,327,335.76, it is reasonable to expect that the the rendition of accounts following the dissolution of
KKK_19, KKK-22) partnership would have earned much more than the partnership, the appeal in the instant case must be
P334,255.61 We have hereinabove indicated. The deemed premature.
Add: Payments to Munoz, as award, therefore, 4,665.00
made by the trial court of the amount But even going into the merits of the case, the
subcontractor of five,(5) Bridges (p. 264 tsn; of P200,000.00, as compensatory damages, is not affirmation of the judgment appealed from is inevitable.
Exhs. KKK-20, KKK-21) speculative, but based on reasonable estimate. In view of the lower court's findings referred to above,
WHEREFORE, finding no error in the decision which we cannot revise because the parol evidence
Total Investments appealed from,Pl the 15,453.39
said decision is hereby affirmed has not been forwarded to this court, articles 1681 and
Regarding the award of P200,000.00 as his share in with costs against the appellant, it being understood 1682 of the Civil Code have been properly applied.
the unrealized profits of the partnership, the appellant that the liability mentioned herein shall be home by the Owing to the defendant's failure to pay to the
contends that the findings of the trial court that the estate of the deceased Bartolome Puzon, represented partnership the whole amount which he bound himself
amount of P400,000.00 as reasonable profits of the in this instance by the administrator thereof, Franco to pay, he became indebted to it for the remainder,
partnership venture is without any basis and is not Puzon. with interest and any damages occasioned thereby,
supported by the evidence. The appemnt maintains but the plaintiff did not thereby acquire the right to
that the lower court, in making its determination, did 4. Sancho vs Lizarraga 55 Phil 60 1930 demand rescission of the partnership contract
not take into consideration the great risks involved in MAXIMILIANO SANCHO, plaintiff-appellant, according to article 1124 of the Code. This article
business operations involving as it does the vs. SEVERIANO LIZARRAGA, defendant- cannot be applied to the case in question, because it
ROMUALDEZ, J.: refers to the resolution of obligations in general,
whereas article 1681 and 1682 specifically refer to the the partnership, instead of obtaining profits, suffered transactions, and paying him everything they may
contract of partnership in particular. And it is a well losses, as it could not be held liable civilly for the share have received by virtue of the mandatum. (Arts. 1695
known principle that special provisions prevail over of the capitalist partner who reserved the ownership of and 1720, Civil Code.) Neither of them has rendered
general provisions. the money brought in by him, it would have to answer such account nor proven the losses referred to by Ong
By virtue of the foregoing, this appeal is hereby to the charge of estafa, for which it would be sufficient Pong Co; they are therefore obliged to refund the
dismissed, leaving the decision appealed from in full to argue that the partnership had received the money that they received for the purpose of
force, without special pronouncement of costs. So money under obligation to return it. establishing the said store the object of the
ordered. We therefore freely acquit Eusebio Clarin, with the association. This was the principal pronouncement of
costs de oficio. The complaint for estafa is dismissed the judgment.
5. US vs Clarin 17 Phil 84 without prejudice to the institution of a civil action. With regard to the second and third assignments of
THE UNITED STATES, plaintiff-appellee, error, this court, like the court below, finds no evidence
vs.EUSEBIO CLARIN, defendant- 6. Pedro Martinez vs Ong Pong Co and Ong Lay Jan that the entire capital or any part thereof was lost. It is
Pedro Larin delivered to Pedro Tarug P172, in order 10 1910 no evidence of such loss to aver, without proof, that
that the latter, in company with Eusebio Clarin and PEDRO MARTINEZ, plaintiff-appellee, the effects of the store were ejected. Even though this
Carlos de Guzman, might buy and sell mangoes, and, vs.ONG PONG CO and ONG LAY, defendants. ONG were proven, it could not be inferred therefrom that the
believing that he could make some money in this PONG CO., appellant. ejectment was due to the fact that no rents were paid,
business, the said Larin made an agreement with the and that the rent was not paid on account of the loss of
three men by which the profits were to be divided On the 12th of December, 1900, the plaintiff herein the capital belonging to the enterprise.
equally between him and them. delivered P1,500 to the defendants who, in a private With regard to the possible profits, the finding of the
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman document, acknowledged that they had received the court below are based on the statements of the
did in fact trade in mangoes and obtained P203 from same with the agreement, as stated by them, "that we defendant Ong Pong Co, to the effect that "there were
the business, but did not comply with the terms of the are to invest the amount in a store, the profits or some profits, but not large ones." This court, however,
contract by delivering to Larin his half of the profits; losses of which we are to divide with the former, in does not find that the amount thereof has been
neither did they render him any account of the capital. equal shares." proven, nor deem it possible to estimate them to be a
Larin charged them with the crime of estafa, but the The plaintiff filed a complaint on April 25, 1907, in certain sum, and for a given period of time; hence, it
provincial fiscal filed an information only against order to compel the defendants to render him an can not admit the estimate, made in the judgment, of
Eusebio Clarin in which he accused him of accounting of the partnership as agreed to, or else to 12 per cent per annum for the period of six months.
appropriating to himself not only the P172 but also the refund him the P1,500 that he had given them for the Inasmuch as in this case nothing appears other than
share of the profits that belonged to Larin, amounting said purpose. Ong Pong Co alone appeared to answer the failure to fulfill an obligation on the part of a partner
to P15.50. the complaint; he admitted the fact of the agreement who acted as agent in receiving money for a given
Pedro Tarug and Carlos de Guzman appeared in the and the delivery to him and to Ong Lay of the P1,500 purpose, for which he has rendered no accounting,
case as witnesses and assumed that the facts for the purpose aforesaid, but he alleged that Ong Lay, such agent is responsible only for the losses which, by
presented concerned the defendant and themselves who was then deceased, was the one who had a violation of the provisions of the law, he incurred.
together. managed the business, and that nothing had resulted This being an obligation to pay in cash, there are no
The trial court, that of First Instance of Pampanga, therefrom save the loss of the capital of P1,500, to other losses than the legal interest, which interest is
sentenced the defendant, Eusebio Clarin, to six which loss the plaintiff agreed. not due except from the time of the judicial demand,
months' arresto mayor, to suffer the accessory The judge of the Court of First Instance of the city of or, in the present case, from the filing of the complaint.
penalties, and to return to Pedro Larin P172, besides Manila who tried the case ordered Ong Pong Co to (Arts. 1108 and 1100, Civil Code.) We do not consider
P30.50 as his share of the profits, or to subsidiary return to the plaintiff one-half of the said capital of that article 1688 is applicable in this case, in so far as
imprisonment in case of insolvency, and to pay the P1,500 which, together with Ong Lay, he had received it provides "that the partnership is liable to every
costs. The defendant appealed, and in deciding his from the plaintiff, to wit, P750, plus P90 as one-half of partner for the amounts he may have disbursed on
appeal we arrive at the following conclusions: the profits, calculated at the rate of 12 per cent per account of the same and for the proper interest," for
When two or more persons bind themselves to annum for the six months that the store was supposed the reason that no other money than that contributed
contribute money, property, or industry to a common to have been open, both sums in Philippine currency, as is involved.
fund, with the intention of dividing the profits among making a total of P840, with legal interest thereon at As in the partnership there were two administrators or
themselves, a contract is formed which is called the rate of 6 per cent per annum, from the 12th of agents liable for the above-named amount, article
partnership. (Art. 1665, Civil Code.) June, 1901, when the business terminated and on 1138 of the Civil Code has been invoked; this latter
When Larin put the P172 into the partnership which he which date he ought to have returned the said amount deals with debts of a partnership where the obligation
formed with Tar